Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go Hmmm...one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Tuesday, 17 October 2017

Passive smoking

Roll up, roll up!

Fair cop, we've all enjoyed hating on Australia's share markets at various points over the past decade, while the rest of the world has apparently been partying. 

In Britain, the FTSE index recently crunched out another record high, while in the US a raft of share market indices have been shattering records seemingly by the day. 

In Australia, by contrast, share market indices have remained well below their previous highs. 

That's partly been because valuations in the resources sector have been hurting since the heady pre-financial crisis peak. 

The truth is, though, on average Australian companies pay out much higher dividends than in other parts of the world.


We do love a payout, which is handy for those moving into the income phase of their investing lives. 

Add in the dividend component and Australia's main accumulation indices - which record the total returns from shares including dividends - are at all-time highs. 


That's pretty good news for Australia, since as a nation we have significant exposure to domestic shares. 

Indeed, household wealth is all set to pass $10 trillion within the next few months, placing Australian households among the richest in the world, nestling in just behind the Swiss. 

Monday, 16 October 2017

The changing face of immigration

Immigration shifts

Annual long-term arrivals into Australia hit a record +777,430 in August 2017, +6.5 per cent higher than a year earlier, although the recent record surge does appear to be running out of steam.

This trend does have significant implications for the absorption of all those new apartments in the capital cities. 


The number of short-term arrivals from overseas also boomed to a record in August 2017, both on a monthly basis at 764,700 (seasonally adjusted) and in annual terms at 8.7 million. 

With more Aussies making overseas trips too, it's becoming harder and harder to get a read on who is actually in the country at any given point in time, for what reason, and for how long. 

The world is becoming more and more fluid in this respect. 

Good time...& a long time?

More of the 'short-term' arrivals are coming for longer trips too, another trend which distorts the picture. 

Of the annual short-term arrivals, more than 1 million of them intended to stay for at least 3 months, and many for up to a year. 


Notably the annual number of short-term education arrivals boomed to 567,000 to be +12 per cent higher than a year earlier.

One assumes that most of these would spend a good deal of time here, thus passing the 12/16 rule and being included in net overseas migration, but it's impossible to say for sure. 

All we can say for certain is that there are more international students enrolling and commencing courses than ever before, especially from Asia, and particularly in Melbourne and Sydney.


And as for where short-term visitors are coming from, the growth has largely been coming from China, which broke yet another record in August in seasonally adjusted terms. 


There were more than 1.6 million short-term arrivals from China and Hong Kong over the year to August, comfortably more than anywhere else, and the numbers just keep on growing. 

Sunday, 15 October 2017

Spirit in the sky?

Commencements slowing

It had become quite apparent by late 2014 that there was something extraordinary underway with regards to new 'high-rise' apartment construction in Australia. 

Outside Sydney, we're now coming down the other side of that mountain. Over the past 18 months, the trend in the number of new apartment starts in Queensland has continued to fall, and fall, and fall.


In inner city Brisbane, new project commencements have slowed to a crawl. This is one of several ways in which that the apartment market in inner Brisbane is adjusting, as it needs to.

Adjustment time

It's not like the supply of apartments is anything new - we've been talking about it for three years now.

In its latest Financial Stability Review (FSR) the Reserve Bank of Australia (RBA) projects a flood of new completions in Brisbane in FY2018, especially in the city precinct.

Despite this, the RBA reported "few signs of significant settlement difficulties", which is generally a positive market indicator. Meanwhile the RBA noted that the "moderate" rate of price decline for apartments is now "slowing".

It's become much harder to source finance to buy off the plan in Brisbane, which is naturally cooling the market. Approvals have dropped dramatically, numerous Queensland developers have gone to the wall, and more are expected to follow in the coming months.

Quality street

Interestingly, the RBA noted that lower-quality apartments marketed to investors have struggled to value up, while higher-quality apartments targeted mainly at owner-occupiers have realised at or above their purchase price.

A salutary lesson in property investment right there...from your own Central Bank, no less! Many of those caught out in the new high-rise developments will likely be interstate and foreign investors, largely hailing from mainland China. 

While there is a lot of stock still due to hit the market - particularly in the CBD - construction activity on the ground has clearly slowed, and the actual number of completions in FY2018 will surely end up being materially lower than the RBA's forecasts.


You can see this for yourself, by the way, simply by taking a walk around the inner city: there are any number of stalled, delayed, or mothballed projects in suburbs such as Woolloongabba, West End, South Brisbane, Newstead, and so on. I note here that some of my fellow inner-city-dwelling latte-sippers have observed the very same thing:




RBA liaison with industry participants and banks expressed confidence that new supply will be well absorbed by the market (as you'd expect), but there will be continued downward pressure on rents. That may be tough if you're the landlord, but not necessarily a bad thing overall, and the renters are moving in.


