January 8, 2025 • 34 mins
SQM Research's Managing Director Louis Christopher recently joined us to offer a detailed overview of what buyers, sellers, tenants and landlords can expect in 2025. In this wide ranging discussion, Mr Christopher outlines
- the process the RBA will go through before cutting rates
- how the Sydney market is likely to perform with and/or without a rate cut in Q1 2025
- the impact a Federal Election has on property markets
- the importance of Money Markets when anticipating interest rate movements
- the surprise jump in Home Loan applications
and much more...
As always if there is a specific topic you would like for us to cover, please reach out and let us know!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Welcome to Talking Property Today.
I'm joined by SQM researchersLouis, christopher, as we
preview the 2025 Sydney propertymarket.
Louis, thanks as always forbeing with us, thanks for having
me on once again, peter.
Louis, you've put out your boomand bust report in late 2024,
an excellent report.
I want to bring up yourscenarios for the nation, if I
can here, and just have a chatto you about those.
(00:27):
Yes, would you like to walk usthrough your base case for the
2025 Sydney property market?
Speaker 2 (00:32):
So for this year our base cases at dwelling prices
overall nationwide will changesomewhere between plus one to
plus 4%.
However, when it comes to theSydney housing market, we're
forecasting net housing pricefalls of minus 1% to minus 5%
and essentially what we thinkwill happen in Sydney for this
year is that the housing marketwill fall for the first half of
(00:55):
the year.
We will get those mid-year ratecuts and then we'll start to
see a recovery in the Sydneyhousing market starting in the
second half of the year.
Speaker 1 (01:04):
So you're thinking rate cuts will come in mid 2025?
Yes, we've got a federalelection scheduled for somewhere
, realistically, betweenFebruary and May.
Speaker 2 (01:15):
Yes.
Speaker 1 (01:15):
It can't be any later than May.
They may start it in Februarywith a March election before the
footy season starts.
So you're thinking the RBAcould leave the government
hanging with no rate cut untilafter the election?
Speaker 2 (01:28):
It is certainly possible.
Look, the Reserve Bank ofAustralia is data driven, so if
we get more good news on theinflationary front, the RBA may
well cut sooner.
Speaker 1 (01:42):
More good news on the inflationary front means more
bad news for the economy'sperformance, though, doesn't it?
That should be pointed out.
Speaker 2 (01:50):
Potentially yes, because we have a productivity
issue.
So it will likely mean that ifwe see a further slowdown in
inflation, it does mean theeconomy is overall slowing down
too.
Speaker 1 (02:01):
Yeah, If we can go to your scenario three.
I always like to have a look atall your scenarios and just
take a look at that.
If the RBA were to cut sooner,you think that'll have a direct
impact on how the propertymarket performs.
Speaker 2 (02:13):
Yes, and that is because the Sydney housing
market in particular will havemore of the year to recover into
.
Essentially so the forecast isthat if we were to see a rate
cut, say, for example, in March,then our forecast is that city
housing prices will rise for theyear between plus three to plus
seven percent.
Speaker 1 (02:33):
There were some dire economic numbers to finish 2024.
How concerned or consciouswould the RBA be of that?
And and would they be sort ofnot happy but satisfied to see
the worm is turning in terms ofslowing economic activity and
(02:53):
inflation down?
And are they jawboning us?
Essentially, louis, are theytalking tough but they're
privately preparing to act witha rate cut?
Speaker 2 (03:03):
Look, they could be Peter, they could be.
However, I think what wouldalso be a concern cut, they
could be, peter, they could be.
However, I think what wouldalso be a concern for them is
stagflation.
So that's where you have a flat, slowing economy, potentially
even a recession, but inflationis still not coming down A
little bit like what we had inthe 1970s.
And that makes their jobextremely difficult, because
(03:24):
they've got two forces they needto respond to firstly, a
slowing economy but stillsticking inflation, and their
mandate is to try and addressboth at the same time,
potentially.
So it is a difficult one forthem, I think.
If they were to see somesignificant rises in
unemployment, well then I thinktheir they were to see some
significant rises inunemployment, well then I think
(03:46):
their focus would be more to theslowing economy and to heck
with what the inflation is doing.
Speaker 1 (03:53):
If we see unemployment get out to say 4.5,
4.6%.
From where we are to that point, what will the economy look
like there and the RBA's policy?
Speaker 2 (04:05):
Well, potentially you would see an absolute negative
quarter of GDP.
So that would be once againplaying on the minds.
But the RBA would be saying,okay, look, 4.5% unemployment,
that's still relatively good inthe scheme of things, perhaps a
little bit above our or belowour actual capacity somewhere,
(04:27):
say, around 4%, and they maywell actually welcome that
because it's a sign of economicslowdown.
Now would they cut in thatenvironment?
I don't know, I'm not a centralbanker, but I'm pretty sure if
it were to get above 5%, headingtowards 6%, then the pressure
would be on them in a big way tostart cutting rates, no matter
what inflation's doing.
Speaker 1 (04:48):
Louis, as you said, central banks with stagflation
have a no-win scenario, becausethey've got to manage
unemployment to a sensible leveland they need to manage
inflation, and sometimes there'sa clash on those two points.
How prepared is a central bank,how prepared are they to go
into recession to win on theirmandate, keeping in mind that
(05:11):
recession versus not being inrecession and in growth is not
really part of their mandate?
Speaker 2 (05:17):
Really good question, peter.
I think, knowing these people,as I do, these professionals,
having a recession on theirresume would not go down well at
a personal level.
So I think they wish to avoid arecession, but at the same time
(05:42):
, they also cannot afford arecognition of inflation.
Speaker 1 (05:43):
There is a lot of finger pointing between the
government and the RBA at themoment, isn't there?
Speaker 2 (05:46):
The RBA is saying the government's spending too much
and the government is sayingthat the interest rates are and
there is a good argument thatthe government is indeed
spending a lot of money andsucking a lot of capital out of
the economy.
So public expenditure as apercentage of GDP is now
actually up to 28%.
If you know your numbers, Peter, you may recall certainly back
(06:08):
when ScoMo was in power that thenotion of being above 23% was
regarded as something theydidn't really want to do.
So now that we're at 28%, itdoes show that the government's
becoming an increasingly largercomponent of the economy.
Speaker 1 (06:25):
Which is not healthy.
Speaker 2 (06:27):
Not in the long term.
Not in the long term, that iscorrect.
It may well in part explain whywe've had falls in productivity
.
Speaker 1 (06:32):
Yes, louis, for our audience they hit, as we all are
, with such contradictorymessages around interest rates.
So you have esteemedcommentators in the marketplace
that all have a different viewon what the RBA should do and
what interest rates will do.
You have the money markets thatplace bets on what interest
(06:53):
rates will do you have the RBAstatement after every meeting.
Which are they jawboning us inthat meeting or are they telling
us, are they giving us a realinsight into their thinking?
Who should we and what shouldwe follow with this whole
interest rate story?
Because everyone hascredibility to some degree in
(07:16):
this space, but they allcontradict each other.
Speaker 2 (07:19):
Well, that's true.
Yes, and you rightly point out,there are people who say we
should do something, versuspeople who say this is what will
happen.
Speaker 1 (07:26):
Sorry, I missed one key group in that as well.
Sorry to cut in on you theretail banks.
And the reason the retail banksare so important in that mix of
people that have a view.
Is the Commonwealth Bank, forexample, think the RBA will cut
in February?
Yes, and after the RBA, theretail banks probably see more
nuanced data than anyone else inthe country and they must be
(07:49):
seeing something in their booksfor them to reiterate their call
that the RBA will cut inFebruary.
Speaker 2 (07:56):
Well, we must remember that, when it comes to
the major banks at least, theypay a very close eye to what the
money markets are doing,because they regularly trade in
the money markets.
