WHILE HOUSES in Tasmania have enjoyed exceptional price growth in recent years, there has been a marked drop in this increase which is highly likely to continue, According to the latest RiskWise Property Research Risks & Opportunities Report.

As projected in previous reports, the Tasmanian market has been experiencing decelerated price growth over the past year.

RiskWise CEO Doron Peleg said one of the key reasons for the deceleration was that the state remained less affordable than five of the states and territories (in price-to-income ratio) making the market less attractive to investors and owner-occupiers.

“Other factors include the economic growth of Tasmania, which is ranked fifth in Australia, having the lowest median weekly wage and low annual wage growth of 2.3 percent,” Mr Peleg said.

“As house prices continue to rise, they are becoming less affordable due to the low median household income and less affordability means less demand, which affects price growth.”

He said houses in the southern state had enjoyed exceptional capital growth in recent years due to low supply, affordability, lack of attractive investment destinations at the time, for example the Sydney and Melbourne markets, a tighter rental market and strong rental returns.

“However, while houses in Tasmania are expected to deliver positive capital growth in the short term, the market has been experiencing decelerated price growth and we expect this to continue in 2020 with some areas likely to deliver very low or negative capital growth," Mr Peleg said.

“It should also be noted that the recovery of the Melbourne market, with its strong fundamentals and affordability in a number of areas, such as the Western suburbs and Geelong, are providing more attractive investment opportunities than Tasmania, especially Hobart which has become less affordable.”

CoreLogic figures show the annual price growth for houses in Hobart is 3 percent compared with 9.7 percent last year.

Mr Peleg said, however, that houses in Tasmania carried a low-medium risk level as approximately 86 percent were owner-occupied.

“In addition, houses in high-demand areas, particularly affordable houses, still enjoy strong demand and present low risk,” he said.

“Furthermore, unlike some other states, lending restrictions have had a relatively modest impact.”

Mr Peleg said while units had also delivered strong growth, they carried a higher level of risk due to the relatively high number in the pipeline compared to population growth.

“The relatively high proportion of units that are investment properties also increases the risk associated with such properties, particularly with the improved attractiveness of the Melbourne market,” Mr Peleg said.

“Also, there are a number of risk factors that may have a negative impact on units in the medium to long term. For example, off-the-plan units carry a significantly higher level of risk.

“Furthermore, the unit-to-house price ratio in Tasmania is high. Our research shows that, statistically, if the unit-to-house ratio exceeds 65 percent it makes houses a much better investment option for buyers with significantly higher capital growth.

“Conversely, if it falls below 45 percent, units are preferred. In Greater Hobart, the median unit price is $378,846, while the median house price is $492,465, placing the unit-to-house ratio at 77 percent, which is considered high and this means there is certainly a higher risk for units.”

www.riskwiseproperty.com.au

NEW YORK and Hong Kong-headquartered investment banking firm Jefferies has announced that on Wednesday, January 22, 2020, the firm will dedicate a day of trading to support relief efforts needed after the devastation caused by the recent wildfires taking place in Australia.

Specifically, Jefferies will donate net trading commissions on Wednesday, January 22 for all trading in Asia Pacific securities, including equities, fixed income and FX, by the firm’s clients globally.

Simultaneously, all of the firm’s global employees will also be given the opportunity to personally donate to the relief effort. Jefferies will match all client trading commissions generated that day, as well as match all employee donations from across the firm. The total contribution will then be donated to relief organizations directly involved in the rescue and recovery efforts in Australia.

Rich Handler, CEO, and Brian Friedman, president, of Jefferies said, "All of us at Jefferies, including our 57 colleagues in Australia, 423 across Asia Pacific and 3,813 globally, are deeply saddened and concerned about this catastrophic devastation. We hope this donation from Jefferies will help, in some small way, to ease the pain of those affected by this disaster, and we encourage our global clients and employees to join our efforts to contribute to those in need.”

Jefferies Group LLC, is said to be the largest independent full-service global investment banking firm headquartered in the US, focused on serving clients for over 55 years, and is a leader in providing insight, expertise and execution to investors, companies and governments.

The firm provides a full range of investment banking, advisory, sales and trading, research and wealth management services across all products in the Americas, Europe and Asia. Jefferies Group LLC is a wholly owned subsidiary of Jefferies Financial Group Inc. (NYSE: JEF), a diversified financial services company.

ends

NEW HOME starts have hit a seven-year low, but infrastructure starts have finally begun to kick in, according to Master Builders Australia.

