Australia’s financial markets are off to a swashbuckling start in 2013, hitting a 33-month high and thus conquering a psychological barrier. This was quickly followed by another breakthrough, which was the benchmark index's highest point since August 2008. The most interesting point is that investors were running scared last year, but once they saw the coast was clear they came flocking back in. You see the same behavioural pattern in real estate: when the market is booming, buyers are prepared to pay well over the reserve, but when the market is falling they are mesmerised by fear.
As banks’ cash piles grow, so does the pressure to share with investors. Last Wednesday, the country’s largest lender the Commonwealth Bank announced it was headed for another year of record earnings. It’s hard to fathom why gloomy former RBA board member Bob Gregory predicts the cash rate to fall to 1.5% (although other bank economists are more circumspect). Given the Reserve Bank of Australia (RBA) currently has the cash rate at 3.00% - which is what the bank terms “emergency levels” - one can only assume that at 1.50% our economy would be in intensive care. I can’t see that happening, however. The only positive is that at 3.00 % the RBA still has plenty of fat to cut from the cash rate. Weak outlook weighs on business confidence: CEOs, although the RBA is preparing for a slightly weaker economy.
So our fascination with markets continues to confuse given the balance of arguments are both for and against, which translates into the dreaded consumer confusion. Housing values maintain build – up where the much-maligned “housing affordability” presently sits at a ten year low. Australia’s property markets consist of thousands and thousands of individual niche markets, as shown in the graphs below.
In the late 1980s, the Mosman property market was dominated by property developers who were eventually wiped out in the early 1990s with the "recession we had to have". Our markets were benign until 1995 when Sydney was announced as the host of the 2000 Olympics, marking the rise and rise of merchant bankers – a group who were to be severely impacted by the Global Financial Crisis. The new dominant buyer in Sydney’s top–end markets are the Chinese. According to the Australian Bureau of Statistics (ABS), 17,580 Chinese people settled permanently in Australia in 2012, up from 15,780 in 2011 and 14,720 in 2010. We have seen anecdotal evidence at the top–end that the Chinese are the new main players, which explains why last week we added a Chinese translation to our website.
Yet again, vendors in Sydney's lower north shore are not being drawn into selling, with numbers of houses and apartments well down on this time last year. Given the volumes in 2012 were significantly up when compared to 2013 it is indeed difficult to explain why vendors are not attracted to sell. We believe the reason is many people think that property markets are set to jump significantly and, given the low stock levels, they are concerned about selling and then seeing prices jump and being caught in a vacuum. This takes me back to what I said earlier: you see the very same behavioural patterns with real estate. When the market is booming, buyers are prepared to pay well over the reserve, butwhen the market is falling they are mesmerised by fear.
Robert Simeon is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. He has also been writing real estate blogVirtual Realty News since 2000. The RWM real estate model has sold in excess of $1 billion in database sales globally.