Social Trends – Page 171 – Digital Finance Analytics (DFA) Blog

DFA Video Blog On First Time Buyers Switching To Investment Property

DFA analysis shows that more first time buyers are leaping into investment property instead of purchasing a property for owner occupation. This short video explains why.

From our surveys, we found that:

1. Most first time buyers were unable to afford to purchase a property to live in, in an area that made sense to them and were being priced out of the market.

2. However, many were anxious they were missing out on recent property gains, so decided to buy a less expensive property (often a unit) as an investment, thanks to negative gearing, they could afford it. They often continue to live at home meantime, hoping that the growth in capital could later be converted into a deposit for their own home – in other words, the investment property is an interim hedge into property, not a long term play. Some are also teaming up with friends to jointly purchase an investment, so spreading the costs.

3. About one third who purchased were assisted by the Bank of Mum and Dad, see our earlier post. More would consider an investment property by accessing their superannuation for property investment purposes, a bad idea in our view.

Given the heady state of property prices at the moment, this growth in investment property by prospective first time buyers is on one hand logical, on the other quite concerning. We would also warn against increasing first time buyer incentives, as we discussed before.

Our analysis also highlights a deficiency in the ABS reporting, who are currently investigating the first time buyer statistics (because in some banks, first time buyers are identified by their application for a first owner grant alone). They should be tracking all first time buyer activity, not just those in the owner occupation category.

You can read the detailed analysis of the household survey results here.

House Price Growth Set To Fall – Fitch

Fitch Ratings “Global Housing and Mortgage Outlook” suggests House price growth is expected to moderate across the Asia-Pacific region in 2015, driven by government regulatory pressures, tightened affordability and gradual interest-rate rises. The growth slowdown will be led by Australia, where national house prices are forecast to rise 4% in 2015, down from 7% in 2014, and in Hong Kong, where Fitch expects prices to be flat as compared to the 10% growth in 2014.

These forecasts are featured in Fitch’s latest Global Housing and Mortgage Outlook, published on 14 January. Of the six APAC countries included in the report, only Korea is expected to have price gains that exceed that in 2014; even then, it is forecast to be just 2%.

Australia will see house-price increases slow in 2015, down to 3%-4% in Sydney and Melbourne, and flat in Perth. Affordability pressures will remain in Australia’s largest cities, with price rises continuing to outstrip income growth, and home prices approaching the affordability ceiling. Lending volumes will continue to grow as investment activity is expected to remain high; investment loans are expected to continue to account for 50% of new lending. That said, as rental yields drop to less than 3.5%, Fitch stresses that housing investors’ buying sentiment could be vulnerable to weakening if other asset classes offer better returns.

Government policy action, pressured affordability and the likelihood of interest-rate rises in the long term will continue to be key themes for the housing and mortgage outlook in the APAC region. A gradual increase in mortgage rates is expected in 2015 and 2016 in Australia, New Zealand, Hong Kong and Singapore, all of which show relatively high interest rate sensitivity. At the same time, governments and regulatory authorities are targeting soft landings for the housing market in several economies including New Zealand, Hong Kong and Singapore, which have seen rapid price growth over the past decade.

Hong Kong is a case in point, where Fitch believes macro-prudential measures will lead to a marked slowdown in price growth. Home prices are forecast to be to be flat this year versus a 10% increase in 2014, and an average gain of 15% over the previous decade. The government’s cooling measures should stabilise affordability at current levels, though home prices already are highly stretched relative to incomes. Fitch maintains that Hong Kong does risk a downturn, considering the combination of the stretched affordability, rising rates, and the large involvement of speculative investments in the sector.

Similar macro-prudential measures in Singapore and New Zealand are having the desired impact on markets by dampening house price movements.

Singapore and Australia, Japan and South Korea are expected to see government measures to support the housing sector, in contrast to Hong Kong.

Australian Retail Ecommerce Sales to Top $10 Billion in 2015

According to eMarketer’s latest estimates of retail sales, Retail ecommerce sales in Australia will rise 14.4% this year to pass $10 billion. In 2014, ecommerce sales in the country increased 17.3% to account for over 4% of total retail sales, and that share will expand to 4.5% in 2015. Low double-digit gains will continue through 2017, and by the end of the forecast period, retail ecommerce sales will total $14.52 billion and represent 5.6% of retail sales in the country.

