Get Set for the Next Property Boom!! Says BIS Shrapnel

If you’re looking for a good laugh to start off the working week, you’d be hard pressed to go past the latest Property report released today by BIS Shrapnel.

According to BIS Shrapnel, real estate prices across Australia are tipped to increase by as much as 20% by 2012.

As reported by, BIS Shrapnel’s Angie Zigomanis said activity in the lower end of the market – buoyed by the boost to the first home owners grant and low interest rates – were generating “green shoots” of recovery.

The report says average house prices in most capital cities will grow by between 11 and 19 per cent over the next three years. In real terms (where prices are adjusted for inflation) the level of percentage growth is about half.

Mr Zigomanis, who said actual prices were more indicative than prices adjusted for inflation, predicts the boost to the first home owners grant combined with low interest rates would kick start further activity in the “upgrading” market.

“Kick start further activity in the ‘upgrading’ market?” Really? Based on what exactly? A flight of fancy?

According to BIS Shrapnel, we can expect:

Sydney – Total price growth forecast at 19 per cent to 2012

Melbourne – Nearly 20 per cent increase in prices to 2012

Brisbane – House prices to rise by 16 per cent to 2012

Gold Coast and Sunshine Coast – Expected to grow by 14 per cent to 2011

Adelaide – Tipped to jump 19 per cent to 2012

Perth – House prices to increase by 12 per cent to 2012

Hobart – To jump 15 per cent in the next three years to 2012.

Darwin – To grow by 11 per cent in three years to 2012

To the unititiated, this report would perhaps be the catalyst to “get in quick” before the property boom begins, but the catch cry to “BUY NOW” is beginning to sound all too familiar.

For one thing, it is widely accepted that the FHOG has artificially maintained current property prices at the low-to-mid range of the market. So, on what basis does BIS Shrapnel base their prediction that property prices are going to continue to rise after the FHOG expires?

An environment of rising interest rates and escalating unemployment are hardly factors that would contribute to a real estate property boom.

So what has led to this bizarre prediction? Well, funnily enough BIS Shrapnel’s report has been based on data from the Real Estate Institute – an organisation that has the following mission statement:

“The Institute continues to identify, formulate, encourage and promote public policies that contribute to an economic and political environment favourable to the real estate industry, and small business generally. ”

So not only does this call into question the integrity of the data supplied by the Real Estate Institute to BIS Shrapnel, the fact that the institute is fundamentally concerned with lining the pockets of real estate agents should be ringing alarm bells everywhere.

But not so, the mainstream press just regurgitate the BIS Shrapnel media release without giving it a moment’s worth of critical analysis.

It also makes you wonder about the ethical standards at BIS Shrapnel. But then they did get paid by the Real Estate Institute to write the report, so perhaps in their minds, that’s all that really matters.

A satisfied client.

An invoice paid.

The so called report’s “findings” plastered everywhere in the media.

It would be sickening, if for the fact that it’s all so mind-numbingly predictable.

First home owners grant – don’t dream it’s over

When Kevin Rudd announced an increase to the First Home Owners Grant (FHOG) a few of us voiced concerns about how this would essentially maintain an artificial price bubble in the property market.

Under the government’s $1.5 billion first home buyers boost, the first home buyers grant was doubled from $7,000 to $14,000 last October. Those first home buyers who purchase a new home receive an extra $7,000 to take the total cost of government assistance to $21,000.

There is some evidence to suggest that the low to mid range of the property market has held its ground, however the top end of the market has been hit hard, with many properties in once “exclusive” suburbs for sale on the market at prices considerably lower than one or two years ago.

In reports just published, Prime Minister Kevin Rudd has confirmed the first home buyers grant will not be extended past its deadline of June 30.

“We’ve indicated that that will conclude in a very fixed and finite timeframe,” Mr Rudd said in a Perth speech reported by Sky News.

“It’s had a real effect. We’re still measuring its full effect, but I think it’s very important that as a community we understand that deadlines are imposed for a particular purpose.

“All good things must come to an end.”

