Given that tomorrow the Reserve Bank will make its interest rate decision, let me start this week with four facts about what is happening in the Australian dwelling market that may surprise you.
First, if metals prices keep falling and take the Australian dollar down further (as is widely predicted) some segments of the Australian residential market may actually benefit.
Second, one of the fastest growth markets for apartments is those without garages. There is very little street parking available so many residents are now living without a car – this is a significant change in traditional Australian living.
Third, living intensity is increasing as apartment dwellers are not only seeking apartments without garages but are also seeking a design that will allow them to rent one of the rooms to another party.
Finally, one of our big banks has suddenly decided to fund buyers of middle- or lower-priced Sydney apartments – a market all major banks have shunned for years.
Late last week, the biggest Australian apartment owner and builder Harry Triguboff and I had a conversation about the major changes happening in his Meriton apartment business. The Chinese are currently buying about half of all his apartments because they are much cheaper than equivalent apartments in major Chinese cities. And if the Australian dollar falls, dwellings will be even cheaper for the Chinese.
The Chinese are buying up big in Brisbane, but not in Surfers Paradise, partly explaining the sudden weakness of the Surfers market. Others tell me the Chinese are also very active in buying Melbourne residential property.
The Chinese sometimes buy apartments for their student children or for themselves to live in, but usually they remain landlords and rent the properties out. Most of the focus of Chinese investment in Australia is on the spectacular multi-billion dollar corporate moves which obscure what is happening at the grass roots level.
Providing garage space substantially lifts the cost of an apartment because it usually requires extensive digging to provide the car space. A year or two ago, Triguboff offered to rent similar apartments either with a car space or without. He was rushed by people wanting the lower priced rents with no car space.
People living in apartments without cars are like the residents of inner cities in previous centuries and the first half of the 20th century, and in more densely populated cities abroad. They need all their services close by, including public transport, supermarkets, bars and restaurants. One problem is visiting people in other suburbs at the weekend. Triguboff plans to encourage a rent-a-car company to rent cars at the weekend to this market.
This is a fundamental cultural change in an important segment of Australian society and car makers should be alarmed.
Another change with major social implications is the greater living intensity in Australian dwellings. In suburban houses, children are staying home and often bringing their partners to live. In apartment living, people are sharing kitchens and living areas as more people use the one dwelling.
One of the reasons why the low and middle sector of Sydney apartments has been so sluggish is that banks would not finance buyers. They usually valued the apartment below the cost and then were tough on the lending ratios. There are a whole set of reasons why Sydney has been in trouble in recent years, and this is one of them.
Furthermore, suddenly the ANZ Bank has changed its lending policy on Triguboff’s Meriton apartments. Triguboff gives all the praise to a particular ANZ executive, but these days the ANZ is tightly controlled and the Australian retail market comes under former Westpac executive Philip Chronican.
If you put all these things together we could be seeing a new set of rules for apartment living and funding in Australia. And in Sydney the current NSW government is making it much easier to develop large apartment complexes. Combine that with the Chinese buying, the ANZ funding, fewer car spaces and greater living intensity and we have some of the ingredients for a revival.
But of course on the other hand we also have the rising cost of money which makes buying by locals less affordable.
This article first appeared on Business Spectator.
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