So they look at the long-termend of what we call the yield
curve, so 10-year bond ratesversus two-year bond rates, and
they essentially trade betweenthe two.
(08:16):
So of late we've been seeingthe 10-year bond rate come off,
which is generally good news forthe economy, and they are able
to, to an extent, cut interestrates even while the RBA doesn't
cut rates, because they cantrade their way through,
especially if, say, two-yearbond yields come off, five-year
(08:40):
bond yields come off, they keepfalling.
They're able to use that toactually cut the variable rate.
Now, it's not that easy to do,but that's what they generally
do do.
How we forecast interest ratesis that we don't rely on anyone
in particular.
We follow what the moneymarkets are doing.
So when we come out with ourforecast that interest rates
(09:01):
would be cut mid-year, it wasbecause the money markets were
pricing that in.
And so, while the moneymarket's not perfect, because no
one knows the future for sure,more often than not the money
markets do get it right, forsure, more often than not, the
money markets do get it right,and hence the reason why we put
our hat on that.
Okay, it is more likely thannot.
(09:23):
We will see a final cut ininterest rates mid-year 2025.
Speaker 1 (09:25):
It was an interesting one.
In 2024.
I think it was Macquarie Bankreduced their interest rate for
a very short time and thenpopped it back up.
So that was like they weretrying to front-run the market
on yeah, we're going to get ratecuts.
And then data came through tosuggest you're on the wrong side
of the call here.
Speaker 2 (09:44):
Yes, that's right.
Speaker 1 (09:46):
So talk us through what's happened there, and that
wasn't really a proud moment forthe bank.
Speaker 2 (09:50):
So there was a brief period where interest rates or
the money markets were fallingin terms of yield, before the
Trump government was elected.
When the Trump administrationwas elected, yields went up
again, and so Macquarie werebriefly caught out that way.
Over and above that is it isactually a very competitive
(10:14):
lending industry right now, andso many banks are competing with
each other on price, on lendingrates, and to the point where
some are essentially cuttingtheir throats, particularly the
smaller operators.
They're finding the sector verytough indeed to compete,
whereas the banks, of course,have got scale.
Speaker 1 (10:43):
Louis, is there a point that the RBA have done
such damage to the economythrough their interest rate
setting that a rate cut or twodoesn't actually turn things
around the way people think andhope they might?
Speaker 2 (10:51):
There is that risk depending on when they actually
cut rates and potentially howmuch they cut by.
The RBA, as with many centralbankers, have a history of not
getting this quite right interms of picking the turnaround
in the cycles.
Once again, we go back to the1990 recession, where interest
rates were briefly at 18% andthe economy was in recession.
(11:13):
So there is a risk of thecentral banks and the Reserve
Bank of Australia getting theirtiming wrong and the magnitude
of the rate cuts wrong.
This is true.
Speaker 1 (11:23):
So are you in the camp that thinks they should
wait for the data to beabsolutely and utterly
conclusive or, as the data istrending in a certain direction,
try and manipulate it or make amove at that point to avoid the
worst of what that data issuggesting?
Speaker 2 (11:40):
Paul Holmes, I'm a little bit more neutral about
what they should do.
I'm more focused on what theymight do.
James Hemsworth, look, I think,looking back in hindsight, they
were right not to lift rates ashard as what other central
banks did, and then that, byvirtue, means that they not to
lift rates as hard as what othercentral banks did, and then
that, by virtue, means that theyhad to keep rates higher for
longer to offset.
(12:01):
As I've said many a time, Iwould hate to be a central
banker.
It's a very difficult job.
Should they be cutting ratesnow?
There is an argument to cutrates now.
There's no question the economyhas been slowing.
It's been propped up a bit byvery strong population growth.
No question about that and thatwould be playing on the RBA's
(12:24):
mind as well that thecombination of increased
government spending plus theexpansion of the country by
north of 500,000 people a year,which adds to aggregated demand,
potentially keeps inflationelevated.
That would be a concern forthem for sure.
Speaker 1 (12:42):
So if we just quickly look at your scenarios here
again, scenario one, which isyour base case Sydney will pull
back.
This is dwelling pricessomewhere between minus five and
minus 1%.
If we don't get a rate cut tothe middle of the year, I'm
going to go for scenario three.
Uh, in 2025, louis, and I thinkthey're going to cut in the
(13:03):
first quarter.
Um, I've only formed that viewin the last week, but the gdp
number and and and what that allsuggested which I must say,
that this report was puttogether before that poor GDP
number in 2024.
Speaker 2 (13:14):
Yes.
Speaker 1 (13:16):
So it didn't capture that low reading, did it?
Speaker 2 (13:19):
It did not capture that low reading.
But even as we stand today, I'mgoing to differ with you.
I do not think that they'regoing to cut in the March
quarter.
I think unemployment's not highenough yet.
I think there is still somefairly strong forces out there
on the overall demand side.
But I do hear you that.
Look, the economy overall isslowing and on a per person
(13:42):
basis people are hurting.
Speaker 1 (13:44):
Yeah, we'll do lunch on that one.
All right, that's good.
Speaker 2 (13:47):
Yes, well, so far on the geopolitical front, you've
got one up on me.
Speaker 1 (13:52):
So, moving along to the rental market, in late 2024,
on the ground, we noticed anoticeable shift in the rental
market.
It didn't start falling, butlandlords were looking for
year-on-year or lease-on-leaseincrease in prices and they were
saying where are the crowds?
And it's like the crowds aregone.
Speaker 2 (14:14):
Yeah, that's right.
Speaker 1 (14:15):
Now they may come back early in 2025 with the
start of the university year andthey will to an extent To an
extent, but you're not seeingthe same growth in the rental
market.
The reverse, actuallypotentially for 2025.
Speaker 2 (14:31):
Yeah, so for 2024, sydney rents finished up by
about 3%, which was just underthe CPI, so that's the slowest
rate of rental growth we'veactually had since the COVID
days.
We still have a rental crisisin Sydney.
There's no question about that,but how tenants have been
responding is that they've beengrouping together and, as stated
(14:55):
earlier, lots of people aredoing it tough, so they need a
place to live in, of course.
What do they do?
They stay with their parentsfor longer, they share with more
people, and by doing that, yousee an increase in the number of
persons per dwelling, and thatultimately then reduces demand
(15:15):
for rental properties comparedto the amount of stock that's
out there.
Speaker 1 (15:22):
So prices got to a point where they changed
behaviours.
Speaker 2 (15:24):
They changed behaviours because rents just
got too high and they had tochange accordingly their
behaviour.
Speaker 1 (15:33):
And talking about consumer behaviour, a very
interesting trend that westarted to see in the back end
of 2024, instead of mum and dadturning up to the auction to
help their children hopefullysecure a property or negotiate
one, mum and dad were turning upto the rental open with the
kids to help them secure arental property.
(15:54):
So that's how tight it got outthere that mum and dad felt the
need to act as a guarantor or asa security blanket to help the
kids get a rental property.
Speaker 2 (16:03):
I've never seen that in my 30 years in real estate,
I'm not surprised when you see alot of competition between
tenants, any edge that a tenantcan get in terms of look local
here.
Here are my parents willing toguarantee this rent?
That that would help yeah, itwas.
Speaker 1 (16:18):
It was an interesting one.
Uh, look, we do have a rentalcrisis still, even though rent
the rental market is settlingdown.
Yes, we have a housing crisisas well.
Yes, this next slide, if we canbring it up here, won't make
anyone happy.
This is total dwellingscommenced.
So, unless we're going tochange our immigration policy as
(16:38):
a country, we need more housing.
Yeah, what's happening here,louis?
Speaker 2 (16:42):
Yeah, so this is a number of you left.
Look at the left side of thechart.
We've got numbers there 40,000,45, 50,000 dwellings.
This is the number of dwellingscommenced on a quarterly basis.
