NEWSLETTER – March 2018
BUSINESSES AT THE COLD FACE
Major stock markets around the world are experiencing a bumpy ride in the micro cycle, the ASX is no stranger to this as well. The reasoning behind the bumpy ride is confusing economic figures coming out from the U.S. creating some negative sentiment on the back of their slight recovery.
The macro cycle for the ASX doesn’t look overtly positive, so some caution is required by investors.
This may change in the next quarter if our onshore business indicators report with stronger results at the end of the June quarter.
The current quarter has clearly indicated that the market has turned in the right direction, however it is to be noted that it has come from a very low base. I have highlighted below some of the key indicators for the last calendar year to illustrate where the market had “bottomed”. Again, please note that this is not indicative of the current quarter.
The following statistics are taken from Landgate BAP Report of December 2017.
Total document lodgements, by financial year
Total document lodgements 2017/18 year to date (134,982) reflect a 9.53% decrease when compared to the same time 2016/17 (149,194).
Mortgage lodgements, by month
The number of mortgages lodged during December 2017 (5,991) decreased 0.99% from the previous month (6,051) and decreased 14.71% from December 2016 (7,024).
Search activities, by month
The number of searches for December 2017 (94,082) decreased 21.54% from the previous month (119,914) and decreased 9.25% from December 2016 (103,667)
Number of subdivisional lots, by month
During December 2017, 1,135 sub-divisional lots were created, a 70.93% increase from the previous month (664) and a 5.78% increase from December 2016 (1,073).
THANE FINANCIAL PLANNING
This first month of the quarter saw the AUD rebound against the US dollar as a result of a solid 3% gain in commodity prices.
During the second month of the quarter the AUD continued to rise against strong commodity prices reaching 0.8136 against the US dollar, one of the highest records since 2015.
The final month of the quarter saw the AUD fall against the US dollar as commodity prices also saw a decrease (with the exception of Iron Ore) amidst talk about possible US Tariffs on imports.
THANE ACCOUNTING & BOOKKEEPING
REFORMING NEGATIVE GEARING
Reforming negative gearing could save the federal government A$1.7 billion without hurting “mum and dad investors”, according to the Government’s new modelling, by focusing tax deductions on investors with smaller property portfolios and removing them for richer investors.
Negative gearing allows investors to claim a tax deduction if their rental income is less than their expenses. It cost the federal government A$3.04 billion in 2013-14. There are concerns that reforming negative gearing would harm the financial wellbeing of mum and dad investors, but using data on the distribution of property and incomes makes it possible to differentiate between poorer and wealthier investors, allowing the government to target reforms to cushion the blow for investors on lower incomes.
The property market is (pleasingly) showing clear signs of recovery.
According the latest REIWA statistics, the Perth vacancy rate is now the lowest it’s been since July 2015! Looking at the market seven months ago, Perth’s vacancy rate sat a whopping 7.3% – now currently sitting at 5.3% (this is a 27% shift in the right direction). The market is currently showing stable rental prices, with the overall median rent remaining at $350 per week across the board. There are a number of reasons for the stabilisation and decrease in the vacancy rate, including population growth (which is starting to improve) and a reduction in the number of new dwellings being constructed in the Perth metro area.
From a sales perspective, sales are predicted to increase in levels, listings are set to decrease, and prices set to stabilise rather than grow during the new year. The number of dwellings to be constructed will be reducing in 2018 and overall, we have seen stabilisation of the housing values in the WA Market. The average sale price (at the end of the December quarter) sat at $525,000 and is looking to recover. The sales market is still very much favouring buyers – first home buyers in particular benefiting from the current market conditions and range of housing options available.
Overall, the improving economic conditions are giving people increased confidence (in contrast to the previous years) in the property market and we are looking forward to a more positive year ahead.
THE ECONOMY AT A GLANCE
Source: Reserve Bank of Australia. Data are the latest available as at 12 March 2018.
A NOTE FROM THE PRINCIPAL
Despite the positive news around the property market, transactions have not risen in real terms and we are seeing the number of (sales) contracts remain steady in comparison to last year. However, we are seeing the number of listings drop, indicating that supply is tightening and therefore the statistics around time on market, average sale price, etc. are looking a little more positive.
Demand still seems to be flat, and this is where we would look for improvement in order to see some real gains in property prices.
Overall Australian economic data is stabilising, which always fuels the talk of interest rate rises. These conversations are gaining momentum and an interest rate rise is probable within the next financial year.
If we are in recovery, then most economists would agree the recovery will be slow and the market should remain relatively stable for the medium term. The positive news is that the property market has clearly hit its bottom as indicated by the above article.
The Australian dollar is still facing challenges, albeit at a significant drop for a short spell in the last quarter. However, that was short lived.
The ASX is demonstrating its strong link to the US market with the instability on Wall Street reflecting in our results.
Sources: Bank West market update
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