Investor participation in the residential property market is starting to make its presence felt in a range of ways, as this edition of Statistics Count seeks to demonstrate. In fact, as a later item in this edition details, the International Monetary Fund has lifted its gaze above the pince nez in its latest global analysis of the post GFC economic recovery.
At a domestic level, the anecdotal evidence of the influence of residential property investors can be seen in the following chart. It compares residential property approvals for the Year-end August 2014 with the corresponding period in 2013, by type.
To go straight to the dashboard and take a closer look at the data, click here.
Overall, approvals rose a very healthy 19.5% to reach 195,062 dwelling. As the chart shows, there was very healthy growth in free-standing dwellings (houses), which increased by 15.7% to 110,113 dwellings. However, the largest growth was recorded for Flats of 4 or more storeys, which grew by a very substantial 45.9% compared with the previous period.
Across Australia, 48,202 flats of greater than four storeys were approved Year-end August 2014, with rises in all of the mainland states. FWPA members can login and take a close look at each of the states, but below, we have selected Queensland to provide a sample of what has happened across the nation.
From one period to the next, Queensland’s approval of multi-storey apartments increased by almost 120%, rising to 8,561 dwelling approvals at Year-end August 2014. The very large increase can be seen in the chart below and resulted in apartments accounting for 22.5% of all approvals in the period. A year before, apartments accounted for just 12.8% of total approvals.
To go straight to the dashboard and take a closer look at the data, click here.
The cry from the economic pundits as they observe the rise of apartments is ‘where’s the money coming from?’ It’s a fair question, especially in a country concerned by the seeming unaffordability of first homes for many people.
The short answer is that funds for the explosion in apartments appears to be coming from investors who are typically accessing funds from lending institutions. Anecdotally at least, investors have been attracted to the market by historically low interest rates, lower average household indebtedness than prior to the global financial collapse and improved equity in primary homes that have themselves been revalued.
While there are those arguing that this situation is of no particular concern, others, including regulators, are starting to take a different approach, driven by evidence of emerging over-supply. The evidence includes property lending for investors hitting a record high, rental affordability improving and unit yields declining by as much as 6% in some smaller cities. When considering the financing of these dwelling approvals it is interesting to note that investors are increasingly active with $11.3 billion or just on 50% of loans approved (net of refinancing) during the month.
To go straight to the dashboard and take a closer look at the data, click here.
The risk is that increased indebtedness has the potential to cause problems if interest rates were to increase. The RBA has been warning in recent times that there may also be a risk that the present rate of increase in asset values could ease.
Australia has seen the first glimmer of interest rate rises in recent months, driven by currency depreciation brought about the strengthening of the US dollar in the lead up to the United States’ expected increase to interest rates before mid-2015.
Although macro-economic concerns appear muted at this time, the impact on the economy is one thing, the impact on the residential housing supply and value chain may be another altogether.
Further information is also available on the state of the global economy from the International Monetary Fund (IMF) and a summary of their recent update is contained in Item 7.
Click here to go straight to that item.