So in 2024, we were essentiallyaveraging about 40,000
dwellings commenced on aquarterly basis.
(17:02):
Or, if you analyse that number,that's about 160,000 dwellings
that were essentially in thepipeline over 2024.
And for 2024, we believe thefinal number of dwellings being
completed will be about that160,000 mark.
Now the issue with that is thatfor 2024, we strongly believe
(17:24):
that the population expanded byover 500,000 people.
Those two numbers do not gointo each other very well, do
they?
Now there's basically morepeople coming in than what we've
built to actually accommodatethem.
Speaker 1 (17:39):
So how many people live per dwelling on average?
Speaker 2 (17:42):
Well long term the average has been well over the
past 10 years has been about twoand a half persons per dwelling
.
That's changed.
At times, like during COVID,that got down to lower than two
and a half and of late it's beenincreasing up to about 2.7
persons per dwelling okay.
Speaker 1 (18:00):
So we're underperforming there, obviously
, if we can bring up our nextslide here, building costs are a
major impediment for builderswanting to commence a new
project.
Yes, this is a real problem forgovernment now, isn't it?
They're approving, they'vefinally cut some red tape and
they're getting approvalsthrough to the market.
Speaker 2 (18:21):
Yeah.
Speaker 1 (18:22):
But the builders are saying, hey, we're not building
in this environment.
We don't have confidence thatthe market will be there at the
end to pay a profitable price.
Yes, and part of the reasoningthat is where is the market
going?
On price, but also where issupply chains and costs and
inflation going whilst I'mbuilding, because they've all
(18:45):
been nailed essentially in thelast three years with cost
overruns, haven't they?
Speaker 2 (18:50):
That's completely true.
Over and above that, peter isgetting the finance, because the
truth is that the major banksare rarely lending to property
developers these days, unlessyou're a huge name, right?
So what's going on is that alot of property developers are
needing to go to the non-bankfinancial sector to secure
(19:11):
funding.
Now, the issue with that isthat the non-bank financial
sector like charging a nominalleg when it comes to interest
rates.
We're talking, say, a lendingrate of 10%, 11%, perhaps even
more.
Speaker 1 (19:23):
So that's loan sharking really.
Speaker 2 (19:25):
To an extent, and that of course adds to the
overall cost budget of adeveloper trying to make a
project work.
Yes, hence they're not buildingbecause… Hence, they're not
building.
I mean, they're not buildingfor a number of reasons.
To your point about confidence,that's true Also.
Of course, there's still issueswith local council blocking
(19:48):
developments and creatinguncertainty there too.
Speaker 1 (19:51):
I think from the local council perspective is
that everyone thinks that thedeveloper, who we need them to
build more, as you've justoutlined, the developer should
fund all of the infrastructureas well and infrastructure costs
on behalf of the developerthat's just trying to put some
dwellings up for the people thatare needing a new house.
I heard recently that we'resaying we should make developers
(20:13):
provide contributions formobile phone towers.
How does a developer who buildshouses end up paying for mobile
phone towers?
Speaker 2 (20:21):
Well, developers are already making a contribution
through a bill, through thetaxes, the various taxes there
are within a propertydevelopment, a project.
The taxes are not immaterial,put it that way.
So there's a good argument thatthey're already making
contributions indirectly.
James Hemsworth, absolutely,peter Lawrence.
(20:42):
Then, over and above that,going back to the confidence
issue, we've had a period wherethe quality of the build of a
number of the projects has notbeen that particularly great.
In the last 10 years.
There's been some real issueswith some complexes in and
around Sydney which have grabbedthe headlines, and I think
government need to do more onthat front in terms of oversight
(21:06):
of the quality of these builds.
Too many times I've seen peoplelose a lot of money over off
the plan developments and Ireally do mean a lot of money
over off the plan developments,and I really do mean a lot of
money.
Speaker 1 (21:17):
Oh yeah, it's very common.
I don't like to say it.
I certainly don't want to rubsalt into the wounds for anyone,
but it's very common to sell aproperty, an apartment, at the
moment in a poorly built complexthat sells for a lower price
than they paid in 2014.
Absolutely, and they're luckyto get the price they want.
Speaker 2 (21:34):
Yeah.
Speaker 1 (21:35):
And again, I don't want to single out any
particular region, but if you goout to the Ryde Council, for
example, people up and downVictoria Road there with some of
those complexes definitelycould not sell their property
for anywhere near what they paidfor it eight, nine years ago.
Speaker 2 (21:49):
Exactly, and I think that's becoming.
The community is becoming moreaware of these issues off the
plan, yes, and the fact that therisks are very, very high
indeed.
Speaker 1 (22:02):
Yeah.
Speaker 2 (22:03):
Something needs to happen on that front to build
confidence within the off theplan sector.
I'm not sure exactly what needsto happen, but something needs
to happen there.
So, as we can see, when you putall these things together, no
wonder we're under building.
No, wonder.
And I just don't see it changinganytime soon.
And when we look at theseleading indicators, I don't
(22:26):
think it is going to changeanytime soon.
Look at these leadingindicators I don't think it is
going to change anytime soon.
And then you've got the issue,of course, where the federal
government has made a commitmentto build 1.2 million dwellings
through to 2029.
Well, I can tell you, in yearone they're well and truly
behind the run rate required.
That run rate required is240,000 dwellings a year.
In year one at best, we'll bebuilding 160,000 dwellings a
(22:48):
year, and year one at best we'llbe building 160,000 dwellings.
Speaker 1 (22:51):
So when you say the government should do more, what
are some creative and boldsolutions not saying they'll
become government policy, butwhat are some creative and bold
solutions that either the stateor the federal government could
implement to really startbreaking the back of this and
turning, you know, propertiesnot just from approvals but into
hard construction and livabledwellings.
Speaker 2 (23:13):
Oh look, I think there needs to be a bit of a
carrot and stick approachtowards developers.
I mean, look, they're notangels in themselves, as we all
know.
So the carrot would be let'sget some real tax breaks
happening for developers.
Not add to the cost, let's takeaway from the cost of the build
.
Then, at the same token, thestick will be they must build.
They're holding on toGreenfield's land, undeveloped
(23:38):
land for an extended period oftime.
Well, that should be a no-no aswell.
They must build.
Then, potentially, what wecould also do is get the banks,
or perhaps get a better lendingsolution towards the development
sector, where they're notpaying 11, 12% interest rates,
they're paying something that'smore reasonable.
(23:59):
That would help make theproject work as well.
And then, yeah, we need alsomore cooperation from local
councils.
Speaker 1 (24:07):
Yeah, louis, I just want to move on to your next
slide from your boom and bustreport, which I encourage
everybody to get hold of.
This here is new home loan orhousing loan commitments.
Can you walk us through whatwe're seeing here?
Speaker 2 (24:20):
Yeah.
So this is a good leadingindicator of demand.
So it's a measure of how manypeople are taking out housing
finance and, generally, ifyou're taking out a loan, you're
going to buy a property.
Now what this shows, of course,is that we had a big dip over
the course of 2023 in terms ofhousing finance approvals, but
since then and over the courseof 2024, surprisingly, there's
(24:44):
been a lift in housing financeapprovals both on the investor
front and the owner occupy front.
So there's been a lift inhousing finance approvals both
on the investor front and theowner-occupier front.
So that's been interesting.
So, normally, when you see that, you tend to start to see a bit
of a rise in housing prices and, as noted in 2024, there was a
slight rise in housing prices,but not in our largest capital
(25:04):
cities.
It was mainly in Brisbane, inPerth, in Adelaide, in
particular.
So an interesting chart.
Interesting in the sense thatthis time round we've had a rise
in housing finance approvalsbut we've still, overall, had,
you know, just a marginalincrease in dwelling prices for
2024.
Speaker 1 (25:25):
Look, this was one of the more surprising slides from
your report for myself.
