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January 2010 Newsletter

Tuesday, December 29, 2009

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29-Dec-09 

FAREWELL TO THE Gfc  (WE HOPE)

Happy New Year! There certainly seems to be a lot more confidence in the air compared with this time last year. In 2009 there was much doom and gloom as the 2008 downturn and the great unknown for the year ahead dampened the market.

Fortunately, as a nation, we certainly seemed to finish 2009 with greater confidence. The Westpac-Melbourne Institute’s consumer sentiment index released in December showed that consumer confidence was at historical highs, despite rising interest rates. In fact, borrowing for new homes soared to a 15-year high – fertile ground indeed for a strong housing rebound in 2010. At the heart of this greater confidence was the continuing economic recovery, a strong labour market and strong house prices.

It’s this confidence in the economy which is providing strong foundations for a housing recovery, highlighted by the number of loans for the construction of new homes surging by 9.2% in October 2009, which was the most in a single month since mid-1994. And the annual growth rate of loans for construction reached a record of almost 104%.

Of course the higher interest rates did have some impact on the market, with a 2.8% fall in lending for the purchase of existing dwellings and a 1.4% drop in borrowing by home owners wanting to upgrade.

In December there was a flurry of activity, particularly on the auction front. This was evidenced by, on average, two to five bidders battling it out at most auctions, not to mention the healthy auction clearance rates, and strong demand for residential property from owner occupiers. 

 

Cautious investors

Whilst we’ve seen investors begin to dip their toes in the water, lending data at the end of last year showed they had slowed their charge and were again watching from the sidelines. They might well be tempted to purchase investment property this year given the fall in new apartment construction is likely to produce another year of lean rental vacancies and upward pressure on rents.

Last year, approvals for apartments remained around their lowest levels in more than a decade, reflecting difficulties faced by developers in obtaining finance, plus the high cost of bringing new supply to market.

There are two schools of thought about what will happen to house prices in 2010. On one hand you have Australian Property Monitors (APM), which said in a statement that “property owners will continue to see their investment grow in the new year, with house prices already exceeding pre-global financial crisis levels nationally by nearly three per cent, and growth is expected to continue well into 2010.”

On the other hand you have JPMorgan predicting house prices will fall by double digits by the end of this year (although this was reported in June 09, so hopefully they’ve reassessed the market by now).

It’s a debate that I’m sure will continue to rage. To my mind, and others, the values of homes have held up well despite the economic slowdown. 

In real estate land, we’re all crossing our fingers that this won’t be a precarious recovery, but some economists feel that a rate rise in February might damage the more buoyant mood of households. As they say, time will tell.

 

WHAT DOWNTURN ?

Whilst homes priced over $1 million were generally selling at a slower rate than the rest of the market in 2009, that didn’t stop a number of records being set around Australia at the end of the year. In fact, there were some jaw-dropping results achieved at the top of the market in Sydney, Perth, and Melbourne.

Over in Perth, a riverfront Mosman Park mansion fetched $57.5 million – officially becoming Australia’s most expensive property. That certainly eclipsed the $45 million paid for Sydney’s Coolong, the Vaucluse harbourfront home. And Lachlan Murdoch’s $23 million purchase of Le Manoir – set over 400sqm in Bellevue Hill – was cheap by comparison!

Down south in Melbourne, the $18 million house price record was surpassed three times in a week in November, as Melburnian businessmen went on a spending spree. The first cab off the rank was a single-storey Toorak home, which sold for $18.5 million. This was followed by the historic mansion Miegunyah and its surrounding botanic gardens in Toorak Road, which went for more than $20 million, although this record was quickly shattered when a Hawthorn mansion with two swimming pools, six kitchens, 12 toilets, a ballroom and separate staff and guest quarters was snapped up by a local buyer for $21 million. 

Agents in these states say that after wealthy purchasers all but disappeared from the market, they came back with a vengeance in late 2009.

Of course what has been paid for these properties must seem like mere pocket change for the purchaser of an apartment halfway between Buckingham Palace and 10 Downing Street, which was sold off the plan for $236 million. Of course extravagance in London is nothing new. An exclusive apartment at Hyde Park was on the market for $205 million, whilst Britain’s richest man paid $143 million for a 12-bedroom house in Kensington.

 

AND THE WINNER IS ...

The record for the most expensive house in the world was officially set in 2009, when Indian trillionaire Mukesh Ambani moved into his newly-built home Antilla. Costing $1 billion, Ambani's 27-story tower – complete with helipad on top – features a health club (not gym), six-floor garage holding 168 cars, panic rooms, a movie theatre and a staff of 600 servants. Ambani’s new home has more floor space than Louis XIV's palace at Versailles. And because each floor is double the average height, Antilla is technically 60 stories tall. The towering house isn't too disconnected from nature: each level has lush gardens.

 

- Andrew Veron