Are we really in a property bubble?
Chatter about a property bubble and its impending burst are used to inspire fear in the marketplace - but what's really going on out there?
Blogger: Julie Cumming, director, Hatch Property
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Why are "normal property cycles" being ignored in the bubble rhetoric?
The “bubble” terminology, is used to create fear and anxiety and an expectation of a loud “pop”!
We are currently experiencing an isolated surge in pricing in a small number of significant markets yet a blanket solution is being imposed that actually stifles the majority of the markets that are not the issue. Prior to this surge, the Sydney market was relatively stagnant for several years. Sydney has been the biggest undersupplied market which has fuelled this surge, and allowed it to continue. It is still a significantly undersupplied market in areas.
Certainly some inner-Sydney and inner-Melbourne areas have experienced an escalation in price that has resulted in a “no-go zone” for first home owners. The result is a forced decision to rent rather than purchase if this is the location of choice. This is a common choice in many significant capital cities around the globe.
Other Australian capital city markets are not in the same supply deficit as Sydney and in fact are experiencing an oversupply of some product types, particularly inner-city apartments in Melbourne, Canberra, Adelaide and Hobart. Some specific areas of inner-city Brisbane are at risk of oversupply yet in general they still have a shortage to rectify.
The Asian influence is a hot topic and cannot be ignored. For the Chinese, property has always been a significantly desirable asset class. All Chinese land is state owned so the thought they can own the land forever is compelling comfort. They buy to hold with the children and grandchildren the drivers. They love new and this also serves developers needing significant pre-sales to get projects off the ground.
Everyone is aware that property prices cycle. Growth periods effectively diminish affordability while asset growth occurs at the same time. There are winners and losers depending which playing field you are in. The current unprecedented low interest rate environment will naturally assist prices. A significant proportion of our population choose to rent, rather than are forced to rent, as it suites their circumstances. Past cycles have resulted in a chronically undersupplied property market, and production in many areas is in catch up mode. Be mindful that the availability of rental accommodation alleviates rental cost blow outs.
Land shortages and planning controls, state taxes and local infrastructure issues increase the cost of bringing new products to the market, pushing up prices. A myriad of factors are always at play.
So why are we dampening the entire landscape? What are the likely repercussions of hampering the ability of many to enter into an investment opportunity in an area that is in great need of price growth and construction activity?
Construction creates jobs and we are still in the midst of transitioning from the lingering effects of the GFC and the end of the mining boom in many areas, so new jobs are essential.
We are yet to see the impact of the APRA lending tightening criteria that is being rolled out. It is not going to help the broader market grow.
Watch this space.
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