Speaker 2 (25:30):
Yes.
Speaker 1 (25:30):
And the reason I was surprised by this is I wasn't
expecting it to be thatconfident, based on what we've
been seeing in the marketplace.
I'm not saying the marketplaceis dire, but I wasn't expecting
new home loan starts to beshowing this sort of upward
trend.
Would this be forming part ofthe RBA's decision around
(25:50):
interest rate cuts that there isthis underlying demand that if
they again, if they time itwrong, if they go too early, if
they don't get it right, itcould just pop again and people
are off to the races.
Speaker 2 (26:02):
Correct.
They'd be very conscious ofthat.
They would understand why thisis happening.
This is happening because we'vehad very strong population
expansion once again.
Yes, so the average person outthere probably doesn't feel like
taking out a million dollarloan right now, but since the
population is expanded by north500 000 people, there's a lot of
those people who have the theborrowing power to go into the
(26:26):
marketplace so we're reallyseeing the importance here of
the immigration policy and itsimpact on housing.
Speaker 1 (26:33):
Yes, In late 2024, the alternate to the current
government, Peter Dutton, cameout with his view on what he
might do with immigration and hesort of he had a shift there in
what he's thinking.
Do you want to walk us throughthat?
Speaker 2 (26:51):
Yeah, well, initially in earlier 2024, it appeared as
though the LNP opposition had adifferent approach to migration
.
They were more boisterous aboutit.
They said that they wanted tocut annual migration down to
about 160,000 people.
Wanted to cut annual migrationdown to about 160,000 people.
(27:11):
Then it appeared as though, asyou mentioned, in late 24,
dutton came out and he generallywas more ambivalent about what
he wanted to do and he said look, we'll wait and see what the
economy is doing before we comeup with a specific target.
So that was a change, and a veryinteresting change indeed, and
what it suggests is that theylook to population as
(27:33):
potentially one where, if we cuttoo aggressively, it could
actually put the economy inrecession.
But at the same time, theeconomy is somewhat in recession
on a per capita basis, in partbecause we've got a very strong
population, and we've got verystrong population and we've seen
a fall in productivity.
So it's an interesting one tosee how it's going to play out
(27:55):
politically for them.
I can understand why they'vecome out and said what they've
come out with.
I don't think it's going to godown too well with their base.
Speaker 1 (28:04):
Louis, let's get a little bit more micro about
Sydney going into next year.
What segments of the marketwhether it be suburbs or market
niches apartments, houses,suburbs regions do you think
will be the strongest performersin 2025?
Speaker 2 (28:19):
I think the outer ring for existing units will be
a good defensive play.
They are affordable.
They will appeal to the growingpopulation.
They will still appeal toessential service workers.
Meanwhile, when we look at theinner city ring, particularly
the CBD, we're recordingskyrocketing stock for sale for
(28:42):
apartments in the CBD area.
Speaker 1 (28:44):
Why do people not want to live in the CBD?
Speaker 2 (28:47):
That's a very good question.
Look, the truth is thatapartment prices in the CBD are
still very expensive.
You're looking at spendingnorth of a million dollars for
just a standard two-bedroom unit, so that would certainly put a
lot of people off, but thereality is that that is a market
that is set to severelyunderperform and probably will
(29:09):
fall more than just 1% to 5%.
Speaker 1 (29:10):
Look, that's a fascinating statistic in its own
right, because Chris Minnswants to flood the inner city
with more apartments.
Speaker 2 (29:18):
Yeah, and look from an affordability factor.
Falling unit prices do helpwith housing affordability
there's no question about thatbut we're starting from a fairly
high level, as mentioned before, so it's going to be very hard
still for the average worker toafford an apartment in the CBD.
Speaker 1 (29:41):
And if we don't see interest rate cuts until later
in 2025,?
We've spoken a lot about whathappens when we see rate cuts in
the first quarter and mid-year,but if they don't come to late
2025, let's say the Trump agendais inflationary, as many have
predicted, and that means thatrates need to be higher for
longer and there's stagflation.
(30:01):
How does that play in themarket?
What does that look like atthat point?
Speaker 2 (30:06):
So, yeah, that's our second most likely scenario that
there is no interest rate cutat all in 2025.
And on that scenario, webelieve housing prices in Sydney
would fall by up to 8%.
That would be pretty tough.
It would be tough.
You're talking, then, firstly,of a slowing economy, economy
(30:27):
where there's even lessconfidence in what we have now,
even more disappointment byhousing market participants that
interest rates haven't been cut, and more and more people would
be on the sidelines.
And then, over and above that,I think you would see more
distressed selling in Sydney aswell.
Speaker 1 (30:43):
Louis, in closing, what X factors?
Things that haven't beenconsidered, that could
potentially play a role in themarket next year.
Do you want to have a stab atthat for us?
Well, we've covered a lot ofground here, Peter, and we've
talked about interest rates.
That's clearly one.
Speaker 2 (30:57):
Population yes, so there is a chance that we see an
unexpected fall in migration.
In its own right, there is thatoutside chance.
Treasury have been counting onthat, but it hasn't really
happened.
But it could finally happen, sothat's one we need to watch
very closely as well.
Are we going to suddenly see aspike in building supply?
(31:19):
We're definitely not going tosee that, so we can rule that
out.
Are we going to see a crash inhousing prices?
I think we can rule that outbecause we've got this
underlying shortage of realestate, and whenever I study
previous crashes, worldwidehousing crashes, there's one key
ingredient which has been inall of them and that is a
speculative oversupply of realestate beforehand, before the
(31:41):
crash.
We definitely do not have thatin this country, so I think we
can definitely rule out a crash.
Other factors which we need toconsider the terms of trade,
iron ore prices.
Speaker 1 (31:53):
Yeah, okay.
And is the Trump agenda pro oranti the iron ore price?
Speaker 2 (31:58):
all in all, oh, I think it's neutral.
It's neutral because Trump isgoing to stimulate the US
economy, and he's going to dothat by tax cuts.
At the same time, he's going toincrease energy supply, which
will help stabilise globalinflation or perhaps even
potentially create a globaldeflationary environment.
(32:20):
He's offsetting that because hewants to do tariffs, and that
is inflationary as well and thatcould slow down the Chinese
economy in particular.
I think his tariffs are goingto be focused towards China in
many respects If the Chineseeconomy goes into a double dip
recession.
And despite their nominalnumbers not showing a recession,
(32:42):
I think the reality is theeconomy has been contracting in
China.
That would be bad for basecommodity prices, so that's one
that we need to watch out for.
Speaker 1 (32:53):
Okay, now, every time a federal election comes around
, there's a view that people siton their hands until they see
what happens.
Do the numbers support that interms of the housing market's
performance?
Do people go to the sidelines?
Is there less activity?
Speaker 2 (33:08):
They do.
Speaker 1 (33:09):
Is there a drop in activity?
Speaker 2 (33:11):
So, historically, what you see in the few weeks
leading up to the election dayis a fall off in auction volumes
.
We'll see that again this year,for sure.
Speaker 1 (33:21):
And does either party at this stage and it is very
early to they'll both come outwith different policies on
housing?
Does either party have asuperior policy to, in your view
, around housing?
Speaker 2 (33:34):
Oh, I think we need to wait see until closer to the
election to see exactly what thepolicies are.
I think Labor's been prettyclear what their policy is that
they wish to build 1.2 milliondwellings and they've given a
bit ofa plan how they do that.
So far they haven't been ableto meet those goals as yet.
Speaking of what's been builtto date, we need to see more
(33:55):
policy come out.
I think more policy will comeout because housing is a
critical issue across thecountry.
It's a talking point for manyin a community.
Speaker 1 (34:05):
It certainly is, louis.
That's an outstanding previewof what's going to happen in
2025.
And we look forward to catchingup mid-year to see how it all
plays out.
