Australia is quite unlike London. London needs 40k new homes per year nett but managed to build only 30k every year. Brisbane is in equilibrium. Melbourne slight oversupply in CBD. Sydney under supply but it has risen by 20-30% already...
About Michael Yardney
Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He has been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au
The problem with London is at some point, something is going to give way and I suspect the councils will be very liberal in approving tall residential towers in the east and central from 2014 onwards. They may reach an equilibrium in 2018, but by then home prices would have risen by 20-40%.
The trick to invest in brisbane or Sydney is to catch it at the bottom of the cycle, which brisbane is now, get a gross yield of 5.5% to 6%, achieve positive gearing and wait. Population growth is faster in the four capital cities vs London. London's average population growth is around 1.2% pa while melbourne's is 2.1%, Sydney 2%, brisbane 1.8%. At such growth rate, any excess supply is easily mopped up.
Historically, brisbane's house price appreciation is around 7% per year, from 1980 until 2014, with very little volatility, almost like a blue chip stock.
Advantages of Australian capital cities over London:
1. Lower price to income ratios of 6-8x vs London's 15x. You can buy a house in a capital city for AUD1m, with land of around 4000 sf, just 15 km from cbd. In London, houses of such size costs double to triple at equidistance from cbd.
2. Faster population growth of 2% vs London's 1.2%
3. NO INHERITANCE TAX. This attracts lots of PRC and rich Asians. Inheritance tax in the uk is 40%
4. Long run, AUDSGD is likely to remain the same or appreciate due to its strong commodity sector. In the uk, we've seen the GBPSGD hit 3 in 2007 before falling to 2.1 now.
5
Disadvantages if australian capital cities vs LONDON
1. Supply demand is in equilibrium in most Oz cities whereas London is still in shortage until 2018. Political pressure however is mounting on the London mayor and councils to approve more towers / high density projects.
2. Borrowing costs are around 4-5% in Australia vs 2-3.5% in uk. If you are not careful, you could hit negative gearing in Australia.
3. The biggest negative for foreigners buying homes in Australia is that you have to buy them off plan and sell to locals. This can be partially mitigated if you choose your projects carefully, medium to low density projects in mature areas, not regeneration areas with acres of empty land....
Going forward, if you buy a well chosen project in brisbane / melbourne, you should achieve similar returns net of taxes as in London.
Despite what they say, Australia is as affordable as a decade ago
April 6, 2014 by Leave a Comment
About Michael YardneyMichael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He has been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au
In his recent commentary on Switzer Commsec chief Economist Craig James explained why he believes despite all the media hype that Australian homes are still affordable. He said:
The Rismark housing affordability measure indicates that home prices stood at 4 times household disposable income in the December quarter – a figure broadly unchanged on a decade ago.
Over the past decade disposable income per household has risen around 70 per cent while the average home price has lifted around 67 per cent.
What do the figures show and what does it all mean?
Gen Y has no reason to blame parents or grandparents – home affordability hasn’t really budged in the past decade. Home prices may be up, but so are disposable incomes.
Now when you are measuring home prices, you want the best information available.
And that is the data from the RP Data/Rismark Home Value index.
And if you want to measure income, there is no better source that the Australian Bureau of Statistics.
Put the two together and you should have the most accurate measure of home affordability.
The latest figures for the December quarter reveal that the median price of a home, in data taken from all regions across Australia, was $450,000.
The ABS national accounts estimate of disposable income was $1007.5 billion. The estimate of the number of households across Australia (from the Housing Industry of Australia) was 9,002,348. And the estimate of disposable income per household was $111,919.
Put the data together and Rismark calculates that the median home price was around 4.0 times disposable income in the December quarter.
That result for housing affordability was up from 3.9 times income in the September quarter 2013 and recent low of 3.7 times income in June quarter 2012 – the latter result being equal to the best result in three years and just above the best (most affordable) result in a decade.
Over the past year the median home price rose by 5.9 per cent, outpacing the 1.7 per cent lift in income per household. But interestingly over the past decade, the average income per household has risen by 70.6 per cent, outpacing a 66.7 per cent lift in home prices.
What does it mean? Simply, Australians have got richer over time. And, in fact, over the past decade, incomes have grown slightly faster than home prices. But broadly over the decade little
has changed in terms of home affordability – it has gone sideways.
Certainly homes are less affordable than 20 years ago, but that is not because income growth has been sluggish, but because wealthier Australians, utilising lower interest rates, and benefitting from more affordable basic necessities like food, clothing and transport, have channelled extra dollars into the family home. Homes are bigger and of higher quality than 20 years ago.
The latest data supports the Reserve Bank view that recent increases in home prices are not of undue concern.
But, clearly home buyers and investors must still make rational purchasing decisions.
The Rismark housing affordability measure indicates that home prices stood at 4 times household disposable income in the December quarter – a figure broadly unchanged on a decade ago.
Over the past decade disposable income per household has risen around 70 per cent while the average home price has lifted around 67 per cent.
What do the figures show and what does it all mean?
Gen Y has no reason to blame parents or grandparents – home affordability hasn’t really budged in the past decade. Home prices may be up, but so are disposable incomes.
Now when you are measuring home prices, you want the best information available.
And that is the data from the RP Data/Rismark Home Value index.
And if you want to measure income, there is no better source that the Australian Bureau of Statistics.
Put the two together and you should have the most accurate measure of home affordability.
The latest figures for the December quarter reveal that the median price of a home, in data taken from all regions across Australia, was $450,000.
The ABS national accounts estimate of disposable income was $1007.5 billion. The estimate of the number of households across Australia (from the Housing Industry of Australia) was 9,002,348. And the estimate of disposable income per household was $111,919.
Put the data together and Rismark calculates that the median home price was around 4.0 times disposable income in the December quarter.
That result for housing affordability was up from 3.9 times income in the September quarter 2013 and recent low of 3.7 times income in June quarter 2012 – the latter result being equal to the best result in three years and just above the best (most affordable) result in a decade.
Over the past year the median home price rose by 5.9 per cent, outpacing the 1.7 per cent lift in income per household. But interestingly over the past decade, the average income per household has risen by 70.6 per cent, outpacing a 66.7 per cent lift in home prices.
What does it mean? Simply, Australians have got richer over time. And, in fact, over the past decade, incomes have grown slightly faster than home prices. But broadly over the decade little
has changed in terms of home affordability – it has gone sideways.
Certainly homes are less affordable than 20 years ago, but that is not because income growth has been sluggish, but because wealthier Australians, utilising lower interest rates, and benefitting from more affordable basic necessities like food, clothing and transport, have channelled extra dollars into the family home. Homes are bigger and of higher quality than 20 years ago.
The latest data supports the Reserve Bank view that recent increases in home prices are not of undue concern.
But, clearly home buyers and investors must still make rational purchasing decisions.
