There is more evidence that surging property prices are turning buyers away, with the latest data suggesting only nominal growth over the past month.
RP Data-Rismark figures for April show that dwelling values nationally rose only 0.3 per cent, which is well down on the 2.3 per cent growth of the previous month and in some cities is the lowest monthly growth in a year.
All capitals recorded some rise in dwelling values during April except for Melbourne, which fell 0.5 per cent, and Canberra (down 1.1 per cent).
Brisbane had the strongest growth of the major capitals at 1.1 per cent, while Sydney property prices grew at a paltry 0.5 per cent, which was the slowest monthly gains since June 2013. In March dwelling values in Australia’s most expensive city rose 2.8 per cent.
This lower rate of growth, especially in Sydney and Melbourne, where property values have surged since the end of 2012 ‘‘may signal that these markets are moving through the peak of their growth cycle’’, said RP Data’s director of research, Tim Lawless.
RP Data’s senior research analyst Camerson Kusher said this stellar growth in Sydney was having an impact buyers’ ability to afford property, especially at the lower end price range.
‘‘Affordability constraints are now entering the market,’’ he said.
‘‘The lower end of the market, while it is still seeing value rise, the rate of value growth across that segment has really slowed....we know at the moment a lot of the activity is actually at the middle and top end of the market.’’
Despite this Mr Kusher expected values in Sydney would continue to rise but probably at a more moderate pace than over the first quarter of the year.
‘‘I think Sydney will continue to be one of the best performing capital city markets albeit the rate of growth is probably not going to be as strong as we’ve seen in the past.’’
There was a similar pattern in Melbourne, where the top end of the market was still showing the most strength.
‘‘That lower end of the market is starting to slow as the higher prices really mean that a lot of those buyers aren’t in a position where they can afford to buy a property,’’ Mr Kusher said.
‘‘We are coming into a seasonally softer part of the year. When you are looking at a month to month index that isn’t seasonally adjusted it is quite possible that we could see some more monthly dips in the Melbourne housing market.’’
But Mr Kusher said Brisbane would be where the action is this year.
‘‘Brisbane is going to be the strongest housing market going forward from here and that is purely because the gap in pricing between Sydney and Melbourne compared to Brisbane has really widened and that was always the thing in the past that attracted people to Brisbane.’’
Of the other cities, Adelaide had the best monthly growth of 2.1 per cent, followed by Darwin at 1.1 per cent, while Perth and Hobart dwelling values grew by 0.2 per cent.
This slow down in the nation’s house prices follows a similar trend reported by Fairfax Media-owned Australian Property Monitors, which found that growth had eased in the first three months of this year, compared with the last quarter of 2013.
Australia and Hong Kong are consistently judged to have among the most open economies in the world but they have responded very differently to booming housing prices.
In the past two years Hong Kong has introduced a range of measures aimed at cooling its domestic property market, including a 15 per cent tax on property purchases made by foreigners and a doubling of stamp duty that applies to everyone except permanent residents who are first-time buyers.
It has had an impact. From January to October 2013, the total number of home sales in Hong Kong plunged 40.5 per cent compared with the same period a year earlier. Economists are forecasting residential property prices in Hong Kong will decline by about 10 per cent in 2014.
Meanwhile, over the North Pacific, Canada has just said a 28-year-old visa scheme designed to attract wealthy foreigners to the country is to be axed, amid growing fears of a housing bubble.
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Back in Australia, where, for instance, the median price of an apartment in Sydney is now $530,000, our policy makers seem divided on whether we even have a problem.
The RBA recently noted that while housing prices have been rising ''quite strongly'', the gains were still well below growth rates seen in the early 2000s.
More significantly, the RBA stressed that rising housing prices are an important channel through which expansionary monetary policy supports economic activity.
Rising housing prices and turnover stimulates consumer spending by easing home owners' borrowing constraints and raising home owners' perception of wealth, the RBA said. What it didn't say was that stimulating consumer spending via the housing market is necessary because many of the past drivers of economic growth in this country are evaporating. But housing is not just another asset class. As a tool for economic policy it is deeply flawed.