Speaker 2 (34:14):
Great Peter.
I look forward to the Junecatch-up.
Speaker 1 (34:16):
Thanks for coming in today, cheers, and thank you for
joining us today on TalkingProperty.
We look forward to speakingwith you in the middle of 2025.
Thank you.
Welcome to Talking Property Today.
I'm joined by SQM researchersLouis, christopher, as we
preview the 2025 Sydney propertymarket.
Louis, thanks as always forbeing with us, thanks for having
me on once again, peter.
Louis, you've put out your boomand bust report in late 2024,
an excellent report.
I want to bring up yourscenarios for the nation, if I
can here, and just have a chatto you about those.
(00:27):
Yes, would you like to walk usthrough your base case for the
2025 Sydney property market?
Speaker 2 (00:32):
So for this year our base cases at dwelling prices
overall nationwide will changesomewhere between plus one to
plus 4%.
However, when it comes to theSydney housing market, we're
forecasting net housing pricefalls of minus 1% to minus 5%
and essentially what we thinkwill happen in Sydney for this
year is that the housing marketwill fall for the first half of
(00:55):
the year.
We will get those mid-year ratecuts and then we'll start to
see a recovery in the Sydneyhousing market starting in the
second half of the year.
Speaker 1 (01:04):
So you're thinking rate cuts will come in mid 2025?
Yes, we've got a federalelection scheduled for somewhere
, realistically, betweenFebruary and May.
Speaker 2 (01:15):
Yes.
Speaker 1 (01:15):
It can't be any later than May.
They may start it in Februarywith a March election before the
footy season starts.
So you're thinking the RBAcould leave the government
hanging with no rate cut untilafter the election?
Speaker 2 (01:28):
It is certainly possible.
Look, the Reserve Bank ofAustralia is data driven, so if
we get more good news on theinflationary front, the RBA may
well cut sooner.
Speaker 1 (01:42):
More good news on the inflationary front means more
bad news for the economy'sperformance, though, doesn't it?
That should be pointed out.
Speaker 2 (01:50):
Potentially yes, because we have a productivity
issue.
So it will likely mean that ifwe see a further slowdown in
inflation, it does mean theeconomy is overall slowing down
too.
Speaker 1 (02:01):
Yeah, If we can go to your scenario three.
I always like to have a look atall your scenarios and just
take a look at that.
If the RBA were to cut sooner,you think that'll have a direct
impact on how the propertymarket performs.
Speaker 2 (02:13):
Yes, and that is because the Sydney housing
market in particular will havemore of the year to recover into
.
Essentially so the forecast isthat if we were to see a rate
cut, say, for example, in March,then our forecast is that city
housing prices will rise for theyear between plus three to plus
seven percent.
Speaker 1 (02:33):
There were some dire economic numbers to finish 2024.
How concerned or consciouswould the RBA be of that?
And and would they be sort ofnot happy but satisfied to see
the worm is turning in terms ofslowing economic activity and
(02:53):
inflation down?
And are they jawboning us?
Essentially, louis, are theytalking tough but they're
privately preparing to act witha rate cut?
Speaker 2 (03:03):
Look, they could be Peter, they could be.
However, I think what wouldalso be a concern cut, they
could be, peter, they could be.
However, I think what wouldalso be a concern for them is
stagflation.
So that's where you have a flat, slowing economy, potentially
even a recession, but inflationis still not coming down A
little bit like what we had inthe 1970s.
And that makes their jobextremely difficult, because
(03:24):
they've got two forces they needto respond to firstly, a
slowing economy but stillsticking inflation, and their
mandate is to try and addressboth at the same time,
potentially.
So it is a difficult one forthem, I think.
If they were to see somesignificant rises in
unemployment, well then I thinktheir they were to see some
significant rises inunemployment, well then I think
(03:46):
their focus would be more to theslowing economy and to heck
with what the inflation is doing.
Speaker 1 (03:53):
If we see unemployment get out to say 4.5,
4.6%.
From where we are to that point, what will the economy look
like there and the RBA's policy?
Speaker 2 (04:05):
Well, potentially you would see an absolute negative
quarter of GDP.
So that would be once againplaying on the minds.
But the RBA would be saying,okay, look, 4.5% unemployment,
that's still relatively good inthe scheme of things, perhaps a
little bit above our or belowour actual capacity somewhere,
(04:27):
say, around 4%, and they maywell actually welcome that
because it's a sign of economicslowdown.
Now would they cut in thatenvironment?
I don't know, I'm not a centralbanker, but I'm pretty sure if
it were to get above 5%, headingtowards 6%, then the pressure
would be on them in a big way tostart cutting rates, no matter
what inflation's doing.
Speaker 1 (04:48):
Louis, as you said, central banks with stagflation
have a no-win scenario, becausethey've got to manage
unemployment to a sensible leveland they need to manage
inflation, and sometimes there'sa clash on those two points.
How prepared is a central bank,how prepared are they to go
into recession to win on theirmandate, keeping in mind that
(05:11):
recession versus not being inrecession and in growth is not
really part of their mandate?
Speaker 2 (05:17):
Really good question, peter.
I think, knowing these people,as I do, these professionals,
having a recession on theirresume would not go down well at
a personal level.
So I think they wish to avoid arecession, but at the same time
(05:42):
, they also cannot afford arecognition of inflation.
Speaker 1 (05:43):
There is a lot of finger pointing between the
government and the RBA at themoment, isn't there?
Speaker 2 (05:46):
The RBA is saying the government's spending too much
and the government is sayingthat the interest rates are and
there is a good argument thatthe government is indeed
spending a lot of money andsucking a lot of capital out of
the economy.
So public expenditure as apercentage of GDP is now
actually up to 28%.
If you know your numbers, Peter, you may recall certainly back
(06:08):
when ScoMo was in power that thenotion of being above 23% was
regarded as something theydidn't really want to do.
So now that we're at 28%, itdoes show that the government's
becoming an increasingly largercomponent of the economy.
Speaker 1 (06:25):
Which is not healthy.
Speaker 2 (06:27):
Not in the long term.
Not in the long term, that iscorrect.
It may well in part explain whywe've had falls in productivity
.
Speaker 1 (06:32):
Yes, louis, for our audience they hit, as we all are
, with such contradictorymessages around interest rates.
So you have esteemedcommentators in the marketplace
that all have a different viewon what the RBA should do and
what interest rates will do.
You have the money markets thatplace bets on what interest
(06:53):
rates will do you have the RBAstatement after every meeting.
Which are they jawboning us inthat meeting or are they telling
us, are they giving us a realinsight into their thinking?
Who should we and what shouldwe follow with this whole
interest rate story?
Because everyone hascredibility to some degree in
(07:16):
this space, but they allcontradict each other.
Speaker 2 (07:19):
Well, that's true.
Yes, and you rightly point out,there are people who say we
should do something, versuspeople who say this is what will
happen.
Speaker 1 (07:26):
Sorry, I missed one key group in that as well.
Sorry to cut in on you theretail banks.
And the reason the retail banksare so important in that mix of
people that have a view.
Is the Commonwealth Bank, forexample, think the RBA will cut
in February?
Yes, and after the RBA, theretail banks probably see more
nuanced data than anyone else inthe country and they must be
(07:49):
seeing something in their booksfor them to reiterate their call
that the RBA will cut inFebruary.
Speaker 2 (07:56):
Well, we must remember that, when it comes to
the major banks at least, theypay a very close eye to what the
money markets are doing,because they regularly trade in
the money markets.
So they look at the long-termend of what we call the yield
curve, so 10-year bond ratesversus two-year bond rates, and
they essentially trade betweenthe two.
(08:16):
So of late we've been seeingthe 10-year bond rate come off,
which is generally good news forthe economy, and they are able
to, to an extent, cut interestrates even while the RBA doesn't
cut rates, because they cantrade their way through,
especially if, say, two-yearbond yields come off, five-year
(08:40):
bond yields come off, they keepfalling.
