There has been an interesting insight into the housing market as the HIA-Colorbond Steel Housing 100 Report has just been released. It reveals what's really happening with home building in Australia, and there has been a bit of a mixed reaction.
What does the report show?
The top three builders have actually built more homes in the past 12 months. These numbers are topped by Metricon, the third year in a row they have achieved such a feat. However, after the top three, figures started to tail away.
Tim Reardon from the HIA said: “This was the first time in a number of years we've seen the number of homes built by those top 100 builders has fallen back. And that's a very telling sign of what's happening out in the market at the moment. The housing 100, the largest builders in the country are very heavily exposed to the Melbourne and Sydney markets. In the Sydney market, in particular, we know who's been pulling back for the last 12 months. And we also have seen the very early signs of the Melbourne market as pulling back as well. It's been pulling back since March. We know that from new home sales have declined every month since March. And that's the first time that's happened in Melbourne, I'm going to say probably for close to ten years now.
“That's a paradigm shift for them. I suspect in years to come we're going to look back and say February was the best year that Victoria has seen, or the 12 months to February, the best 12 months Victoria has seen for decades. It may be a decade or more before they see those sorts of numbers again.”
Where are these companies building?
A couple of the major builders, Metricon Homes, as an example, and GJ Gardner, they build a lot in regional areas as opposed to the cap city areas and they've both shown a healthy increase in numbers.
Tim said: “At the moment whilst we're seeing the new residential suburbs in Sydney pull back and the expected new residential suburbs of Melbourne to pull back, it's not true of the rest of the country. It's not true of the rest of New South Wales or Victoria as well. When you look at the Hunter, it's one of the strongest growing regions in the country. The ACT's got a lot of activity. The south coast of New South Wales, and regional Victoria's very strong as well.
“Those two metropolitan cities have moved ahead of the rest of the curve. Sydney's certainly leading the way. They're 12 months ahead of Melbourne, I suspect. And we're starting to see the declines that we've seen in WA over the past three years are beginning to ease. Although if you're a builder in Western Australia at the moment, you're probably seeing some of the worst conditions you've ever seen in that market.”
Are builders pulling back?
Meriton has pulled back remarkably. They're on the record as saying they've been very concerned about the Australian market, particularly the number of apartments coming on. It is interesting to see their numbers fall year on year from close from 3,000, to just over 2,000.
Tim explained: “The error in the market that's pulling back the most at the moment, is the Sydney apartment market. And the reasons for that are varied, particularly the APRA interventions in 2016 and again last year, are seeing investors withdraw from the apartment market quite rapidly. We've seen at least $6 billion of investment exit that investor market.
“We also need to look at what's happened to foreign investors and state governments have been very focused on forcing foreign investors out of the market. New South Wales imposed almost $100,000 additional stamp duty fee on foreign investors. The federal government imposed fees on consideration of overseas investments. And also, the Chinese government has placed restrictions on the outflow of Chinese money.
“All of those things have come together, at the same time that we've seen a depreciation in the dollar which means that in Chinese Yuan, we've seen a 12% decline in Sydney house prices, and that's going to continue to ward off Chinese investors from returning to the Sydney apartment market. The other thing to say is that when you look at rental price inflation, rental price inflation is a much better indication of supply and demand equilibrium than house prices. House prices are telling us that supply exceeds demand at the moment, but rental price inflation has now moved to zero. And that's the first time we've seen that since 1994.”
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