As academics such as Clive Hamilton, professor of public ethics at Charles Sturt University, have noted recently, affordable property plays a crucial role in the health of any vibrant society. ''It's where people live, put down roots, raise families and join in their communities,'' Professor Hamilton wrote last month.
From a social policy perspective a disaster long ago unfolded. First home buyers as a proportion of total borrowers have fallen to a record low of 12.3 per cent nationally, from about 20 per cent at the end of 2011, according to the Bureau of Statistics.
From a systemic risk point of view the prudential regulator might be the first to act. Last October New Zealand's Reserve Bank introduced restrictions on high loan-to-value (LVR) ratio housing mortgages. From October, NZ banks are required to restrict new residential mortgage lending at LVRs of more than 80 per cent to no more than 10 per cent of the dollar value of their new housing lending flows.
The NZ regulator justified the move by suggesting it is ''concerned about the rate at which house prices are increasing and the potential risks this poses to the financial system and the broader economy''.
So far Australia's regulators have said they don't believe Australia has reached a point where such measures need to be considered.
Instead the Australian Prudential Regulation Authority has relied on cautioning banks privately - including directors directly - against lowering lending standards. It has previously written to bank management and their boards urging diligence in this area.
Meanwhile, in Germany there is little history of persistent house price inflation, most often attributed to constant growth in housing supply and a central bank willing to take action when it believes property prices are rising unsustainably. For what you might pay for a modest flat in Ballarat or Wollongong you can still get a decent-sized family home in Cologne or Hanover.
Consumer confidence is near record highs in Germany, but unlike Australia, it is built on high job security and rising incomes off the back of the export of sophisticated consumer goods. Now that's a sustainable economy.
AUSTRALIA'S real estate market is in a bubble that will burst and wipe out up to half the value of property, a leading US economist has predicted.
And Melbourne will join Sydney as the hardest hit.
Harry Dent, a widely respected economist and demographer who has predicted a range of economic events including the 2008 global financial crisis, pointed to falling affordability in Melbourne and Sydney where prices are ten times the average income.
"Bubbles ultimately peak when the people buying can't afford to buy it," Mr Dent said.
"Melbourne has been, actually, the biggest bubble in recent years and I would expect the biggest burst there.
"In Australia obviously the bigger bubbles are in Sydney, Melbourne, Brisbane and Perth because they had the greatest growth and the greatest limitations in supply - but not quite as much in Adelaide and other cities."
The bubble would burst after a crash in the stock market and would be linked to an anticipated crash in the Chinese property market.
Mr Dent, who headlines a Secure the Future event in Sydney and Brisbane later this month, said most global markets, from London to a number of US cities, would also face market reductions.
"I see it like a popcorn popper, different markets are bursting at different times … but all of real estate in coastal cities all around the world is greatly overvalued and they're all going to burst whether it be 30 per cent or 40 per cent ... or 90 per cent in the worst case," Mr Dent said.
He said that worst case scenario would likely be China. Surging interest in Australian property from Chinese investors could be a sign the Asian superpower's rich were afraid of a looming crash at home.
"They want to leave the country, a lot of people have already left - and their favourite places to go are Australia, Canada, the US and New Zealand and London," he said.
Mr Dent has predicted the economic and real estate bubble in China will burst in the next couple of years, and Australia would be hit hard when it does.
"The China bubble is going to burst, starting around next year, and it is going to be the biggest bubble to burst. It is the greatest bubble, the most government driven, the most extreme in valuations," he said.
"Australia is the best country to weather this downturn and take advantage of the next boom.
"But this China bubble is going to back up on resource and commodity markets and it's going to hit Australia hard and I think it's going to cause your real estate to get hit and finally burst.
"I see real estate going down 60 to 65 per cent in the US, it's probably more like 30 to 50 per cent in Australia, but that's still enough for you to say: Hey why would you go buying real estate?"
Mr Dent argued buying property and expecting significant growth, 10 to 15 per cent, is crazy.
"Your real estate bubble is peaking ... and it is going to burst pretty substantially," he said.
"So why would you want to own real estate unless you're going to live in it forever or it's very important to your business.