They're able to use that toactually cut the variable rate.
Now, it's not that easy to do,but that's what they generally
do do.
How we forecast interest ratesis that we don't rely on anyone
in particular.
We follow what the moneymarkets are doing.
So when we come out with ourforecast that interest rates
(09:01):
would be cut mid-year, it wasbecause the money markets were
pricing that in.
And so, while the moneymarket's not perfect, because no
one knows the future for sure,more often than not the money
markets do get it right, forsure, more often than not, the
money markets do get it right,and hence the reason why we put
our hat on that.
Okay, it is more likely thannot.
(09:23):
We will see a final cut ininterest rates mid-year 2025.
Speaker 1 (09:25):
It was an interesting one.
In 2024.
I think it was Macquarie Bankreduced their interest rate for
a very short time and thenpopped it back up.
So that was like they weretrying to front-run the market
on yeah, we're going to get ratecuts.
And then data came through tosuggest you're on the wrong side
of the call here.
Speaker 2 (09:44):
Yes, that's right.
Speaker 1 (09:46):
So talk us through what's happened there, and that
wasn't really a proud moment forthe bank.
Speaker 2 (09:50):
So there was a brief period where interest rates or
the money markets were fallingin terms of yield, before the
Trump government was elected.
When the Trump administrationwas elected, yields went up
again, and so Macquarie werebriefly caught out that way.
Over and above that is it isactually a very competitive
(10:14):
lending industry right now, andso many banks are competing with
each other on price, on lendingrates, and to the point where
some are essentially cuttingtheir throats, particularly the
smaller operators.
They're finding the sector verytough indeed to compete,
whereas the banks, of course,have got scale.
Speaker 1 (10:43):
Louis, is there a point that the RBA have done
such damage to the economythrough their interest rate
setting that a rate cut or twodoesn't actually turn things
around the way people think andhope they might?
Speaker 2 (10:51):
There is that risk depending on when they actually
cut rates and potentially howmuch they cut by.
The RBA, as with many centralbankers, have a history of not
getting this quite right interms of picking the turnaround
in the cycles.
Once again, we go back to the1990 recession, where interest
rates were briefly at 18% andthe economy was in recession.
(11:13):
So there is a risk of thecentral banks and the Reserve
Bank of Australia getting theirtiming wrong and the magnitude
of the rate cuts wrong.
This is true.
Speaker 1 (11:23):
So are you in the camp that thinks they should
wait for the data to beabsolutely and utterly
conclusive or, as the data istrending in a certain direction,
try and manipulate it or make amove at that point to avoid the
worst of what that data issuggesting?
Speaker 2 (11:40):
Paul Holmes, I'm a little bit more neutral about
what they should do.
I'm more focused on what theymight do.
James Hemsworth, look, I think,looking back in hindsight, they
were right not to lift rates ashard as what other central
banks did, and then that, byvirtue, means that they not to
lift rates as hard as what othercentral banks did, and then
that, by virtue, means that theyhad to keep rates higher for
longer to offset.
(12:01):
As I've said many a time, Iwould hate to be a central
banker.
It's a very difficult job.
Should they be cutting ratesnow?
There is an argument to cutrates now.
There's no question the economyhas been slowing.
It's been propped up a bit byvery strong population growth.
No question about that and thatwould be playing on the RBA's
(12:24):
mind as well that thecombination of increased
government spending plus theexpansion of the country by
north of 500,000 people a year,which adds to aggregated demand,
potentially keeps inflationelevated.
That would be a concern forthem for sure.
Speaker 1 (12:42):
So if we just quickly look at your scenarios here
again, scenario one, which isyour base case Sydney will pull
back.
This is dwelling pricessomewhere between minus five and
minus 1%.
If we don't get a rate cut tothe middle of the year, I'm
going to go for scenario three.
Uh, in 2025, louis, and I thinkthey're going to cut in the
(13:03):
first quarter.
Um, I've only formed that viewin the last week, but the gdp
number and and and what that allsuggested which I must say,
that this report was puttogether before that poor GDP
number in 2024.
Speaker 2 (13:14):
Yes.
Speaker 1 (13:16):
So it didn't capture that low reading, did it?
Speaker 2 (13:19):
It did not capture that low reading.
But even as we stand today, I'mgoing to differ with you.
I do not think that they'regoing to cut in the March
quarter.
I think unemployment's not highenough yet.
I think there is still somefairly strong forces out there
on the overall demand side.
But I do hear you that.
Look, the economy overall isslowing and on a per person
(13:42):
basis people are hurting.
Speaker 1 (13:44):
Yeah, we'll do lunch on that one.
All right, that's good.
Speaker 2 (13:47):
Yes, well, so far on the geopolitical front, you've
got one up on me.
Speaker 1 (13:52):
So, moving along to the rental market, in late 2024,
on the ground, we noticed anoticeable shift in the rental
market.
It didn't start falling, butlandlords were looking for
year-on-year or lease-on-leaseincrease in prices and they were
saying where are the crowds?
And it's like the crowds aregone.
Speaker 2 (14:14):
Yeah, that's right.
Speaker 1 (14:15):
Now they may come back early in 2025 with the
start of the university year andthey will to an extent To an
extent, but you're not seeingthe same growth in the rental
market.
The reverse, actuallypotentially for 2025.
Speaker 2 (14:31):
Yeah, so for 2024, sydney rents finished up by
about 3%, which was just underthe CPI, so that's the slowest
rate of rental growth we'veactually had since the COVID
days.
We still have a rental crisisin Sydney.
There's no question about that,but how tenants have been
responding is that they've beengrouping together and, as stated
(14:55):
earlier, lots of people aredoing it tough, so they need a
place to live in, of course.
What do they do?
They stay with their parentsfor longer, they share with more
people, and by doing that, yousee an increase in the number of
persons per dwelling, and thatultimately then reduces demand
(15:15):
for rental properties comparedto the amount of stock that's
out there.
Speaker 1 (15:22):
So prices got to a point where they changed
behaviours.
Speaker 2 (15:24):
They changed behaviours because rents just
got too high and they had tochange accordingly their
behaviour.
Speaker 1 (15:33):
And talking about consumer behaviour, a very
interesting trend that westarted to see in the back end
of 2024, instead of mum and dadturning up to the auction to
help their children hopefullysecure a property or negotiate
one, mum and dad were turning upto the rental open with the
kids to help them secure arental property.
(15:54):
So that's how tight it got outthere that mum and dad felt the
need to act as a guarantor or asa security blanket to help the
kids get a rental property.
Speaker 2 (16:03):
I've never seen that in my 30 years in real estate,
I'm not surprised when you see alot of competition between
tenants, any edge that a tenantcan get in terms of look local
here.
Here are my parents willing toguarantee this rent?
That that would help yeah, itwas.
Speaker 1 (16:18):
It was an interesting one.
Uh, look, we do have a rentalcrisis still, even though rent
the rental market is settlingdown.
Yes, we have a housing crisisas well.
Yes, this next slide, if we canbring it up here, won't make
anyone happy.
This is total dwellingscommenced.
So, unless we're going tochange our immigration policy as
(16:38):
a country, we need more housing.
Yeah, what's happening here,louis?
Speaker 2 (16:42):
Yeah, so this is a number of you left.
Look at the left side of thechart.
We've got numbers there 40,000,45, 50,000 dwellings.
This is the number of dwellingscommenced on a quarterly basis.
So in 2024, we were essentiallyaveraging about 40,000
dwellings commenced on aquarterly basis.
(17:02):
Or, if you analyse that number,that's about 160,000 dwellings
that were essentially in thepipeline over 2024.
And for 2024, we believe thefinal number of dwellings being
completed will be about that160,000 mark.
