Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyers agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Wednesday, 24 August 2016

Perth vacancies rise again

Perth vacancies rise further

SQM Research reported that nationally vacancy rates were slightly higher at 2.5 per cent in July, and slightly higher than one year ago when vacancy rates were 2.4 per cent. 

Over the past year vacancy rates have tightened in Melbourne, Canberra, Hobart...and even Darwin!

Vacancy rates have been fairly flat for most of the past year in Sydney.

In Brisbane, rising inner city apartment vacancy rates are pushing the city average higher, up to 2.9 per cent in July. 

Meanwhile in Perth, vacancy rates have hit a fresh cyclical high of 5.2 per cent, up from 5.0 per cent in June. 


Perth's property market is beginning to look increasingly attractive from a price-earnings ratio perspective, but the time for investors to jump in may not be yet (after all, a rental property ideally needs a tenant, and asking rents have declined too over the past 12 months). 

To make a bit more sense of the trends, the figures have been smoothed on a 4mMA basis below

It appears that the Darwin market may have turned a corner, while Hobart and Canberra have tightened significantly. 


Going forward, the volume of apartments under construction in Melbourne may result in vacancy rates rising again in the Victorian capital.

According to SQM's Managing Director, Louis Christopher:

"Melbourne may start to record higher vacancies next year under the weight of completed apartment developments; but for now Melbourne remains a landlord's market. 

Sydney is unlikely to record such a surge in vacancies as we believe the city's population expansion is going to absorb much of the new stock."

Louis is the new Waleed: he just nailed it!

China urbanisation

Chinese cities growing

An extraordinary turnaround story and set of numbers was reported by iron ore producer Fortescue Metals Group (FMG) this week, with reported statutory profit surging back in FY2016, and a profit after tax of US$985 million being reported. 

This has been achieved in part through cost reduction, with iron ore prices remaining much lower than the levels seen in FY2014.

One slide of interest from the corporate presentation highlighted how 300 million Chinese are still expected to urbanise at a rate of around 16 million per annum, underpinning demand for Australia's iron ore and coal over the medium term. 


Source: ASX (FMG)

Perhaps not surprisingly, FMG believes that iron ore demand and supply are fairly evenly matched.

Other analysis, including from Westpac, suggests that the iron ore market is oversupplied and that iron ore prices will surely fall later in 2016.

Coking coal on the other hand is in the midst of a spectacular rally, with prices up by more than 60 per cent since mid-February.

Perhaps the Reserve Bank's Index of Commodity Prices will be staging a further rebound in due course, having already jumped in July.

FMG has reduced its operating costs impressively, with its C1 operating costs slashed across 10 consecutive quarters to just US$14.31 per wet metric tonne in the June 2016 quarter, competing fiercely with BHP Billiton and Rio Tinto for the mantle of lowest cost producer in Australia.

The results were a beat across almost every metric, resulting in a substantial US$2.7 billion in free cashflows. 



This has allowed the group to reduce its net debt significantly in FY2016 to below US$5.2 billion, including cash of US$1.6 billion.


Being a high leverage/high beta stock, the share price performance this year has been extraordinary, exploding from below $1.50 in January to touch above $5 earlier this week. 

A great result for Fortescue, and those shareholders who stayed the course will very much enjoy the 12 cents per share final dividend.

The Reserve Bank's Commodity Price Index for August is due to be released next week. 

Consumer confidence to multi-year high

Confidence bounces

Whooshka!

Consumer confidence has ripped to its highest level in years.

And why not? 

With the election out of the way with a majority result, low inflation, low interest rates, and strengthening auction clearance rates, consumer confidence was up by +3.6 per cent in the last week according to Roy Morgan Research.

Confidence has increased substantially over the past dozen weeks to sit miles above its quarter-century average.


Consumer confidence in Australia historically tends to lead housing finance and dwelling prices, so this is a big result. 

ANZ reported that every one of the confidence sub-indices recorded strong gains, including notably the time to buy a major household item, which jumped by +5.1 per cent.

Household views on the 1-year economic outlook jumped by +5.4 per cent, and for the 5-year outlook by +4.8 per cent, to see both of these sub-indices above their long run averages. 

Great to see. 

Tuesday, 23 August 2016

Congestion!

Busier roads

If you've felt that there seem to be ever more cars clogging up Australia's capital cities...well, you'd be absolutely bang on, of course!

Not only is the population growing in a more concentrated fashion, particularly in Sydney and Melbourne, the national vehicle fleet is growing at an even faster rate than the national population, increasing by +2.1 per cent in the year to January.

That's an absolute increase of 379,369 registered motor vehicles.

According to the ABS Motor Vehicle Census for 2016, the biggest increase in the number of vehicles was seen in New South Wales, putting pedal to the metal in accelerating at a thumping +127, 220.

Meanwhile the fastest percentage increase was seen in Victoria (+2.5 per cent), just ahead of NSW (+2.4 per cent), while Queensland (+2.2 per cent) was following pretty closely in the rear view mirror.