“The number of new homes started during the September 2019 quarter has dropped to its lowest point since early 2013, although the news on infrastructure work was a little better,” Master Builders chief economist Shane Garrett said.

“Official results released this morning by the ABS indicate that new home building starts suffered an 11.7 percent reduction during the September 2019 quarter. The volume of engineering construction work done inched up by 0.5% over the same period,” Mr Garrett said.

 “The fall in new home starts was more pronounced in the high-density part of the market where a 21.9 percent decline occurred during the September 2019 quarter. This was due to a number of one off factors including the reputational issues around apartments during the middle of last year as well as the adverse fall out from the banking Royal Commission and its detrimental impact on credit.

“Despite these disappointing figures, the latest indicators around building approvals and house prices do suggest that a resumption of growth in new home building is not too far off,” he said. 

“Having recently sagged to a decade low, engineering construction did take a small step in the right direction during the September 2019 quarter. Engineering activity is positioned to benefit the most from the host of new infrastructure projects announced in recent times.

“It is taking longer than we would like to see new infrastructure announcements translate into real action on the ground. The figures today provide welcome evidence that activity here is finally gaining ground, albeit it gradually,” Mr Garrett said. 

“There remains a strong onus on government to ensure that infrastructure project work is still delivered as quickly as possible so that the considerable gap in economic growth can be closed."

www.masterbuildersaustralia.com.au

ends

DWELLING prices have reached the bottom in Adelaide as buyer confidence rises alongside auction clearance rates.

According to the latest RiskWise Property Research Risks & Opportunities Report, housing finance in South Australia is showing signs of improvement with an increase of 8.6 percent since February 2019 after a reduction of 6.6 percent relative to August 2018.

RiskWise CEO Doron Peleg said in recent years the market had delivered modest capital growth for houses and poor capital growth for units.

“While the labour market has improved in the past couple of years, the effective unemployment rate in South Australia is still above 9 percent and the employment market is still soft,” Mr Peleg said.

“This has a strong connection with low population growth (only 0.8 percent per annum) and, therefore, low demand for dwellings.

“While serviceability measures have improved due to the RBA’s interest rate cuts (with another expected sometime in the new year), the relatively high unemployment rate increases the risk of credit defaults.

“That, combined with some properties that suffer from low demand, require special attention in relation to credit provisioning.”

However, he said in some high-demand areas the housing market was showing some evidence of recovery, particularly those with steady recent price growth rates.

“Buyer confidence has increased in South Australia, particularly Adelaide. This has also improved auction clearance rates and, consequently, it appears dwelling prices have reached the bottom,” Mr Peleg said.

“However, while South Australia enjoys high levels of public and private expenditure, in the short term, the economic growth is projected to remain relatively low, around the 2 percent mark.

“Long-term economic growth will be a slow process and with a soft labour market no significant changes to demand are expected in the short to medium term, with less popular areas experiencing modest growth only.”

He said despite low building approvals, demand for houses was projected to remain moderate with, therefore, only moderate capital growth forecast.

However, he said the growth rate was projected to vary greatly across the state with houses in areas close to the Adelaide CBD, such as Adelaide Central and Hills, likely to deliver better growth.

Houses in areas that do not enjoy good growth drivers still carry a risk of delivering poor / negative capital growth. For example, according to CoreLogic, the median house price in the Barossa-Yorke-Mid North area declined by 0.2 percent in the past 12 months.

He said while South Australia offered healthy rental returns for both houses and units, demand for units among owner-occupiers, despite good affordability, was generally low.

“In addition, units in some suburbs are subject to voluntary lending restrictions by the major lenders, such as lower loan-to-value ratio (that is, higher deposit) due to oversupply,” he said.

“Units are not considered a popular dwelling option among families especially off-the-plan units in high rises, and these carry the highest level of risk. Overall, units in South Australia are likely to deliver poor capital growth.”

Adelaide Central and Hills has the highest rate of oversupply in South Australia with 2696 units in the pipeline (an 8.2 percent increase to the current stock). This unit oversupply has led to a price decline of 0.3 percent in the past year.

www.riskwiseproperty.com.au