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What happened to the Australian property market in 2016

Written on the 17 January 2017 by James Cagney

Most investors do not do property research correctly. Sadly, many investors prefer the "me-too" research method - "Every body is investing here, so it must be good". It is called the "follow the herd" mentality. If you do this you might as well take the advice from a real estate agent who wants to sell you the properties he has listing and not what is going to make you money.

Another mistake we amke is that we soak up what  the newspapers say. Journalists are employed to create sensational news to get readership and improve circulation so the newspapers get advertising revenue. If the journalists do this they keep their jobs.  However the conflicting stories between newspapers and magazines is alarming. In desperation we turn to the property gurus for advice and inspiration, many of whom are pompous asses who are very good at making excuses when their predictions are wrong. In fairness to the media (which I often bash) I believe that the time pressure these journalists are under to bring the latest news to the public results in blind acceptance of what these gurus say and they believe that what they publish is factual.  However they often proved wrong and end up publishing information from another guru and once again that is proved wrong!  To make money in property we need to do our research, follow and understand the following:

  • Macro and micro economics - the property market does not operate in isolation it has to follow the trends. I covered this in detail in an article I wrote click >>> INFLATION and SURVIVE & THRIVE
  • Demographic trends - it is about the spending capability and  patterns of the demographic groups. I covered this in several articles I wrote so start >>> THE BBB CYCLE
  • Federal , State & local council plans - plans for immigration, major infrastructure spend and mining development are where the jobs and rental demand  will be.
  • Big business and large commercial plans - this is where the people who have spent big money on research are going and you should take note.
  • Property Cycles - what goes up will inevitably  come down. We forget the falls of the past put on blinkers and believe it will continue to rise. I wrote an article on how the property cycle actually works click >>> PROPERTY CYCLES
  • The media hype - avoid at all costs what the media are saying about the market. Do your own research. Read below to find out more about this.

I do not want to bore you with the plethora of research I have read and the graphs I have studied about the market in 2016. What I discovered is most experts got it wrong about the continued growth in Sydney and Melbourne. Even the established research companies cannot even agree on the numbers.  The disparity in the numbers is alarming. So who do you believe?

One of the gurus I do follow is Terry Ryder from Hotspotting and the Property Observer. He had this to say in November 2016 about these discrepancies: 

"Sydney house prices were stated by CoreLogic to have risen 10.9 percent in the past year. Stand by for another TV cameo from Alan Kohler, telling ABC watchers that Sydney is still booming.

But the latest figures from Domain claim that annual house price growth in Sydney is just 2.1 percent. Meanwhile, SQM Research reports annual growth of 1.7 percent and Residex says 2.1 percent.

There are similar discrepancies with the figures for the Sydney apartment market. CoreLogic reports an annual rise of 9.1 percent, while SQM says 4.0 percent, Residex 4.2 percent and Domain just 0.9 percent.

The most recent Property Price Indexes from the ABS reported a rise of 3.6 percent for Sydney.

Those are big differences. One source claims Sydney is still booming while others portray an end to the boom. You'll notice that CoreLogic is very much the odd one out.
But the differences are even more startling in other cities".

Later in the article Terry Ryder says:

"The greatest problem is the way media reports each set of figures. Each is re-cycled to the public as fact. No one highlights the reality that they're statistics from a single source and that other sources are delivering different results.

It's a serious situation. Consumers base big investment decisions on these figures. They shouldn't, but they do.

I've heard investors talking about their intention to dive into the Sydney market because they read somewhere that prices are still rising at a double-digit rate. They missed the previous week's article which said prices were rising only 2 percent.

We're at a point where consumers can believe almost nothing that they read on real estate prices".

I concur with what Terry who has this to say.  You can't believe what you read in the media or what one research company has to say. You need to have an eagle's view of what is going down on the ground.

As for the rest of Australia's property market I needed to make a decision I will give you the data from one reliable source. Otherwise it is very confusing looking at conflicting data. I chose to give you the data from Corelogic which is a long  established research company that has a exceptional reputation. Tim Lawless released this information in January 2017:

"Over the past twelve months we have seen capital city house values rise by 11.6%, while unit values have increased by roughly half the pace at 5.9%. The divergence in growth rates is the most distinct in Melbourne and Brisbane, where concerns around unit oversupply have eroded buyer confidence. Melbourne house values are up 15.1% over the year compared with a 1.7% rise in unit values, while Brisbane house values are 4.0% higher over the year, with unit values falling by -0.2%.

Australia's regional housing markets generally did not experience the same growth conditions as the capital cities, with annual growth to November recorded at 2.8% across the combined regional markets. Regional New South Wales showed the strongest growth conditions, with non-capital city house values rising 7.3% over the 12 month period to November 2016.

The remaining rest-of-state regions showed relatively sedate conditions, with values rising by half a per cent across regional Victoria, 1% across regional Queensland and 1.1% across regional South Australia. Regional Western Australia recorded a 7% fall in house values over the year. Those regional areas with intrinsic ties to the mining and resources sector have continued to record weaker housing market conditions since the end of the mining infrastructure boom, with Perth and Darwin recording the weakest housing market conditions across the capital cities.

Since values peaked in these markets during 2014, values have fallen by a cumulative 7.9% in Perth and 5.9% in Darwin. More recently both these markets have shown signs of moving through the low point of their respective downturns, with values rising by 2.8% and 5.9% respectively over the final quarter of 2016.

Based on the annual housing market results, it is clear that housing markets across Australia have responded to regional differences in economic and demographic trends; strong population growth and economic activity have driven value growth in Sydney and Melbourne, however, more recently strong growth trends have spread to Hobart and Canberra, as well as many of the coastal and lifestyle markets where values are now also rising swiftly".

Reading the research from CoreLogic above I am sure you have come to the realisation that you need the best advice possible before you invest in property.  I have not included the research from any other research company because it is confusing. The good news is you do not have to attend another seminar, OR read another book, OR buy another property magazine, OR speak to another mate about your investment plans. The Australian Investment Property Network (AIPN) will asist you to source a property, find a mortgage  to suit your personal circumstances, and refer you to professionals for accounting and legal advice.  We do not have to push properties down your throat because we have to sell our listed properties. We are not biased towards selected properties because of what commission and bonuses a property developer offers us to push his properties. We may list properties from time to time and put them on our website but that is not our priority.  Our priority is YOU and we will help you get what you want ensuring that this suits your long term plans. Contact James Cagney for professional assistance in planning your financial future on +61 416 137 645 or click >>> HERE.

Look out for our next article to be published in January 2017 - WHAT WILL HAPPEN IN THE AUSTRALIAN PROPERTY MARKET IN 2017.

DISCLAIMER

This is not financial advice. You should not act solely on the basis of the material contained in this article for your investment strategies. Changes in government and legislation occur frequently and without prior notice and financial markets are unpredictable.
Please note that the information herein is of a general nature only and is not intended as specific advice for any particular person or entity.

This information was written and compiled by James Cagney.  The opinions expressed herein do not necessarily represent the views and opinions of his associates including
Asset Finance Pty Ltd.

ACKNOWLEDGMENTS:

Thank you to the resources of Terry Ryder, Property Observer, The ABS, BIS Shrapnel, Michael Matusik, Property Monitors, Colliers, On the House, Corelogic, RP Data, Residex, SQM, Herron Todd White, NAB Residential Property Survey, Australian Bereau of Statistics, Peter Wargent, Port Phillip Publishing, Economy & Markets, Harry S. Dent and the many others for the material discussed above.

 

 

 

 

 

 

 

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Author: James Cagney
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