Aussie Residential Property Market ‘Demand Black Hole’: Not The Worst

Australian Housing Market and the Aussie Economy

Demand black hole’ read the subheading in the AFR today.

The doom mongering can get a bit rich sometimes.

Today we take a look at the Australian residential property market, with one eye on an indicator that is at its ‘lowest level in 70 years.

Things aren’t as bad as you would be led to believe.

Yes, demand is certainly at low ebb.

As per the AFR piece:

Of 794 homes scheduled for auction in Sydney on February 22, 110 were passed in or withdrawn and then readvertised as private sales within 48 hours.

SQM found that 77 were still on the market on April 27.

It was a similar picture in Melbourne. On the same weekend, 127 properties were passed in and readvertised as private treaty. Eight weeks later, only 24 homes were sold and 103 were still waiting for a buyer.

And the article then notes that the housing completion rate in NSW has fallen to its lowest level in the last seven decades.

This however, is the supply of housing. New homes being finished.

Remembering that things tend to lag in the residential market, this supply decrease should show up as higher property values if things get back on track.

What does back on track mean?

It means the ‘Housing Finance Complex’ will kick into gear.

Governments are well aware how much Aussies have tied up in their homes, and in order to protect the banks, they know what they have to do.

Our editor, Callum Newman wrote yesterday on the topic of predictable government behaviour, saying:

We know that the game plan of governments must be to protect Australian property values.

They have to do this in order to protect the level of private debt held against it, and in turn, the banks and financial system built on these claims.

Now, it’s probably not the best economic system to have inflated house prices.

But as an investor, you shouldn’t try and swim against the current.

If the RBA and the Big Four decide what a house should cost, you should be looking to capitalise on whatever they throw up.

Looking at the A-REIT INA share price for clues

For clues as to what’s happening with residential real estate in Australia, let’s take a quick look at the chart for residential A-REIT Ingenia Communities Group [ASX:INA]:

ASX INA Share Price Chart - REIT Ingenia Communities Group


Like many A-REITs, it shed points aggressively when coronavirus lockdowns came about.

But in the date and price range, you can see its clawed back almost half of the fall — up around 45% in just over a month.

What does this tell us?

I think it hints that clued up investors think the residential property hit may not be as bad as the headlines are letting on.

Ingenia just went to the market for an institutional placement of $150 million, to go with a $25 million top-up via a Security Purchase Plan.

They got the cash.

Which means…

When you see headlines in major mastheads that say the end is nigh for Aussie property, treat them with a healthy dose of scepticism.

Government behaviour is remarkably predictable and The Law of Rent is a powerful tool to property investors.

If you watch the Aussie property market closely and you liked the reasoning behind today’s article, make sure to subscribe to Profit Watch; it’s a great way to stay ahead of the curve when it comes to property prices. It’s free too. Subscribe here.

Lachlann Tierney,

For Profit Watch