"And why would you speculate on real estate, that's crazy at this point."
Real estate agents are notorious for talking up their properties in order make a sale. But now one has broken ranks by publishing the true meaning of their jargon.
Here are some of the lines used by real estate agents, and their translations:
Estate agent speak "The property has excellent transport links" Translation "There's a motorway and or busy railway line right next to it" Estate agent speak "In need of modernisation" Translation "This property hasn't been updated since the 1970s and needs a complete refit" Estate agent speak "An ideal purchase as your first three-bedroom home" Translation "You can barely fit a bed into the third bedroom" Estate agent speak "Set within a purpose-built residential development" Translation "This property is in the middle of a large housing estate" Estate agent speak "A cosy property in a rural location" Translation "This property is small and the nearest shop is 20 minutes' drive away" Estate agent speak "Easy-to-maintain living space" Translation "It's really incredibly small" Estate agent speak "Conveniently located" Translation "Next door to a busy main road and above a take away" Estate agent speak "Unexpectedly re-available" Translation "The previous buyer pulled out at the last minute due to major problems or the surveyor revealed that the property was vastly overpriced" Estate agent speak "Reduced" Translation "Desperate" Estate agent speak "Within easy reach of local schools" Translation "Kids will congregate outside your house at lunchtime and drop litter all over your driveway." Estate agent speak "Ideal for the first-time buyer or as a buy-to-let investment" Translation "The property's small and in a terrible area" Estate agent speak "Tremendous scope for improvement. A real blank canvas" Translation "Derelict" Estate agent speak "In need of some updating and offered with no onward chain" Translation "An old lady has recently died in the house and it hasn't been decorated since she originally moved in 50 years ago" Estate agent speak "A garden flat" Translation "A dark and most probably damp basement flat" Estate agent speak "Bordering the sought-after area of North Clapham" Translation "The property is actually in Stockwell" Estate agent speak "The property has many character features" Translation "The ceilings are extremely low" Estate agent speak "Low maintenance rear garden" Translation "The garden is concrete" Estate agent speak "Situated in a stamp duty exempt area" Translation "Situated in a deprived part of town" Estate agent speak "New price!" Translation "This property was massively overpriced in the first place" Estate agent speak " Character…." Translation "Dilapidated"
Property investors have rarely had it so good, even if it's at the expense of first home buyers. Rents are high, interest rates low and prices are creeping up again.
House values rose 1.7 per cent nationally in the March quarter, and soared 3.6 per cent in Melbourne, where prices had been moribund, while rents on units jumped 2.2 per cent, according to Australian Property Monitors. That makes the well-worn real estate agent spiel about property values doubling every 10 years sound plausible.
To achieve that, it would take an average 7 per cent rise a year. With record-low rates, growing population and strong Asian interest in Australian property, such annual rises shouldn't be too challenging.
As principal-home owners instinctively know, capital gains are tax free. Less appreciated, and something that drives economists spare, is that not having to pay rent is an implied income that isn't taxed.
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Property's other strong appeal is that it isn't superannuation, though it's attractive to DIY funds. Both sides of politics refuse to rule out more changes to super, making a geared property the only decent tax break neither would dare touch.
Not even the government's wide-ranging, and largely ignored, Henry review on taxation would go there. Even so, a way around the $25,000-a-year limit on salary sacrificing into super is borrowing to buy an investment property through a DIY fund - though the loan must be specially structured.
But forget a boom.
The Reserve Bank laid it on the line when a senior official, Luci Ellis, argued, in no uncertain terms, that ''trend housing price growth will be slower in future than in the previous 30 years''. Ouch. Left unsaid was trend growth has been about 10 per cent a year. But she did say there are more likely to be ''mildly'' deflationary years as well.
So choosing the right place is more critical than it was for baby boomers, who rode the debt escalator as prices took the express lift.
Values will rise an average 5 per cent in the eastern capitals at most this year, property experts say.
The single biggest influence on property is always population growth. No problem there. But the credit isn't available, or rather isn't being demanded, to fuel another price boom. On the contrary, owner-occupiers are more interested in paying down the mortgage. And Gen Ys are resisting the idea of having a huge mortgage in the first place.
