This year’s recently-released McGrath Report identifies four major themes we believe will drive demand and prices over the next 12 months and beyond.
This week I’ll delve into the first two – China growth and the impact of investors and first home buyers; next week we’ll discuss the prestige market recovery and the urban hubs emerging specifically in Sydney.
So, China. It’s been a big theme in Australian real estate for a while now and it’s far from over with many immigrants and overseas investors still seeking to buy in major cities around the country.
Sydney continues to be the favoured destination with Brisbane, Melbourne and Perth next in line. A HSBC report shows increasing interest in QLD among affluent Asian investors, with 29% considering buying there in the next year compared to 34% ACT, 25% VIC and 20% NSW.
According to Credit Suisse, the Chinese are buying 18% of new supply in Sydney and 14% in Melbourne
(mostly apartments). There are 1.1 million Chinese who can afford to buy a Sydney apartment and this number is estimated to increase 30% by 2020, so Chinese buying is no short-term trend.
The China effect is also being seen in the development sector, with Chinese mega-developers rushing to acquire sites across Sydney and Melbourne. Queensland and particularly the Gold Coast are also gaining favour. In FY13, there was $323M in land acquisitions by the Chinese in Queensland, up 38% on FY12. Singapore developers were second highest at $317M – up from $75M in FY12, according to the QLD Registrar of Titles.
Projects underway by Chinese developers today include the $970M Jewel at Surfers Paradise; the $600M Greenland Centre in Sydney’s CBD; the $550M Promenade in western Sydney’s Parramatta; the $500M Ryde Garden complex in northern Sydney; and the $100M Sanbano development on the Gold Coast.
What’s next in terms of foreign investment? My bet is India will follow in China’s footsteps as the rising middle class there looks for outside investment opportunities in the same way their Chinese counterparts have done.
Behind my thinking are the following facts:
- 8% annual GDP growth in India over the past decade
- Trade between our countries is increasing significantly
- 20% of all migrants entering Australia are from India (Dept of Immigration FY13)
- There are 450,000 people of Indian heritage in Australia, including 50,000 students
- The fastest growing language in Australia is Hindi
- Indian private business investment in Australia is increasing at a faster rate than the Chinese (75.8% increase over the 5 years to 2013 compared to China’s 41.7%) (ABS/Govt figures)
The next big theme having a major impact on property today is investors and first home buyers.
These two groups often fight for prime property below $600,000 but for now the investors are ahead with strong demand from both private investors and self-managed super fund (SMSF) investors.
Super fund buying has a long way to run, with the ATO reporting an average of 2,700+ new funds being set up every month and an increasing appetite for residential property purchases.
Meantime, , first home buying has plummeted to just 3.5% of loans in NSW and 5.5% in QLD – well below the long term average of 15-20%. Government grants incentivising the purchase of new or off-the-plan properties are working but first time buyers still overwhelmingly prefer established properties. *AFG Sept 2, 2014
Behind the stats, it’s important to realise that first home buyers haven’t disappeared off the face of the Earth. Many are just entering the market under a different guise – as ‘rentvestors’. These buyers prioritise lifestyle so they’re choosing to rent in lifestyle areas where they can’t afford to buy while purchasing in traditional first home buyer suburbs where they can get a great rental return. Smart thinking.
Those youngsters who are still looking to buy their first homes are increasingly relying on the Bank of Mum and Dad, with more parents either acting as guarantor or gifting deposit shortfalls.
Investor activity has been strongest in NSW but QLD is picking up the pace. Figures from Australia’s largest mortgage broker, AFG show NSW investor activity peaked at 53% of new loans in January, tapering to 48% by July. Meantime, QLD rose from 33.5% to 34.6% as local and southern state investors began recognising QLD’s affordability and higher yields.