Now the issue with that is thatfor 2024, we strongly believe
(17:24):
that the population expanded byover 500,000 people.
Those two numbers do not gointo each other very well, do
they?
Now there's basically morepeople coming in than what we've
built to actually accommodatethem.
Speaker 1 (17:39):
So how many people live per dwelling on average?
Speaker 2 (17:42):
Well long term the average has been well over the
past 10 years has been about twoand a half persons per dwelling
.
That's changed.
At times, like during COVID,that got down to lower than two
and a half and of late it's beenincreasing up to about 2.7
persons per dwelling okay.
Speaker 1 (18:00):
So we're underperforming there, obviously
, if we can bring up our nextslide here, building costs are a
major impediment for builderswanting to commence a new
project.
Yes, this is a real problem forgovernment now, isn't it?
They're approving, they'vefinally cut some red tape and
they're getting approvalsthrough to the market.
Speaker 2 (18:21):
Yeah.
Speaker 1 (18:22):
But the builders are saying, hey, we're not building
in this environment.
We don't have confidence thatthe market will be there at the
end to pay a profitable price.
Yes, and part of the reasoningthat is where is the market
going?
On price, but also where issupply chains and costs and
inflation going whilst I'mbuilding, because they've all
(18:45):
been nailed essentially in thelast three years with cost
overruns, haven't they?
Speaker 2 (18:50):
That's completely true.
Over and above that, peter isgetting the finance, because the
truth is that the major banksare rarely lending to property
developers these days, unlessyou're a huge name, right?
So what's going on is that alot of property developers are
needing to go to the non-bankfinancial sector to secure
(19:11):
funding.
Now, the issue with that isthat the non-bank financial
sector like charging a nominalleg when it comes to interest
rates.
We're talking, say, a lendingrate of 10%, 11%, perhaps even
more.
Speaker 1 (19:23):
So that's loan sharking really.
Speaker 2 (19:25):
To an extent, and that of course adds to the
overall cost budget of adeveloper trying to make a
project work.
Yes, hence they're not buildingbecause… Hence, they're not
building.
I mean, they're not buildingfor a number of reasons.
To your point about confidence,that's true Also.
Of course, there's still issueswith local council blocking
(19:48):
developments and creatinguncertainty there too.
Speaker 1 (19:51):
I think from the local council perspective is
that everyone thinks that thedeveloper, who we need them to
build more, as you've justoutlined, the developer should
fund all of the infrastructureas well and infrastructure costs
on behalf of the developerthat's just trying to put some
dwellings up for the people thatare needing a new house.
I heard recently that we'resaying we should make developers
(20:13):
provide contributions formobile phone towers.
How does a developer who buildshouses end up paying for mobile
phone towers?
Speaker 2 (20:21):
Well, developers are already making a contribution
through a bill, through thetaxes, the various taxes there
are within a propertydevelopment, a project.
The taxes are not immaterial,put it that way.
So there's a good argument thatthey're already making
contributions indirectly.
James Hemsworth, absolutely,peter Lawrence.
(20:42):
Then, over and above that,going back to the confidence
issue, we've had a period wherethe quality of the build of a
number of the projects has notbeen that particularly great.
In the last 10 years.
There's been some real issueswith some complexes in and
around Sydney which have grabbedthe headlines, and I think
government need to do more onthat front in terms of oversight
(21:06):
of the quality of these builds.
Too many times I've seen peoplelose a lot of money over off
the plan developments and Ireally do mean a lot of money
over off the plan developments,and I really do mean a lot of
money.
Speaker 1 (21:17):
Oh yeah, it's very common.
I don't like to say it.
I certainly don't want to rubsalt into the wounds for anyone,
but it's very common to sell aproperty, an apartment, at the
moment in a poorly built complexthat sells for a lower price
than they paid in 2014.
Absolutely, and they're luckyto get the price they want.
Speaker 2 (21:34):
Yeah.
Speaker 1 (21:35):
And again, I don't want to single out any
particular region, but if you goout to the Ryde Council, for
example, people up and downVictoria Road there with some of
those complexes definitelycould not sell their property
for anywhere near what they paidfor it eight, nine years ago.
Speaker 2 (21:49):
Exactly, and I think that's becoming.
The community is becoming moreaware of these issues off the
plan, yes, and the fact that therisks are very, very high
indeed.
Speaker 1 (22:02):
Yeah.
Speaker 2 (22:03):
Something needs to happen on that front to build
confidence within the off theplan sector.
I'm not sure exactly what needsto happen, but something needs
to happen there.
So, as we can see, when you putall these things together, no
wonder we're under building.
No, wonder.
And I just don't see it changinganytime soon.
And when we look at theseleading indicators, I don't
(22:26):
think it is going to changeanytime soon.
Look at these leadingindicators I don't think it is
going to change anytime soon.
And then you've got the issue,of course, where the federal
government has made a commitmentto build 1.2 million dwellings
through to 2029.
Well, I can tell you, in yearone they're well and truly
behind the run rate required.
That run rate required is240,000 dwellings a year.
In year one at best, we'll bebuilding 160,000 dwellings a
(22:48):
year, and year one at best we'llbe building 160,000 dwellings.
Speaker 1 (22:51):
So when you say the government should do more, what
are some creative and boldsolutions not saying they'll
become government policy, butwhat are some creative and bold
solutions that either the stateor the federal government could
implement to really startbreaking the back of this and
turning, you know, propertiesnot just from approvals but into
hard construction and livabledwellings.
Speaker 2 (23:13):
Oh look, I think there needs to be a bit of a
carrot and stick approachtowards developers.
I mean, look, they're notangels in themselves, as we all
know.
So the carrot would be let'sget some real tax breaks
happening for developers.
Not add to the cost, let's takeaway from the cost of the build
.
Then, at the same token, thestick will be they must build.
They're holding on toGreenfield's land, undeveloped
(23:38):
land for an extended period oftime.
Well, that should be a no-no aswell.
They must build.
Then, potentially, what wecould also do is get the banks,
or perhaps get a better lendingsolution towards the development
sector, where they're notpaying 11, 12% interest rates,
they're paying something that'smore reasonable.
(23:59):
That would help make theproject work as well.
And then, yeah, we need alsomore cooperation from local
councils.
Speaker 1 (24:07):
Yeah, louis, I just want to move on to your next
slide from your boom and bustreport, which I encourage
everybody to get hold of.
This here is new home loan orhousing loan commitments.
Can you walk us through whatwe're seeing here?
Speaker 2 (24:20):
Yeah.
So this is a good leadingindicator of demand.
So it's a measure of how manypeople are taking out housing
finance and, generally, ifyou're taking out a loan, you're
going to buy a property.
Now what this shows, of course,is that we had a big dip over
the course of 2023 in terms ofhousing finance approvals, but
since then and over the courseof 2024, surprisingly, there's
(24:44):
been a lift in housing financeapprovals both on the investor
front and the owner occupy front.
So there's been a lift inhousing finance approvals both
on the investor front and theowner-occupier front.
So that's been interesting.
So, normally, when you see that, you tend to start to see a bit
of a rise in housing prices and, as noted in 2024, there was a
slight rise in housing prices,but not in our largest capital
(25:04):
cities.
It was mainly in Brisbane, inPerth, in Adelaide, in
particular.
So an interesting chart.
Interesting in the sense thatthis time round we've had a rise
in housing finance approvalsbut we've still, overall, had,
you know, just a marginalincrease in dwelling prices for
2024.
Speaker 1 (25:25):
Look, this was one of the more surprising slides from
your report for myself.
Speaker 2 (25:30):
Yes.
Speaker 1 (25:30):
And the reason I was surprised by this is I wasn't
expecting it to be thatconfident, based on what we've
been seeing in the marketplace.
I'm not saying the marketplaceis dire, but I wasn't expecting
new home loan starts to beshowing this sort of upward
trend.
