Is the Property Outlook In Australia Improving After A Positive July 2019?

The proverb ‘Change is the only constant’ thing is mimicked in the current property landscape in Australia. A few hours ago, in the article on Building Approvals, we mentioned that the slump phase continues to hover over Australian property sector with the building approvals hitting a six-year low in the country. However, justifying the proverb mentioned before, a comforting prospect feature amid the discussions amongst the market experts and media houses after the dwelling prices rose for the first time since September 2017.

Before getting the latest figures on the houses, it is important to note that Australia’s housing stock is valued at ~A$6.6 trillion, which is almost four times it’s annual GDP.

What does the latest statistics outline?

The latest Hedonic Home Value Index for July 2019 by Property data leader CoreLogic showcased that the after a 10 per cent decline over the period of almost 2 years, the dwelling prices in the prime cities of Sydney and Melbourne rose by 0.1 per cent in July 2019. Showing a strong trajectory and continuing this stance was the rise in Brisbane, Darwin and Hobart, where the prices have been up by approximately 0.2 to 0.4 per cent. The national dwelling index was recorded to be down by 8.3 per cent.

Also, the highest rental yield was posted by Darwin at 5.9 per cent and the lowest by Sydney, at 3.4 per cent. The stratified hedonic index depicted that the most expensive quarter of the housing market was leading the recovery trend, with upper quartile housing values were down by 0.2 per cent and the lower quartile values followed suit by 0.8 per cent, over the three months ending July 2019.

The bleakness of house prices still prevails in Adelaide, Canberra and Perth, where the dwelling prices continued to be in a state of free-fall by an average approximately 0.4 per cent. The rise after almost two years may depict a hopeful prospect in the Australian housing prices scenario, but the Dwelling prices are still down by almost 7.3 per cent from a year ago.

What has caused the upliftment of house prices in July?

The Australian economy has surpassed a series of amendments, reforms and regulations in the past few months. These events have proved to be a huge driver of the betterment in the Australian economy. Few of them are:

A boost from the Federal election: The recent federal election removed the threat dagger of the capital gains tax discount and negative gearing in the country. Reforms and government goals were re-defined, with the Morrison government imbibing apt changes to every sphere of the business world as the uncertainty around taxation was taken off.

RBA rate cuts: The historic consecutive rate cuts from the Reserve Bank of Australia, lowering the bar to as low as 1 per cent, was a huge step from the banking sector perspective to improve the interest rate volatility in the Australian economy. The interest cuts have boosted the demand, driven by the lessening of restrictions on lending. RBA’s slash down of these rates is still expected to undergo amendments.

Relaxation of Mortgage rate: Interest rate cuts, toppled with the reduction of the 7 per cent mortgage rate serviceability test by The Australian Prudential Regulation Authority (APRA) was a boon for the depleting property situation in the country.

The Royal Commission Era: Established to enact a watch-dog in the Australian economy, the Commission has enforced requisite reforms in the banking sector, to rectify flaws wherever spotted and contribute to a robust financial system in the country. Major banks have adhered to the same, easing the situation on the property prices as a consequence.

Rebound of Auction Clearance rates: July had a positive monthly average clearance rates in Sydney and Melbourne after the 2 years period of a low-run, holding above 70 per cent. The low but uplifted volumes were a sign that the property situation was finally finding steady ground.

Reduction of advertised housing stock: The advertised housing stock has been reducing in the country, with the present number of freshly advertised properties down by 25 per cent on pcp. This paves a way for less competition among sellers and increases the competition among the buyers.

What is the experts’ viewpoint?

The next few weeks are expected to see seasonal shifts in the Australian economy. As per the market experts, the household debt to income ratios are much higher presently. With the lending standards of bank being stern and investor loans in doldrums, the vacancy rates in Sydney have increased.

The slump in construction and property has a direct micro level influence on the level of unemployment in the country, which is a huge threat in the current times. Hence, the overall economic growth remains to be weak and improvement is most likely not on the cards through 2020, even when there are positive factors supporting the Australian property market presently.

Given this dilemma of the overall economy and prevailing headwinds in the credit space, according to the market experts there is no hint of a ‘v-shaped’ recovery, just yet, despite improved credit availability and lower mortgage rates since the 1950’s. Also, as per the market reports, the lenders are still drifting apart from the Household Expenditure Measure and examining borrower spending behaviours and expenses more closely than before.

How is the Real Estate Index Performing on the Australian Securities Exchange?

The optimist outcome of the market report did not fail to leave its influence on investors after the close of trading hours on 1 August 2019. The S&P/ASX 200 Real Estate Sector, trading under the code XRE on the ASX, was up by 17.3 basis points or 0.46 per cent and was recorded at 3,782.1 basis points.

Let us look at the performance of a few Property stocks, after ASX trading session closed on 1 August 2019:

Company Name Stock value (A$) Trading Status (%) YTD Return (%)
Centuria Industrial Reit (ASX: CIP) 3.240 Up by 1.887 16.06
Dexus (ASX: DXS) 13.150 Up by 0.229 24.71
Scentre Group (ASX: SCG) 4.020 Up by 0.752 3.91
Vicinity Centres (ASX: VCX) 2.610 Flat 3.57
Aventus Group (ASX: AVN) 2.480 Up by 0.405 15.42

As it is clear from the table above, the property stocks were amid the investor’s choice for the day, given the slow developments being made on the Australian property front. Most of the property stocks traded up, relative to their last trade on July end.

Now that the reporting season of August 2019 has commenced with an optimistic approach, though there are perplexing updates on the Australian property front, it would be interesting to await the earnings release of the ASX-listed companies, and watch the investors make investing decisions, as the market experts and researchers decode the outlooks, plans and events in store for the near and future ahead.


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