AS THE PROPERTY downturn draws to an end, there are important lessons for policy-makers, lenders and investors to be learned, according to RiskWise Property Research.

RiskWise beleives Labor’s loss has eliminated the number one risk to the property market and this, combined with the high likelihood of interest rate cuts by the RBA this year, the introduction of the First Home Loan Deposit Scheme and APRA’s proposal to remove the 7 percent ‘stress test’ replacing it with a 2.5 percent buffer, will support the bottoming of the Sydney and Melbourne markets by the end of the year and then a gradual recovery.

RiskWise Property Research has identified six key lessons to be learned from the downturn and how to mitigate them to avoid another property crash in the future. They are:

1. RiskWise CEO Doron Peleg said despite claims by some experts it had been on the verge of collapse, the market remained viable, despite price falls. And, with a “good arsenal of tools” by the policy-makers, there should be no crash.

“In September last year, some experts warned of collapse due to ballooning household debt, compounded by sliding prices in Sydney and Melbourne, that would escalate to falls of 40 to 45 percent in the next 12 months,” Mr Peleg said.

“Not only has it not happened -- and would not even if the Labor had won the election -- but more importantly, policy-makers have taken measures to boost demand.

“The First Home Buyers Scheme (that could also be a larger-scale first home buyers’ grant, if needed) was introduced prior to the election by the Coalition and was adopted a few hours later by Labor. In addition, the flow-on effect of lower property prices on household wealth, consumer spending and also on dwelling commencements and, consequently, lower GDP, increases the likelihood of interest rate cuts to ‘almost certain’.”

He also said APRA’s credit restrictions to reduce investor demand had eased and it was proposing lenders scrap the 7 percent ‘stress test’ requirement on home loans replacing it with a buffer of 2.5 percent on top of the interest rates.

“The important thing to remember here is that in the future don’t expect total collapse of the housing market in a US GFC-style meltdown. It is extremely unlikely, and policy-makers take actions when required,” he said.

“It’s equally important that decisions should not be made under the assumption that very extreme scenarios will take place, for example, following the 60 Minutes story in September 2018 in which it was reported there could be a 40 percent drop in Australia's house prices … this had an impact on sentiment and confidence to some extent.”

2.  A more aggressive monetary policy is required by the RBA.

“The RBA should have cut interest rates already and should not have made statements declaring the next move being upwards when there were so many economic indicators and key risk indicators that should have been taken note of, such as the strong connection between dwelling prices, household wealth and spending,” Mr Peleg said.

“An example of this is the stronger than expected fall in dwelling commencements, as published by RiskWise in December 2018, alongside an extended period of time when inflation was consistency well below target and wage growth was poor.”

3.  Investors amplify credit and dwelling price cycles contributing to financial stability risks.

“Therefore, any major reduction in investor activity has an impact on the demand of both existing and new properties,” Mr Peleg said.

“It is unrealistic to expect an increase in dwelling commencements when investor activity is significantly reduced. This is a key lesson for any policy-maker who proposes a policy with a major impact on investor demand, and the proposed taxation changes by Labor are a prime example for that.”

4. Off-the-plan units mainly in high-supply areas carry a high level of risk.

Since mid-2017, RiskWise has been warning that many areas subject to unit oversupply carry high risk of low demand and price reductions.

“This risk is very relevant to construction lenders, developers and obviously buyers, largely investors,” he said.

Prime examples include the Brisbane CBD where, even as early as June 2016 in Statistical Area Level 4 (SA4) Brisbane Inner-City, price growth was -1.8 percent with 17,417 units in the pipeline, an addition of 24.5 per cent to the current stock.

A recent analysis by BIS Oxford Economics also demonstrates that two out of three Melbourne apartments sold off-the-plan over the past eight years made no price gains or lost money upon resale, despite a property boom and record immigration.

5. It’s important to listen to mainstream economists and research houses which provide accurate and up-to-date predictions. This was particularly the case from the end of 2017 when it was obvious property prices would materially decrease.

“The only question then was ‘by how much exactly?’,” Mr Peleg said. “This is a key lesson, mainly for lenders and investors, as the majority of the assets that were purchased in the past couple of years experienced material price reductions, and many of them with negative or very little equity. Obviously, in some cases poor credit decisions have been made and some investors will need a number of years to see their property value increasing to the original purchase price.

“Mainstream leading economists and research houses shared with the media the results of their analysis – the same results they provide to their clients, in most cases lenders and investment funds. They have no incentive to mislead their clients and talk the market up or down.”

Mr Peleg said any major policies must be constantly reviewed and their impact reassessed according to recent developments in the housing market. Eg Labor’s proposed changes to negative gearing did not have a visible reassessment process from when it was suggested in 2016, despite major changes in the property market.

“Policy-makers should have a proper process of challenge and feedback from mainstream bodies that research the market, especially if that research is saying the implications could be adverse,” he said.

6. Affordable areas show more resilience than the top end of the market.

This can be demonstrated using CoreLogic’s latest Quarterly Economic Review from February which showed despite a 7 percent fall across Melbourne for the last three months of 2018, the bottom end enjoyed a 0.5 percent increase.

Also, in the past 12 months houses in the lucrative areas of the Eastern Suburbs of Sydney have fallen by 10.9 percent and the Inner-East in Melbourne by 18.8 percent.

“Investors or owner-occupiers with low equity have to reconsider purchasing a property at the top end of the market as they could suffer from high volatility in the short term.