Would this be forming part ofthe RBA's decision around
(25:50):
interest rate cuts that there isthis underlying demand that if
they again, if they time itwrong, if they go too early, if
they don't get it right, itcould just pop again and people
are off to the races.
Speaker 2 (26:02):
Correct.
They'd be very conscious ofthat.
They would understand why thisis happening.
This is happening because we'vehad very strong population
expansion once again.
Yes, so the average person outthere probably doesn't feel like
taking out a million dollarloan right now, but since the
population is expanded by north500 000 people, there's a lot of
those people who have the theborrowing power to go into the
(26:26):
marketplace so we're reallyseeing the importance here of
the immigration policy and itsimpact on housing.
Speaker 1 (26:33):
Yes, In late 2024, the alternate to the current
government, Peter Dutton, cameout with his view on what he
might do with immigration and hesort of he had a shift there in
what he's thinking.
Do you want to walk us throughthat?
Speaker 2 (26:51):
Yeah, well, initially in earlier 2024, it appeared as
though the LNP opposition had adifferent approach to migration
.
They were more boisterous aboutit.
They said that they wanted tocut annual migration down to
about 160,000 people.
Wanted to cut annual migrationdown to about 160,000 people.
(27:11):
Then it appeared as though, asyou mentioned, in late 24,
dutton came out and he generallywas more ambivalent about what
he wanted to do and he said look, we'll wait and see what the
economy is doing before we comeup with a specific target.
So that was a change, and a veryinteresting change indeed, and
what it suggests is that theylook to population as
(27:33):
potentially one where, if we cuttoo aggressively, it could
actually put the economy inrecession.
But at the same time, theeconomy is somewhat in recession
on a per capita basis, in partbecause we've got a very strong
population, and we've got verystrong population and we've seen
a fall in productivity.
So it's an interesting one tosee how it's going to play out
(27:55):
politically for them.
I can understand why they'vecome out and said what they've
come out with.
I don't think it's going to godown too well with their base.
Speaker 1 (28:04):
Louis, let's get a little bit more micro about
Sydney going into next year.
What segments of the marketwhether it be suburbs or market
niches apartments, houses,suburbs regions do you think
will be the strongest performersin 2025?
Speaker 2 (28:19):
I think the outer ring for existing units will be
a good defensive play.
They are affordable.
They will appeal to the growingpopulation.
They will still appeal toessential service workers.
Meanwhile, when we look at theinner city ring, particularly
the CBD, we're recordingskyrocketing stock for sale for
(28:42):
apartments in the CBD area.
Speaker 1 (28:44):
Why do people not want to live in the CBD?
Speaker 2 (28:47):
That's a very good question.
Look, the truth is thatapartment prices in the CBD are
still very expensive.
You're looking at spendingnorth of a million dollars for
just a standard two-bedroom unit, so that would certainly put a
lot of people off, but thereality is that that is a market
that is set to severelyunderperform and probably will
(29:09):
fall more than just 1% to 5%.
Speaker 1 (29:10):
Look, that's a fascinating statistic in its own
right, because Chris Minnswants to flood the inner city
with more apartments.
Speaker 2 (29:18):
Yeah, and look from an affordability factor.
Falling unit prices do helpwith housing affordability
there's no question about thatbut we're starting from a fairly
high level, as mentioned before, so it's going to be very hard
still for the average worker toafford an apartment in the CBD.
Speaker 1 (29:41):
And if we don't see interest rate cuts until later
in 2025,?
We've spoken a lot about whathappens when we see rate cuts in
the first quarter and mid-year,but if they don't come to late
2025, let's say the Trump agendais inflationary, as many have
predicted, and that means thatrates need to be higher for
longer and there's stagflation.
(30:01):
How does that play in themarket?
What does that look like atthat point?
Speaker 2 (30:06):
So, yeah, that's our second most likely scenario that
there is no interest rate cutat all in 2025.
And on that scenario, webelieve housing prices in Sydney
would fall by up to 8%.
That would be pretty tough.
It would be tough.
You're talking, then, firstly,of a slowing economy, economy
(30:27):
where there's even lessconfidence in what we have now,
even more disappointment byhousing market participants that
interest rates haven't been cut, and more and more people would
be on the sidelines.
And then, over and above that,I think you would see more
distressed selling in Sydney aswell.
Speaker 1 (30:43):
Louis, in closing, what X factors?
Things that haven't beenconsidered, that could
potentially play a role in themarket next year.
Do you want to have a stab atthat for us?
Well, we've covered a lot ofground here, Peter, and we've
talked about interest rates.
That's clearly one.
Speaker 2 (30:57):
Population yes, so there is a chance that we see an
unexpected fall in migration.
In its own right, there is thatoutside chance.
Treasury have been counting onthat, but it hasn't really
happened.
But it could finally happen, sothat's one we need to watch
very closely as well.
Are we going to suddenly see aspike in building supply?
(31:19):
We're definitely not going tosee that, so we can rule that
out.
Are we going to see a crash inhousing prices?
I think we can rule that outbecause we've got this
underlying shortage of realestate, and whenever I study
previous crashes, worldwidehousing crashes, there's one key
ingredient which has been inall of them and that is a
speculative oversupply of realestate beforehand, before the
(31:41):
crash.
We definitely do not have thatin this country, so I think we
can definitely rule out a crash.
Other factors which we need toconsider the terms of trade,
iron ore prices.
Speaker 1 (31:53):
Yeah, okay.
And is the Trump agenda pro oranti the iron ore price?
Speaker 2 (31:58):
all in all, oh, I think it's neutral.
It's neutral because Trump isgoing to stimulate the US
economy, and he's going to dothat by tax cuts.
At the same time, he's going toincrease energy supply, which
will help stabilise globalinflation or perhaps even
potentially create a globaldeflationary environment.
(32:20):
He's offsetting that because hewants to do tariffs, and that
is inflationary as well and thatcould slow down the Chinese
economy in particular.
I think his tariffs are goingto be focused towards China in
many respects If the Chineseeconomy goes into a double dip
recession.
And despite their nominalnumbers not showing a recession,
(32:42):
I think the reality is theeconomy has been contracting in
China.
That would be bad for basecommodity prices, so that's one
that we need to watch out for.
Speaker 1 (32:53):
Okay, now, every time a federal election comes around
, there's a view that people siton their hands until they see
what happens.
Do the numbers support that interms of the housing market's
performance?
Do people go to the sidelines?
Is there less activity?
Speaker 2 (33:08):
They do.
Speaker 1 (33:09):
Is there a drop in activity?
Speaker 2 (33:11):
So, historically, what you see in the few weeks
leading up to the election dayis a fall off in auction volumes
.
We'll see that again this year,for sure.
Speaker 1 (33:21):
And does either party at this stage and it is very
early to they'll both come outwith different policies on
housing?
Does either party have asuperior policy to, in your view
, around housing?
Speaker 2 (33:34):
Oh, I think we need to wait see until closer to the
election to see exactly what thepolicies are.
I think Labor's been prettyclear what their policy is that
they wish to build 1.2 milliondwellings and they've given a
bit ofa plan how they do that.
So far they haven't been ableto meet those goals as yet.
Speaking of what's been builtto date, we need to see more
(33:55):
policy come out.
I think more policy will comeout because housing is a
critical issue across thecountry.
It's a talking point for manyin a community.
Speaker 1 (34:05):
It certainly is, louis.
That's an outstanding previewof what's going to happen in
2025.
And we look forward to catchingup mid-year to see how it all
plays out.
Speaker 2 (34:14):
Great Peter.
I look forward to the Junecatch-up.
Speaker 1 (34:16):
Thanks for coming in today, cheers, and thank you for
joining us today on TalkingProperty.
We look forward to speakingwith you in the middle of 2025.
Thank you.
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