Welcome to the November wrap.
Massive changes since COVID started. I often give the analogy of riding your bike downhill and the one thing you never do is look down; you should be looking around the corner, because where you look is where you go. It’s often said that successful people in business are those who can look around corners and that’s what we do.
We shouldn’t worry about what's happening now. Look ahead at what's happening in six to 12 months’ time or two to three years down the track.
There are seven massive numbers and I’m going to start with the biggest one. Since June 2022, 2.2 million people have applied for a visa to come to Australia: phenomenal! This is the highest quarter in over 20 years and more importantly, the intake of people coming here is the highest quarter.
It's happening, we are starting to recognize it: Property is taking off. We’re already seeing it in our increasing auction clearance rates for the month of October, even though the number of properties on the market is 29% lower than it was this time last year.
Point number two, our auction clearance rates for October have clicked over 60 to 62% and it is often said when you’re above 60% you’re getting price growth. I don’t know whether there’s any research behind it, but I do know that it's healthy at 60%, particularly with the lack of listings.
The big number three, and it is the most critical, is the land supply shortage right around Australia, specially in Southeast Queensland, which has one of the highest population growths of anywhere in Australia. There is only three weeks’ worth of supply of land, with the number of people moving and buying here.
On top of that, the housing supply has been at its lowest in such a long time. Only 30,000 for the quarter. We are needing to build 200,000 houses per annum to keep up with the population growth. Last quarter we were tracking at 120,000, the Master Builders and the housing industry suggest we're not going to get back to 200,000 for another five years.
Point number Four: inflation. Looking around the corner, everyone’s talking about the inflation monster, but an interesting number came out. Gas prices in Europe and energy prices are coming down, inflation is beginning to show signs of decreasing slightly. This is positive because the Reserve Bank have been a little bit more reserved in relation to the interest rate grabs, and they want to find a point where they expect it to go up and then interest rates to come down and find their place where they normally are.
Number five: super funds are losing money. Super funds are losing money because of the stock exchange not moving. Looking At the graph below, you’ll see that in 2007 and today it hasn’t moved the dial.
For so many years people have told me “our stocks are doing better than real estate”; it's never been an argument in that regard, particularly with the depreciation and the tax deductions that real estate provides. But here's the fact: zero movement in the Australian Stock Exchange, but more importantly, super balances have gone backwards.
Number six: we have had the fastest quarterly rise in rents for the last twelve months, and Melbourne came out on top. Melbourne is making a comeback and understandably given the migration and the borders opening up. One in four migrants lands in Melbourne.
It's all happening, but the market won't know about it until this time next year when we see prices going up and competition come back into the market.
Point number 7: First Home buyer scheme. The New South Wales government and the Victorian government have announced new first home buyer schemes. The Federal Government will have an equity inclusion and you would only need a 5% deposit, up to 10,000 homes each year on tip of the Federal first buyers’ scheme.
Stimulating the market at a time were there is no supply. You’ll be shocked where we are this time next year, in relation to real estate, there’s absolutely no fix for supply except for accelerating land supply and building. Unfortunately, it’s just not going to happen today. With the state of land supply and the construction industry being crushed by the supply chain issues, builders are doing it tough.
There will be sentiment, but it will turn a corner because the numbers are too compelling from a demand versus supply perspective. Whatever you can do, do it now.
The most incredible thing is the rents increasing. Rents are increasing by 3% a quarter. That's running at 12% per annum, astounding numbers. As I always say, buy property whenever you can.
People say, when is the right time? The right time for you to buy was yesterday, because we are not getting any younger. Remember, it's not a race with somebody else. It's a race between you and when you retire to use those tax deductions.