By the second quarter of calendar year 2017 the number of attached dwellings under construction in the Sunshine State had already dived by 15 per cent from the 2015 peak, though there was still plenty in the pipeline.


This suggests that by the end of 2017, the number of apartments under construction will have fallen quite a large part of the way back towards their likely 'new normal', given that proportionately many more attached dwellings will be built in the future, as compared to the past.

Migration north (garbage in...)

The other thing that's helping to drag the market back into balance, is net interstate migration, mainly from New South Wales. The official ABS estimates had interstate migration heading into Queensland back up to around +15,700 by the end of March, from about +5,600 at the cyclical nadir.

Analysts will torture and torture these numbers until they confess, no doubt, but it can't be stressed enough that the numbers aren't actually real, however much emphasis is put on citing individual figures.

The data lags massively for one thing. Moreover it's derived from change of usual residence statistics via Medicare records (and let's face it, who updates these on a timely basis, hmm?).

The ABS thus discloses that the interstate migration figures are among the poorest or least reliable of the available population measures. Anyway, the net interstate migration estimates are impacted by seasonality, and so are presented here on a rolling annual basis. 


These figures are only a guide, then, but just from hanging out in the inner city it's become clear that there has been a surge in interest in relocating to Brisbane since 2015. 

It wouldn't be a great surprise if in 2018 the interstate migration figures are much higher than this - previous cycles have shown that when this cyclical migration trend gets underway, it can ramp up very quickly.

Driven as much by net overseas migration, annual statewide population growth had already picked up to an estimated +75,400 in the first quarter of 2017, about +28 per cent higher than in September 2015.

The March quarter figure of +23,869 for the preliminary estimated resident population of Queensland was up by more than +26 per cent from a year earlier. If this proves to be anywhere near correct it is something akin to a population boom. 

Even those most recent figures relate to the period from January to March 2017, which was the best part of a year ago now, but any way you look at it, the supply story is now likely to be one of rebalancing.


Annual employment growth in the state has been seriously, woefully patchy since the peak of resources construction, but in August 2017 it bolted to around a decade-high of +95,400, albeit largely driven by part-time employment.

Unusually, Queensland finds itself joint-top of the employment growth tree alongside Victoria, at least for now, so that's another important trend to watch. 

The wrap

Overall, it's easy to construct a doomsday or calamity scenario by adding up every apartment project and dwelling unit ever approved in Greater Brisbane and comparing this to historic demand for attached dwellings. 

But if you instead look at what's actually going to complete over the next few financial years, and compare this to the future demand for inner city living in Brisbane, you'll come up with a far less dramatic picture.

So far, we've seen declining asking rents, and some fairly marginal declines in asking prices for apartments. Interestingly the rental pain appears likely to be shared by dated rental stock across Brisbane.

The soft rental markets are not only restricted to inner Brisbane apartments, as young bargain-hunting renters take up the new inner city living option, spurred by new projects such as Howard Smith Wharves and the massive $3 billion Queen's Wharf Project. 

In the meantime, I'll definitely be on the lookout for apartment and townhouse bargains in New Farm in 2018, where lowball offers should certainly be the order of the day.

All of which reminds me, I must get on to those Medicare records to update my address...

Saturday, 14 October 2017

Smash your goals with the 40% rule

Marathon, not a sprint

I mentioned in one of my books that about a decade ago my wife and I decided to give up on socialising for six months to train for the Sydney Marathon.

The idea was to save some money for a deposit on a Sydney flat, and to push ourselves physically to get fitter and healthier. 

We gave up boozing and late Friday nights out for half a year, and began running around Centennial Park on weekend mornings instead. 

If you've ever run the Sydney Marathon you'll know that the first and last part of the course are great.

Early on, there's the uplifting crossing of the infamous Sydney Harbour Bridge to keep you motivated, and then the cheering crowds as you fairly skip down Oxford Street (including the random heckling from the 'excitable' Kings Cross nightclub stragglers...ha!). 

The course gets horribly hard, though, particularly in the second half, where there's a nasty incline as the course swings disconcertingly away from the city finish line and up the ugly tarmac of the City-West Link. 

There are no friends in the crowd on that part of the course - and there's no Sydney Opera House to spur you on - just a dreadful stretch of upwards-sloping highway. 

Digging deep

It was just before the halfway mark that my wife exclaimed in anguish that she wouldn't make it to the finish due to the excruciating pain in her knees, as we did the loop around the familiar Centennial Park.

Heather is a tough cookie - a much tougher nut than me, certainly, if that means anything - and she doesn't complain about pain easily. 

In fact, she later had to have an operation on her ailing knees, as all the training and the full 26-mile course itself took their combined toll.

It was an unseasonably hot September day when we ran the marathon in Sydney, bright, cloudless, and about 27 degrees at the peak of the morning sun, and yet most people finished, and eventually we trotted across the line with great relief in a semi-respectable time. 