“It’s had an effect?” In other words he doesn’t know…

Unsurprisingly, the construction and real estate industries have called on the grant to be continued.

They have voiced fears that if the grant is removed the real estate market will collapse.

But one expert says that it is actually record low interest rates and a softer housing market, not the grant, that is spurring on many first home buyers.

Figures showing that by the end of last month more than 42,000 people had taken up the grant.

NSW has seen the highest uptake, with 14,404 first home owners receiving the boost, followed by Queensland and Victoria (9,319 and 8,632 respectively).

About 4,200 first home buyers have entered the market in Western Australia since October, more than 3,300 from South Australia and 1,135 from Tasmania.

Both territories recorded the lowest uptakes with 703 grants awarded in the nation’s capital and 404 in the Northern Territory.

Others have warned that the grant is leading to ‘home loan time bomb’ with first-time borrowers taking out larger loans than they can afford.

The average loan growing by 22 per cent from $230,000 in March last year to about $281,000 this March

While no one can accurately predict what will happen after the FHOG passes its closure date, I think it’s hard to imagine that there will suddenly be a collapse in property prices. With interest rates at record lows, property prices approaching more realistic price levels (particularly if “stressed” sellers are forced to sell) then property will still remain an attractive option for first home buyers.

One valid criticism of the FHOG is that there is little evidence to suggest that it made a marked impact on the construction of new homes, with many first home buyers using the grant to purchase existing dwellings.

While the FHOG may be coming to an end, I suspect we will see new measures announce specificially designed to encourage the construction of new buildings.

But of course, it’s anyone’s guess really…

Investors beached in Brighton

Hard times indeed: Brighton beach box market ebbs from high water mark

Property. The bubble is about to burst.

Much has been written at blogocrats about the property market and in particular, the doubling and tripling of the first home buyers grant.

Some commentators have suggested that this will only serve to artificially maintain the property price bubble, while others argue that the fiscal stimulus is necessary to buoy the fledgling economy and ultimately boost development and employment.

However Louis Christopher, the head of property research at Adviser Edge, is not convinced. He has recently published the following analysis which is a bit of a bombshell for those that believe Australia’s property market will escape a dramatic downturn:

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PM throws money at economy…

The PM has just announced some new measures aimed at stimulating the economy. Specifically:

– A $10.4 billion “economic security strategy” in response to the global financial crisis.

– December payments of $2100 to pensioner couples and $1400 to single pensioners.

– A $3.9 billion in support for low and middle-income families.

– The $7000 first-home buyer grant will be doubled – and in the case of people purchasing newly-built homes – tripled. 

Now it might just be me, but if house prices in Australia are already grossly over-priced, isn’t doubling and tripling the first-home buyers’ grant only going to maintain already artifically high prices and effectively maintain the bubble?

In addition, I expect that this move will serve to drive prices higher, as more people take adantage of the buyers’ grant, in an environment where there is already a shortage of housing, and in particular “affordable housing”.

How’s your equity going?

The Reserve Bank Board meets tomorrow to discuss interest rates. The expectation amongs analysts is that they are likely to cut the official rate by as much as .5%, however there is a great deal of speculation that the major banks are only likely to reduce the home loan rate by .25% if at all.

The rationale being that the “costs of borrowing” for the major banks has increased due to the US credit crisis.  This is despite Prime Minister Kevin Rudd reassuring Australia (and the Banks themselves for that matter) that they had only minimal exposure to the US meltdown and were – in what’s becoming an almost comical catchcry – “fundamentally strong”. 

Meanwhile the housing market continues to falter with home prices floundering in most, if not all, Australian States. The situtation is particularly grim in Western and South Western Sydney where many mortgage-holders find themselves in a situation of negative equity; one where the value of the house has fallen below the original purchase price and original mortgage.

Add to this, the scarcity of available rental properties and increasing rents, and we have a pretty dire outlook for homeowners and those renting or seeking to rent.

So what do you think? Should the Banks be doing more to help home owners? Should the Government be doing more to help first-home buyers, or will this only exacerbate the problem?