Could Chinese Capital Controls Give Local Developers a Boost?
Property Market Update
for Week Ending 20 August 2017
- Auction volume remains high for this time of year.
- The Melbourne market surged ahead this week.
- Nationwide, higher supply levels are putting a damper on clearance rates.
- Fresh capital controls in China may give local developers a boost.
This Week’s Preliminary Auction Activity (Week Ending 20 August)
The number of auctions across the combined capital cities this week was virtually unchanged from last week at 2,041. The preliminary clearance rate came it at 71.7 percent, about one percentage point higher than last week’s preliminary result, which indicates a boost in demand.
Melbourne appears to have had a stellar week with a clearance rate of 77.7 percent, but Sydney will likely come up in the 60s again once all the results are counted. Expect the final nationwide tally to also come back in the mid-to-high 60s.
Here are all the capital city preliminary results for this week:
Last Week’s Final Auction Results (Week Ending 13 August)
No capital city cleared above 70 percent last week, except for Canberra, which posted a crazy-high clearance rate of 87.0 percent.
Here are all the final capital city results for last week, followed by a breakdown of the sub-regions and key regional areas:
For the historical data of weekly auction clearance rates, click here.
Recent Home Price Movements
Home prices continued to push higher this week, although only slightly. In Sydney, the median house price rose 0.16 percent. In Melbourne, where demand remains stronger, house prices increased 0.41 percent.
Although prices have retreated marginally over the past few days, the quarter-on-quarter gains for our two largest capitals is substantial, as you can see in the chart below.
Only Brisbane home prices are down for the quarter, while Perth remains the only capital city where prices have declined over the past twelve months.
Property Market Analysis
Auction volume remains unseasonably high for the winter months. One has to wonder if supply is being pulled forward from the future as sellers rush to market to capitalize on what many perceive as the peak of a cycle. If that’s true, we may see below average supply in the Spring, which could help to prop up home prices.
Clearance rates have dropped in response to the higher auction volume. With more properties available for sale, buyers have more choice, so fewer properties are selling on auction day.
However, the higher auction supply hasn’t negatively impacted home prices. While fewer properties are selling on auction day, buyers still seem willing to come in after the fact with offers matching recent comparable sales.
What It Means For Investors
Property investors should assume that home price growth will be relatively flat for the foreseeable future. Looking at the macroeconomic picture, we are pushing the limits of our ability to service debt.
Furthermore, it’s regulators who maintain most of the power to impact the future of home prices. The RBA, APRA, and the powers that be in Canberra have been clear that higher home prices will only serve to increase our economic risks. They can’t afford for home prices to fall, but they will be doing all they can to maintain a gentle damper on demand.
If the market does flatten out, then investors will struggle to reach medium-term growth goals by simply buying and holding for generic capital growth. The alternative is to skill up and instead pursue a manufactured growth strategy, like renovation or subdivision.
On Friday last week, the Chinese Government announced that it will place further restrictions on foreign investment in real estate. While the new crack down will focus mostly on Chinese companies, it does mean that we could see a retreat of Chinese developers from Australia.
That could serve local manufactured growth investors in two ways. First, it means that developable land could become easier to buy. With less competition from overseas buyers, local developers may find it easier to get their deals to stack up. Second, it means that future supply of townhouses and units may be lower, thus making it easier for developers to sell their units in a year or two.
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