Over the last five years there has been a truly enormous increase in the number of registered vehicles in NSW (+596k), Victoria (+483k), and Queensland (+452k). 

If you ever needed substantiation for why people will increasingly favour place over space in our capital cities, this could be the salient reason. 


A separate report released this week showed that Australians spend an average of $22,000 per annum on transport, with Sydneysiders clubbed the hardest at a brutal $419 per week for a painful 16.8 per cent share of their income.

Small wonder that people want to live closer to the action! 

Time for a scrappage scheme?

I haven't lived full time in the United Kingdom for more than a dozen years, but the changes I notice most when I visit - apart from the incredible surge in the number of Eastern European residents - mostly relate to transport, including congestion charges, park-and-ride schemes, designated bus lanes, and so on.

In particular, the vehicle scrappage scheme promoted in the 2009 UK budget was exceptionally successful in encouraging surplus older vehicles to be deregistered, and there are comparatively few old cars on Britain's roads these days.

Perhaps it's time for Australia to consider something similar, with the number of vehicles on the national register increasing by more than 2 million to 18.4 million over the past five years.

Tasmania now has an outlandish 885 registered motor vehicles per 1,000 of its population, a dubious record of sorts!


It was heartening to see that the number of leaded petrol vehicles continued to decline over the year from around 418,000 to 391,000.

And the increase in the number of diesel vehicles (+293,217 in the year to January 2016) is now far outpacing the growth in the petrol powered fleet (+114,337).

In fact, the number of diesel vehicles has expanded by nearly 60 per cent since 2011.

Yet the average age of a vehicle in Tasmania is now as high as 12.6 years, hinting at inefficiency.

Not too surprisingly, the youngest vehicle fleet is to be found in the Top End, where it sometimes feels as though practically every second person is driving a new Prado.


Sadly Australia's manufacturing industries have been a casualty of the high dollar through the mining boom, and there has been a significant decline in the number of homegrown vehicles on the road since the 2011 Census, with Holden (-7.3 per cent) and Ford (-18.4 per cent) models taking a big hit.

In their place have come more Toyota, Mazda, Hyundai, Nissan, and Subaru models. 


The wrap

The number of vehicles on the register continues to rise at a much faster pace than population growth, with particularly rampant expansion in the three most populous states. 

Petrol retail prices now having declined to a 14-year low will do little to discourage car ownership, so perhaps it's time to look at other measures?

In the meantime, the ongoing clamour to live in inner-suburban locations continues apace.

Monday, 22 August 2016

Kiwi exodus reverses

Migration to NZ slows

Following a period of strong migration from Australia to New Zealand, largely comprised of Kiwis returning home, this trend has now demonstrably slowed up in recent months, with departures for NZ now in a declining trend. 

About 15,800 New Zealand citizens per annum have migrated from Australia to NZ over the past three years, well above the 35 year average to 2013 of 8,900. 

Despite this shift there are still more NZ citizens departing for Australia permanently than arriving from Australia, since Australia has a larger and more diverse economy, more opportunities, employment, and comparatively high average weekly earnings

The annual number of permanent and long term migrants from Australia to NZ is now slowly but surely pulling back. 



In fact, Statistics NZ actually reported a seasonally adjusted net losses of permanent departures from New Zealand to Australia in July:

"There was a small seasonally adjusted net loss of 20 migrants to Australia in July 2016. 

This relates to the declining trend in migrant arrivals from Australia and an increasing trend in migrant departures to Australia."


Going forward

If you think that Australia's labour force figures are a bit up and down, then this volatility is nothing compared with what is seen in New Zealand! 

The unemployment rate figures for NZ are absolutely all over the place, the latest wild revisions taking the unemployment rate for the March 2016 quarter all the way down to 5.2 per cent, leading to an apparently "steady" quarter-on-quarter result in June.

Technically, therefore, New Zealand (5.1 per cent) now has a lower unemployment rate than Australia (5.7 per cent).

Generally speaking, a comparatively lower unemployment rate should work in NZ's favour when potential migrants are weighing up travel decisions. 


In reality both economies have been impacted by their respective weaknesses in export prices, with New Zealand's dairy industry racking up some alarming losses. 

Both countries are also seeing strong employment growth and inflows of capital to their largest cities, but typically weaker activity in their regions. 

And both countries are pushing immigration from Asian international students as a key demographic policy. 

Brexit impacts

I've previously noted how British permanent migrants to Australia fell to their lowest monthly level on record in June at just 410 down from a record 2,560 in August 2007.

It's been one of the contributory factors in Australia's slowing population growth, with Asian migrants capturing an ever-increasing share.


Britain's recent "Brexit" referendum - resulting in a momentous decision to leave the European Union - is expected to have some impact here, with more Britons expected to seek an alternative status. 

This shock result could potentially benefit immigration in both New Zealand and Australia.

Indeed, it has already been noted that there has been a tenfold increase in British registrants to migrate to New Zealand immediately after the Brexit vote.

10,649 Brits registered to move to New Zealand in the 49 days following the vote, according to the NZ Herald, up from only 4,599 registrations in the corresponding prior year period.