After looking like a distant possibility at just before the halfway mark, from somewhere we dug deep and made it all the way to the finish line. 

Mental toughness

We all know that there are reams and reams of BS on the internet.

But occasionally - just occasionally - you can stumble across a little gem that makes all the misspent hours worthwhile.

Last week I read about the 40% rule - thanks to London developer Nicole Bremner for the link - a concept that has since intrigued me.

When you think your energies are exhausted, it may be that you are only 40 per cent of the way through your untapped reserves of energy.

The 40% rule

A chap called Jesse Itzler wrote about this idea in his book Living with a SEAL

You can debate the science behind the rule - which essentially holds that when you think you are mentally and physically cooked, you are probably only about 40 per cent done - but as a motivational tool, it could be surprisingly powerful.

If I was having a glass-half-empty type of day, I'd lament that this could mean that the war of televisual attrition with my 3-year old daughter might not even be half finished yet. Help! If I've only watched Disney's Frozen 40 per cent of the total number of times I'll see it, please end me now!

Yet, what about the positives? Anyone that's worked in a stressful career job or in a small business must have uttered the fateful words at some point: "I've had enough! I just can't take this crap any more!"

But perhaps you can? Maybe you are more resilient than you think, and you aren't even half way done?

Just as importantly, we can see that most people give up on their goals far too easily, so maybe there's a hidden opportunity here too.

When obstacles fall in your path or the going gets tough, you should know that you absolutely can keep going, safe in the knowledge that most people will give up sooner than you because it all gets too hard.

By resolving to remember the simple 40% rule, you might just become a winner.

AFG sees first homebuyer return

Return of the first homebuyer

AFG released its mortgage index for the September 2017, and it too showed a switch towards first homebuyers. 

First homebuyer activity has been buoyed by stamp duty concessions in New South Wales and Victoria. 

The average mortgage size rose to an all-time high of $491,952, up from $479,101 a year earlier.

However, regulatory intervention has slowed the pace of the increase. 


The increase in mortgage size was driven by Victoria, Queensland, and South Australia.

Elsewhere, macroprudential measures have evidently slowed the mortgage market.


The figures for total lodgement volumes at the state level are necessarily seasonal, but simply underscore the sheer strength of the lending growth in Victoria. 

Victoria appears to be the only state where cooling measures have not had a material impact. 


There has been a massive shift away from investors, down to just a 29 per cent market share, from above 40 per cent at the peak.

The other notable trend was the shift away from the major market lenders.

Market share was down to 64.4 per cent for the main players, the lowest such result since the global financial crisis. 

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Friday, 13 October 2017

Dwelling construction powers on

Construction holding up

Although lower than a year ago, dwelling commencements were very solid in the June 2017 quarter at just under 53,000 on a seasonally adjusted basis. 

About 219,000 new dwellings were commenced in the financial year.


Completions tracked at a very similar level.


Pipeline

Developers in Sydney are now chewing their way through the backlog.


At the end of June there were still more than 150,000 attached dwellings under construction.


It looks as though by the end of 2017, the apartment construction pipeline will largely be a Sydney phenomenon.


The wrap

The defining feature of this construction boom has been the record number of high-rise apartments.

And these can take years to build.

Most are pre-sold, so there will be no oversupply of unsold apartments, but we can see pockets of oversupply of rental properties, especially in inner city Brisbane. 

Sydney has about 65,000 attached dwellings under construction, which is a record.

Due to faster population growth, the risk of oversupply seems to have abated in Sydney and Melbourne, although Sydney's housing market is clearly slowing.

The pendulum is swinging towards Brisbane and south east Queensland, both in terms of internal migration and property investment.

I'll look at Brisbane's apartment supply in a separate post.

Thursday, 12 October 2017

Record high for housing finance

First-timers return

Lots of gloomy reporting around this month (every month), yet total housing finance surged to its highest ever level in August 2017 at a huge $33.9 billion.

Investor finance jumped by +4.3 per cent in the month to $12.6 billion.

The smoother trend figures suggest are plotted below, and suggest a steadier and consolidating market.


The recent increase has been driven by a combination of higher volumes and steadily rising loan sizes, at least for non first-homebuyers.


Driven by incentives, the number of first homebuyer commitments surged to the highest level in 92 months, since the stimulus of 2009. 


The first homebuyer resurgence has mainly been led to by New South Wales and Victoria, although first-timers are also threatening to hit multi-year highs in Queensland. 

This chart looks bullish to me for housing markets in regional Victoria, especially Geelong. 


Finally, the number of dwelling commitments for new dwellings hit the highest level since The Knack were number 1 in 1979. 


The wrap

A strong set of numbers all round, with seasonally adjusted housing finance commitments at record highs in Victoria, and heading the same way in NSW.