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Australian Secure Capital Fund - Market Update August
Australian Secure Capital Fund
August 2022
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Property prices continued to decline slightly in August, with a combined average decline of 1.60% across capital cities and a decline of 1.50% across regional areas. Interestingly Sydney (-2.50%) and Melbourne (-2.10%) are the only capital cities to have recorded negative growth on an annual basis, with prices still up nationally across both capital and regional areas by 7.50%.
At this stage, we expect a further 0.75% increase in the Reserve Bank cash rate in September and October, after which we believe the Reserve Bank will pause to analyse the impact of the cash rate increases implemented over the course of the year. This should enable property prices to stabilise leading into the year-end.
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As is evident by the substantial increase in retail sales last month, we believe the consumer remains in a strong position, with most households having significant property equity due to the considerable rise in property prices we have witnessed across the country in the 18 months leading into this year.
Unemployment also remains historically low, supporting wage growth and providing an additional cushion against rising mortgage costs. Rental yields increased by 0.8% in August rentals alleviating some of the pressure on property investors.
As bottlenecks in the supply chain start to resolve themselves and oil prices stabilise at more reasonable levels, we do expect inflation to tame; however, despite the Reserve Bank likely to pause any further increases in November, the question will still remain going into the 2023 whether they will have done enough this year to see inflation trend back within their target zone of 2% - 3%.
If we do see further rate rises next year, this will obviously further negatively impact property prices however we do expect most of the declines to occur this year, particularly as international migration levels start to increase next year to alleviate some of the labour shortages we are seeing across multiple industries on a national level.
Source: CoreLogic
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The weighted average clearance rate across the country this week was lower than last year at 55.80% (-8.5%). Other cities were also down from last year with the exception of Canberra, up by 39.70% from last year.
Auction activity has been picking up in the capitals week by week. Sydney was up by 21.90% from last week.
Source: CoreLogic
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Quick Insights
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South Bank Skyscraper
Beulah's $2.7 billion dollar apartment project 'Sth Bnk' in inner city Melbourne, has now sold $600 million dollars in units, 80% of which went to owner-occupiers. Managing director Jiaheng Chan has said that "Most of our purchasers live in Melbourne and Sydney...", Charter Keck Cramer also noted that "[The] target market is ageing and many are seeking to (or will be forced to) downsize in the short to medium term as their living preferences change.".
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Rapidly Rising Rentals
One in seven rental homes in New South Wales are achieving a positive cash flow, along with half of all rentals in Queensland, and nearly three-quarters in Western Australia. Tim Lawless, CoreLogic research director, said the brisk recovery in gross rental yields could make more properties cash flow positive in the coming months. Sydney and Melbourne unit markets posted the quickest recovery, where gross yields have increased 0.45 percentage points to 3.4 per cent and 0.4 percentage point to 3.8 per cent respectively.
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Macquarie Moves
Macquarie Group's CFO, Alex Harvey bought a doer-upper on the Kirribilli waterfront this month. The executive paid $18.7 million dollars for the three-storey federation-style home and the purchase follows Qantas's Alan Joyce and Next Capital's John White who also bought homes in the area at record prices. Many of these properties came onto the market thanks to local owners now downsizing to luxury units.
Source: Australian Financial Review
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Funds operated by this manager:
ASCF High Yield Fund, ASCF Premium Capital Fund, ASCF Select Income Fund
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