Whither Australian real estate?

BMW Edge Theatre

STATE OF THE MARKET

I attended the joint Australian Property Institute-Real Estate Institute of Victoria “State of the Market” seminar yesterday in the inspiring BMW Edge Theatre at Melbourne’s Federation Square.

I often find myself cringing throughout hubristic keynote speeches delivered by this or that bank chief economist at these six-monthly professional gatherings. As the GFC slowly loomed onto the horizon, they continued to regale us with charts and data purported to proclaim how strong and invulnerable the Australian economy is. Never a mention of the incredible $2.4 trillion real estate bubble into which Australian real estate had developed, nor of the $670 billion or so in debt that will have to be wiped off, making our big four banks tremble at the knees.

At a dinner function about a year ago, I mentioned to Chris Plant, Victorian President of the Australian Property Institute,  that I usually have to grit my teeth throughout many of these episodes, reminding myself that I need my continuing professional development points to total at least 20 by the end of the year. I’ve found there’s never a heterodox view permitted within the real estate industry, and the “State of the Market” presentations are upbeat to a fault.

However, while Westpac’s senior economist, Matthew Hassan, didn’t mention Australia’s real estate bubble (the biggest in the world incidentally), he gave an excellent presentation yesterday. It was laced with a number of meaningful charts, clearly explained. This can be no V-shaped recovery, Matthew suggested: there is unsustainable debt to come to light in the US which virtually ensures we may expect a ‘double-dip’, or ‘W-shaped’ recovery.

Hallelujah, Matthew! You said it like it is, and the conclusions you drew from your research seemed pretty solid to me. And you know what? (as Keven Rudd would say), I’m sure the packed audience appreciated your research and lack of BS.

Tony Crabb, Director of Investment Strategy at Savills, gave an optimistic account of the outlook for commercial, retail and industrial property in his inimitably smooth fashion, while Tim Church, head of real estate at UBS, opined that Australian real estate investment trusts seemed primed to climb back out of the hole into which they’d recently descended.

When I couple my barometer of the economy with the data presented by Matthew Hassan, however, as much as I’d like to believe Tony Crabb and Tim Church’s optimism,  I have a feeling they were wearing the industry’s usual rose-coloured specs yesterday.

6 thoughts on “Whither Australian real estate?”

  1. Hello Bryan,

    Any update on your ‘total RE sale prices divided by GDP’ graph?

    Regards

    1. I’ve sought and am waiting on the final 2010 sales data from all states except Victoria (whose 2009 figures have just come out), Cobran. By late July-early AugustI should have a very close approximation of all Australian real estate sales for the financial year ended 30 June 2010. Meanwhile, you’ll find a sort of proxy for Australia’s real estate sales in some residential data (to be found amongst other international data) on Gavin Putland’s Land Values Reserach Group site at http://blog.lvrg.org.au/2010/03/bursting-property-bubbles-sales-crash.html .

      I’ll put my resultant chart(s) on The Depression blog when the data is collated and, hopefully, Gavin will also show it on the LVRG’s website.

      But it does appear we’ve hit the build-up glut stage of surplus properties on the market, which always precedes the tanking in real estate prices.

      Cheers,

      – BK

    1. Unfortunately, Victoria’s real estate data come out only calendar yearly, and the 2009 year won’t be out until mid 2010. This means that we’ll again have to estimate its 2009/10 data (based on all the sales in the other states and territories), as we did their total 2008/09 sales figures. [Because of the stimulus, our estimate for Victoria may have slightly underestimated its total sales prices for the 2008/09 year.]

      So, our chart will undoubtedly kick up above the bubble line again in financial year 2009/10 before declining, probably either in the first or second half of financial year 2010-11.

      Meanwhile, as the bubble continues to distend its voluminous proportions, you can bet Residex and RP Data Rismark will ignore the volume (which we’ve defined and quantified), and talk only in terms of median prices for particular areas, rather than total turnover for Australia, which will first decline before the market become glutted, and then prices will drop. We’ll be keeping a weather eye on this aspect in any announcement.

      The shorter answer to your question, Cobran, is that it’s a tortuous process collating an estimate of Australia’s total real estate sales, and we’re working on it. We should have something interesting out shortly after 30 June 2010.

  2. Yes I agree stimulus does nothing more than delay the debt bomb. It ‘s a different kind of stimulus than the real type that drives economies.

    People buying more widescreen TV’s is not a recovery that has legs.

    1. Agreed. The Land Values Research Group (LVRG) called the end of the real estate bubble in late August last year based on an enormous drop in real estate turnover, not prices. But the LVRG wasn’t counting on the effects of the stimulus package in keeping the bubble fantasyland happening in Australia.

      There’s the real economy and then there’s bubbles. It remains to be seen how many stimulus packages Australian taxpayers can afford before we have our day of reckoning.

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