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22 Nov 2022 - Australian Secure Capital Fund - Market Update

By: Australian Secure Capital Fund

Australian Secure Capital Fund - Market Update October

Australian Secure Capital Fund

November 2022

National property prices have fallen for the sixth consecutive month, with values declining a further 1.2% in October. Whilst the price correction continues, there is some signs of easing within the capital cities, with the rate of decline slowing following falls of 1.6% (August) and 1.4% (September), reducing to a 1.1% decline in October. 

Queensland capital cities recorded the most significant monthly change with the Home Value Index recording a 2% reduction. New South Wales, Tasmania and Canberra experienced further declines of 1.3%, 1.1% and 1% respectively. Smaller falls of 0.8% for 

Victoria and the Northern Territory, with South Australia and Western Australia experiencing the smallest reductions of 0.3% and 0.2% respectively.




Despite the continued reduction in house prices, at the combined capital city level, housing values have fallen just 6.5% following a 25.5% increase through the upswing, with Sydney recording the largest falls of 10.2% since the January peak (after a 27.7% rise), and Melbourne down 6.4% since February (after a 17.3% rise). Interestingly, unit prices have held value better throughout the downturn (down 4.2%), likely driven by surges in rental returns, as well as experiencing smaller growth during the upswing. 

Supply remains lower than previous years, with the number of newly listed capital city dwellings in October down 25.2% from 2021, and almost 19% below that of the previous five-year average. This lack of supply is likely to contain the price falls to an extent, as there has not been any significant upswing in panicked selling or forced sales. The last weekend of October saw a total of 1,908 auctions take place across the capital cities, well below the 3,546 on the same weekend in 2021. 

Clearance rates also remain lower than last year, with the weighted average clearance rate across the capital cities at 59.8% (down from 76.8% in 2021) in the last weekend of October. Similar to last month, clearance rates in Adelaide were the highest of the weekend, with a clearance rate of 68.2%, followed by Sydney (62.3%), Melbourne (60.7%), Canberra (59.8%), Brisbane (45.7%) and Perth (38.5%). 

Whilst it is too early to determine if the worst of the decline phase is over, the RBA's decision to raise the cash rate by a further 0.25% instead of 0.5% for the second straight month, despite the high inflation reading for the September quarter, indicates they do expect inflation to start moderating.


Quick Insights

Housing Accords    

The Federal Government's new policy of targeting 1  million new homes over 5 years could be a difficult  target to achieve based on current estimates however  the policy has merit in attempting to deal with the  ongoing structural under supply of housing across  the country with significant economic benefits.

Low Vacancies
Co-living and build-to-rent operator UKO expects to  more than double its portfolio to over 2500 rental  units  over  the  next  two  years  after  leasing  up  its  newest building in inner Sydney in just four weeks.  Near  record  low  rental  vacancy  rates  in  Sydney  has  lifted  occupancy  across  UKO's  portfolio  of  18  buildings and more than 1000 apartments to 98 per  cent and allowed it to bump up asking rents.

An Opportunity Presents 
Some seasoned landlords are now taking advantage 
of the lull in the market to bulk up their portfolios.  Domain calculated that a 4.34 per cent gross rental  yields  will  cover  the  mortgage  repayments  on  an  average standard variable rate loan, taken on a 20  per cent deposit over 30 years. This means houses  in 11 per cent of all suburbs in NSW are earning high  enough  rents  to  cover  the  mortgage  repayments  and even putting some extra cash into the landlords'  pockets.

Funds operated by this manager:

ASCF High Yield Fund, ASCF Premium Capital FundASCF Select Income Fund

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