Although the burden of mortgage repayments as a proportion of income has eased with record-low interest rates, it's still punishing because of high home prices, the jobs outlook or talk of a tough budget.
''First home buyers have gone missing,'' says buyer's agent and property expert Kevin Lee, principal of Smart Property Adviser and a mortgage broker with Smartline. For once, investors are more likely to be elbowing out each other, rather than first home buyers, at property inspections.
''This is a rare treat for property investors,'' says Joe Sirianni, executive director of mortgage broker Smartline.
Investors are armed with annual tax-deductible interest and expenses, while first home buyers must make do with a one-off government grant and stamp duty concessions. Investors have been given another leg-up by state governments in NSW and Queensland, which have removed the home grant and stamp duty concessions from established units or houses bought by first-time buyers.
As a result, loans for investors so far this year have jumped the most since the global financial crisis, though are still running at a relatively low level by past standards, but fallen for first home buyers, according to the Australian Bureau of Statistics.
The subdued housing construction that Australia has been experiencing since the global financial crisis is a mixed blessing.
There are fewer opportunities for developing new properties with their better tax break in the 2.5 per cent building allowance, but then it keeps supply tight, which is good for rents and vacancies.
Treasury expects a pick-up in housing construction will buffer the forecast winding down in mining investment later this year. There's something of a love-hate relationship between investors, who will continue to have the upper hand for a while, and their tenants - who are likely to be the first home buyers who they've outbid.
If you can't beat them, why not join them?
First-time buyers should consider investing before they settle down.
One of the best ways of building wealth is by staying at home longer and buying an investment property that you can move into later, or use the equity built up from it as a deposit for somewhere to live.
On average, the gross rent from a unit (except in Melbourne and Hobart) is more than the two-year fixed mortgage rate of 4.99 per cent. At first blush, that would make it almost impossible to be negatively geared since income would be greater than interest.
Alas, there are always maintenance and repair expenses, council charges, management agent fees and some periods without a tenant to be reckoned with.
The best rental yields are in Darwin, where units are averaging 6.3 per cent. But every city has its exceptions. Yields in Sydney's Ultimo, for example, are closer to 9 per cent before expenses.
Melbourne has the lowest thanks to a glut of apartments, beginning with Docklands, where prices are reportedly being discounted 25 per cent. There's also a vacancy rate of about 10 per cent.
Worse, there's a backlog of new apartment blocks that will be completed over the next year, adding to supply and depressing prices and rents. This could even spill to middle-ring suburbs.
Perhaps head due south for capital gains: Hobart is proving the best performer, having the advantage of coming off a low base.
The first decision for a property investor has to be the city in which to buy.
Unfortunately, looking down the street usually isn't a good idea, even though a property there is handy to keep an eye on and you might not need a managing agent.
Looking further afield offers far more opportunities and reduces the risk of having all your eggs in one location.
After all, one area, say in Queensland, will have a different property cycle to one in Victoria. You don't want everything going up or down together, do you?
So don't rule out buying interstate.
An immediate benefit is you'll avoid a potential land-tax liability, especially if you intend to have a portfolio of properties.
In a boom town such as Darwin, you might even get the best of both worlds: higher rents and price gains.
Even the Gold Coast, a serial underperformer for property investors in recent years, might be coming into its own now it has direct flights to Asia, where there are potential investors.
''I'd still be hesitant about an established apartment, but there are new developments in walking distance from [Gold Coast beaches] which cost $6000 a square metre compared with $11,000 to $12,000 in Sydney,'' says Jason Anderson, chief economist at property economist MacroPlan Dimasi.
One ready-made way of investing interstate is buying a Defence Housing
Authority (DHA) home. Properties are listed at dha.gov.au.
These are let to defence personnel and can be anywhere from Sydney's upper north shore to the back of beyond. Usually they are houses, but occasionally, new townhouses and apartments are offered.
They're sold under a leaseback, with the rent virtually government-guaranteed, payable whether or not there's a tenant and reviewed annually.
The DHA does all the letting and property management for a fee of 16.5 per cent of the rent for houses or between 12 per cent and 14 per cent for apartments and townhouses.