“For example, if you plan to refinance or sell and move to another property in three to five years expecting strong capital growth, this could be significantly impacted by major economic events. However, the lower end is by far less volatile and generally less subject to such strong market movements.”

www.riskwiseproperty.com.au

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THE  Australian Small Business and Family Enterprise Ombudsman, Kate Carnell has welcomed the new federal shadow ministry, and looks forward to working closely with Shadow Minister for Small and Family Business, Brendan O’Connor and Shadow Minister for Industrial Relations, Tony Burke.

“Brendan O’Connor has a long political history and has previously served as the Minister for Small Business,” Ms Carnell said.

“He has a good knowledge of the sector and what small businesses need to thrive. Mr O’Connor will be supported by Shadow Minister Assisting for Small and Family Business, Matt Keogh.

“There are a number of issues we are particularly keen on working through in the interests of small businesses.

“Small businesses have told us their major concerns are tax cuts, energy prices and cash flow.

“Access to affordable capital is fundamental to the growth of small to medium enterprises (SMEs), so the delivery of the Australian Business Securitisation Fund and the Australian Business Growth Fund is essential.

“Equally vital to small business is finding the right people with the right skills to employ and simplifying industrial relations so they can more easily employ," Ms Carnell said.

“We have identified a number of simple steps to tackle the overly complex industrial relations system for small businesses that would make a real difference to the sector.

“We would also urge the Opposition to work with the government to deliver its faster payment times policy.

“We look forward to working closely with the shadow ministry to achieve better outcomes for the engine room of our economy.”

www.asbfeo.gov.au

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THE Institute of Public Accountants (IPA) is pleased to announce the signing of a mutual recognition agreement with the Institute of Certified Management Accountants of Sri Lanka (CMA Sri Lanka) commencing May 24, 2019.

CMA Sri Lanka is a full member body of the International Federation of Accountants (IFAC), the South Asian Federation of Accountants (SAFA) and the Confederation of Asian and Pacific Accountants (CAPA). 

“We will provide CMA Sri Lanka technical and educational resources to build their capacity and professional development,” IPA Group chief executive officer, Andrew Conway said.

“This agreement will also lead to the transfer of knowledge and sharing of experiences between both Institutes,” Mr Conway said.

IPA members who are interested in applying for CMA Sri Lanka membership can contact This email address is being protected from spambots. You need JavaScript enabled to view it. and refer to CMA Sri Lanka website at www.cma-srilanka.org for more information.

About the Institute of Public Accountants

The IPA, formed in 1923, is one of Australia’s three legally recognised professional accounting bodies.  In late 2014, the IPA acquired the Institute of Financial Accountants in the UK and formed the IPA Group, with more than 36,000 members and students in over 80 countries.  The IPA Group is the largest SME focused accountancy organisation in the world. The IPA is a member of the International Federation of Accountants, the Accounting Professional and Ethical Standards Board and the Confederation of Asian and Pacific Accountants. 

publicaccountants.org.au

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TODAY, Monash University announces the future expansion of Monash University’s World Mosquito Program (WMP), a not-for-profit initiative that works to protect the global community from mosquito-borne diseases such as dengue, Zika, chikungunya and yellow fever, enabled by a transformational donation from the Gillespie Family Foundation.

Currently reaching three million people across 12 countries around the world, the generous donation will help the program to expand its operations to 16 of the top endemic countries for these diseases by 2023 , reduce the ability of mosquitoes to transmit harmful viruses through the WMP’s self-sustaining Wolbachia method, and ultimately help eliminate these mosquito-borne diseases.

Since 2014, the Gillespie Family Foundation has committed their time, passion and financial support to the WMP, which has contributed to eliminating the transmission of dengue in areas of Far North Queensland and the global scale-up of the program.  

WMP director at Monash University’s Institute of Vector-Borne Disease, Professor Scott O’Neill, said, “We are extremely pleased at the program’s success in halting dengue in release areas across Queensland’s Far North, and deeply grateful for the continued support and extraordinary generosity that has been provided by the Gillespie family to the WMP. It will enable the program’s further global expansion and research into natural methods to combat transmission of mosquito-borne diseases.”

The Gillespie Family joins other donors and supporters to the Program who together are enabling the protection of more and more people.

Co-founder of the foundation and one of Melbourne’s leading entrepreneurs and philanthropists, Roger Gillespie OAM, has also been appointed campaign council chair of the largest philanthropic fundraising campaign in Monash University's history, Change It. For Good.

Lesley Gillespie OAM is chair of the World Mosquito Program Philanthropy Advisory Council and Roger Gillespie is a member.

The Change It. For Good. campaign has achieved incredible results so far, reaching the halfway mark of each of its three goals, including $370 million raised towards the goal of $500m, over 26,000 of the 50,000 donor target and the confirmation of more than 100 new bequests.

Professor Margaret Gardner AO, president and vice-chancellor of Monash University, said Mr Gillespie would provide essential leadership in taking these impressive achievements to the next level.

“Roger has a deep understanding of the transformative power of philanthropy," Prof.Gardner said. "For many years, he has been a strong advocate for how we can collectively create positive change. I look forward to Roger’s leadership in driving Monash towards achieving our Campaign goals.”

Roger Gillespie is co-founder of Bakers Delight with his wife and Monash alumna, Lesley Gillespie. Roger and Lesley, along with their children Aaron and Elise and their spouses, Meghan Gillespie and David Christie, founded the Gillespie Family Foundation, which is committed to working for the good of the wider community, through philanthropy, action and advocacy.

www.monash.edu.au

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