National Australia Bank has created a pretty good research document with its quarterly Residential Property Survey. It’s shed light on a number of important things, notably the true position with the level of first-home buyer activity in Australia (much higher than the flawed ABS data indicates).
Unfortunately, and here’s this recurring problem that blights real estate analysis in this country, it has allowed economists to get involved in interpreting the data. Unsurprisingly, the outcome is a shemozzle.
NAB senior economist Robert De Iure – who really should stick to what economists do best, which is getting it wrong on the economy and interest rates – apparently thinks that because some foreign investors buy in similar price ranges to local first-home buyers, the two groups are competing in the same space. “The report contradicts the idea that foreign investors and first-home buyers shop in different markets,” he says. Actually, it doesn’t – he misunderstands his own report. His thought process goes like this: because most foreign buyers aren’t paying over $1 million, they are therefore out there competing with first-home buyers. He must be spending a lot of time in Sydney.
For the most part foreign investors are not competing with local first-timers, and the NAB survey doesn’t show that they are. Here’s what it does show: 70% of foreign investors buy property priced above half a million dollars. Instantly, that tells us most foreign buyers are not competing in the same space as first-time buyers. The NAB survey also shows that foreign investors predominantly buy new homes, such as high-rise inner-city apartments. Foreign investors account for almost 16% of new dwelling sales in Australia. Other research shows that, overwhelmingly, Australian first-home buyers purchase existing homes. Again, the two groups are not operating in the same space.
The NAB figures indicates that only 30% of foreign investors are buying houses. Most of them are concentrating on buying apartments and on development sites to build apartments. So they’re buying predominantly new properties (as they are supposed to be, under the rules) and they are buying mostly apartments. In other words, they’re investing in inner-city high-rise apartments off the plan – unsurprisingly, given that so many developers are targeting their new high-rise projects specifically on Asian investors.
Clearly this is not where the bulk of Australian first-home buyers are operating.
That’s what NAB’s own survey shows, but the chattering economists have come up with the kind of kindergarten analysis in which they specialise when it comes to residential real estate. Stick to your knitting, boys. We’re all desperate to hear your next inaccurate tip about interest rates. Elsewhere, the NAB Residential Property Index shows a rise in real estate sentiment in the March Quarter, with a score of +21 points, up from +12 in the December Quarter and well above the long-term average of +14.
It indicates that overall sentiment is strongest in NSW (read Sydney), followed by Victoria and Queensland. It has also improved in South Australia, but remains negative in Western Australia (not surprising, given that the REIWA is working so hard to talk down the Perth market).
Looking ahead over the next 1-2 years, the greatest optimism is in Queensland and Victoria. Indeed, the report predicts that Brisbane will lead the capital cities on price growth in 2016, with Adelaide No.2. Both are tipped to grow 5-6% on average next year, while growth in Sydney and Melbourne is expected to have subsided.
Keep in mind that this is speculation and expectation, not fact, and often the outcome is different. I say this because mainstream media often reports economists’ forecasts as if they’re handed down from on high in tablets of stone.
The latest NAB report also confirms what the previous edition found, that around 25% of residential sales are to first-time buyers, of which 15% of owner-occupiers and 10% are investors. In other words, a significant proportion of first-time buyers are opting to buy an investment property as a first purchase. And they’re managing to do it unimpeded by competition from foreign investors.
Written by Terry Ryder