A lease is for nine or 12 years, after which you can sell or lease privately. But when it's up, you're on your own.
Location is always paramount when making property investment decisions.
Whatever you can afford must suit the demographics of the neighbourhood, which will also decide whether to buy a new or established property. New buildings come with extra tax concessions and are likely to be easier to let with fewer maintenance issues.
By the same token, you will be paying a developer's margin when you buy. On the other hand, an established property lends itself to capital value-adding renovations and will have a scarcity value. But don't go over the top with renovations, which are notoriously difficult to budget for.
Often a lick of paint, new carpet, stove and light fittings are all that's needed.
''Most important are the kitchen and bathroom,'' Lee says.
Units are doing better than houses, the result of baby boomers downsizing and younger buyers preferring to live closer to the city to save on transport costs. Even so, determining the better investment between units and houses will boil down to the area.
In a young demographic close to the city, proximity to transport, amenities, cafes and jobs will be paramount. For a house, you want a family demographic and it should be close to parks and schools.
Either way, you want somewhere with a growing population.
In line with Reserve Bank comments last week that there'll be occasions when property prices drop slightly despite the general upward trend of the market, an analyst on Wednesday released figures showing exactly that.
The RP Data-Rismark April Hedonic Home Value Index said that dwelling (houses and apartments combined) values dropped 0.4 per cent in Sydney; 0.5 per cent in Melbourne and 0.7 per cent in Brisbane. The fall across the eight capital cities combined over the month was 0.5 per cent.
RP Data's director of research, Tim Lawless, described the April results as a mere "stumble" on the road to recovery rather than any trend of values dropping.
“When viewed in line with other metrics such as auction clearance rates, private treaty indicators and some improvement in housing finance demand, it is likely that the negative April result will be a blip along the path to recovery.
“We weren't expecting that the high rate of growth evidenced over the first three months of the year would be sustained into April. A more measured pace of growth is a much more realistic outcome for the Australian housing market, especially considering that the first quarter is typically the strongest for value growth.”
The report said for the three months to April, dwelling values had increased 1.1 per cent in Sydney; 1.8 per cent in Melbourne and dropped 0.9 per cent in Brisbane.
The head of the Reserve Bank's financial stability department, Luci Ellis, told the Citibank Property Conference last Wednesday that house price growth would be "slower in future than in the previous 30 years" and suggested there could be occasions when prices drop slightly.
"If housing price growth is now cycling around a lower average, there will be more periods when prices are falling [a little] in absolute terms," Dr Ellis had said.
The RP Data figures showed that the best performing capital city for the three months to the end of April was Darwin with 5 per cent growth and Hobart was the worst performer with a drop of 1.6 per cent.
Darwin houses also had the highest gross rental yields with 6 per cent for houses and 6.1 per cent for units.
The lowest rental yields were in Melbourne, with houses 3.6 per cent and units 4.4 per cent.
RP Data confirms Sydney as the most expensive city for property with a median dwelling price of $565,000. Most affordable is Hobart with a median dwelling price of $311,500.
HOUSING affordability remains a problem across Australia, with many first-home buyers still priced out of the market despite recent interest rate cuts.
JP Morgan's latest snapshot of the local housing market ranks Australia in second place behind Hong Kong for having the world's highest house prices.
The report's co-author Martin North said mortgage repayments remained high because the average loan was getting bigger and the major banks had not passed on the Reserve Bank of Australia's interest rate cuts in full.
As a result, potential home buyers in major capital cities were being put off from plunging into the property market.
"In some of the major markets, such as NSW and Western Australia, over half the people who want to buy can't because they can't afford to,'' he said.
While first-home buyers were put off by high house prices, existing property owners looking to buy wanted to downsize to smaller properties.
The report's fellow co-author Scott Manning said these vendors would not sell at a lower price.
"We've got a generational shift which will take 20 or 30 years to play out,'' he said.
"These people have ridden the wave up but someone's got to buy off them.''
Mr Manning said it was likely the major banks would maintain their current trend of not passing on the RBA's rate cuts in full for another two years.