Australia falls in the middle of the pack in both absolute terms and percentage of total retail ecommerce sales when compared with the other Asia-Pacific countries, behind China, Japan and South Korea and ahead of India and Indonesia.

Interestingly, digital buyer penetration among internet users in Australia is the second highest in Asia-Pacific. eMarketer estimates that 79.4% of internet users in the country will purchase via any digital channel this year, behind only Japan (82.0% penetration). Due to its size, though, Australia has the smallest digital buyer population in Asia-Pacific, at 12.1 million.

Australia’s ecommerce landscape is crowded with international competitors—especially eBay-owned properties—according to October 2014 data from Experian Hitwise Australia. eBay Australia catalogued the highest number of visits, 23.1 million, during the week examined, accounting for 12.9% of retail site visits during that timeframe. The local edition of eBay-owned classifieds site Gumtree was second with 13.3 million visits and a 7.4% share, followed by eBay with 13.2 million for a 7.4% share, and Amazon with 11.6 million for a 6.5% share. [Note: The Australian version of Amazon’s site, Amazon.com.au, sells only ebooks.]

The remaining top 10 ecommerce sites, with visitor shares of around 1% or less, included user-supported deals-posting site OzBargain, consumer electronics retailer JB Hi-Fi Australia and hardware chain Bunnings Warehouse, Apple’s site, Alibaba Group-owned discounts site AliExpress and department store chain Target Australia. The list reflects a landscape dominated by consumer-to-consumer resale sites, alongside options for business-to-consumer transactions.

Q4 Capital City Rentals Static

CoreLogic RP Data just released their rental data to December 2014. Over the 2014 calendar year, advertised rental rates on a national basis increased by 2.6 per cent for both houses and units. At a capital city level, the rental performance across the different housing stocks was more varied. House rents rose by 1.2 per cent over the year, while unit rents outperformed the detached housing market, up 2.5 per cent over the 12 months to December 2014.

Quarterly movements. Capital city advertised rents remained unchanged over the final quarter of 2014, with house rents steady at $430 per week and unit rents recorded at $410 per week. Across Australia, house rents increased by 1.3 per cent to $400 per week, while unit rents were unchanged over the three months to December at $390 per week.

For houses, the performance across each individual capital city market was varied. Hobart houses saw rents rise by the most, up 5.4 per cent over the three month period, while Brisbane (2.5 per cent), Adelaide (1.4 per cent), Canberra (1.1 per cent) and Sydney (1.0 per cent) saw rents rise by a more moderate amount. Perth (-2.2 per cent) and Darwin (-0.8 per cent) were the weakest performing rental markets for houses over the three month period. Melbourne was the only capital city market to record no change, with weekly rents for houses stable at $385 per week. The performance across the unit market at a capital city level was somewhat weaker. Hobart (1.8 per cent) and Brisbane (1.3 per cent) were the only capital cities in which rents rose over the three months to December, while all other cities saw rents fall over the last quarter of 2014 with the exception of Adelaide and Canberra where no change was recorded.

Annual movements. Nationally, advertised rents are 2.6 per cent higher than they were in December 2013 for both houses and units, while across the combined capital cities house rents have risen by 1.2 per cent, compared to a stronger level of growth for unit rents which rose by 2.5 per cent. Over the year to December 2014, for houses, the strongest performing capital city market in terms of rental increases was Hobart, where the median advertised weekly rental rate was 3.8 per cent higher. Sydney, Adelaide (both 2.9 per cent), Brisbane (2.5 per cent) and Melbourne (1.3 per cent) all had rents higher in December 2014 when compared to December 2013. Perth (-6.3 per cent) and Canberra (-5.0 per cent) were by far the weakest performing capital city markets for growth in advertised house rents.

Similar to houses, Canberra (-7.3 per cent) and Perth (-4.4 per cent) were the weakest performers amongst the capital city unit rental markets and were the only two cities to see rents fall over 2014. Unit rents for both Adelaide and Darwin remained unchanged over the year, while Hobart (3.7 per cent) and Sydney (3.1 per cent) were the strongest performers.