Difference b/w Oz and UK property markets

[Satanoperca]

Hi,

I am in the process of selling my Docklands apartment in Melbourne as family requirements have changed since purchasing. While contemplating buying again and after much research can anyone explain what the difference between the UK property market and the Australian market is?

I have good enough knowledge to know that the US market is slightly different to ours but fail to see the difference with the UK market.

I ask this as the US, NZ, & UK property markets are still sliding downwards ours seemed to have remained fairly rebust, with prices in my location staying as they were at the beginning of 08 or slightly higher.

Regards

Benjamin

 

[sue78]

lots of differences...one big one is negative gearing which they don't have in UK. Which is why a lot of ppl collect their own rent and pocket the cash rather than use property managers in UK. Another thing of course is property management, it's still very expensive and behind Oz...landlords collect rent and do their own maintenance etc...my friends can't see the point in using a PM. Obviously, in Oz everyone uses a pm coz it's tax deductible.

Now with UK prices at a 7 year low, lots of redundancies, I reckon prices will keep falling.

In Oz, there will always be high income earners looking for vehicles to reduce tax hence always ppl investing in property.

 

[Satanoperca]

Thanks Sue.

Given the tax advantage, I can see the difference but is it the only reason.

Regards

Benjamin

 

[boomtown]

Benjamin

This is a common topic - I think you will find plenty of discussion if you spend half an hour or so searching this forum.

 

[nonrecourse]

Hi,

I am in the process of selling my Docklands apartment in Melbourne as family requirements have changed since purchasing. While contemplating buying again and after much research can anyone explain what the difference between the UK property market and the Australian market is?

I have good enough knowledge to know that the US market is slightly different to ours but fail to see the difference with the UK market.

I ask this as the US, NZ, & UK property markets are still sliding downwards ours seemed to have remained fairly rebust, with prices in my location staying as they were at the beginning of 08 or slightly higher.

Regards

Benjamin

Would be interested to know how you go selling in a market that is as dead as a dodo at the moment. What have the agents said to regarding your reserve?

 

[Shadow]

I ask this as the US, NZ, & UK property markets are still sliding downwards ours seemed to have remained fairly rebust, with prices in my location staying as they were at the beginning of 08 or slightly higher.

Population growth is a big one. While the Australian population is growing at 1.7% per annum, the UK growth is only 0.4% per annum, less than a quarter of our growth rate!

Another important factor is the quality of overseas immigrants - while Australia has quite a restrictive policy to encourage 'skilled' migrants only, the UK has been taking in a large share of poor and uneducated migrants from Eastern Europe, who tend to send most of their money home to family instead of spending it in the UK, unlike our immigrants who contribute towards the Australian economy to a much greater extent (and can better afford to buy/rent houses).

Another factor is interest rates. The UK banks have generally kept a larger slice of the official rate cuts for themselves, rather than passing most of the cuts to the consumer as has happened in Australia. Furthermore, the UK only started slashing official rates AFTER their house prices were falling sharply and the UK economy was in serious trouble. The RBA on the other hand has been much more proactive, cutting rates well in advance, ensuring that the rate cuts are passed on, and since they were starting from a higher official rate position to begin with, they have plenty more ammo left in the rate cut gun as well.

Then we have the government debt position to consider. Australia is starting from a much stronger position since we have (or had) a strong budget surplus. But we also have the Future Fund and the Infrastructure Fund, which together contain (from memory) around $80 billion that can be made available for further stimulus.

Finally, the UK and especially the London economy is very much based on the financial services sector. And we know how that sector is going. The UK economy is in a far worse position than Australia.

Oh yes, and the UK property boom was considerably larger than ours to begin with...

Cheers,

Shadow.

 

[Angelo]

I’m wondering, did the UK have an oversupply of property?

 

[yieldmatters]

I’m wondering, did the UK have an oversupply of property?

No - they had a shortage. They had the PM talking about boosting supply - only way to make housing affordable he said. Then the economy went bad and the shortage simply dissapeared - large surplus now. Funny how there is a shortage of things when their price is going up.

There is more in common with Australia and the UK then there is different. TV shows about making big $$ from property, everybody wanting to be a landlord, growing household debt, belief property prices can never drop, belief in higher density etc etc.

Main difference I see is they are a little ahead of us in the economic slowdown as it hit the financial sector first. The real economy is being hit second which is where Australia plays (commodities).

 

[yieldmatters]

Population growth is a big one. While the Australian population is growing at 1.7% per annum, the UK growth is only 0.4% per annum, less than a quarter of our growth rate!

So if Australia drops back to 0.4% growth our property prices will collapse?

 

[contrary]

Funny how there is a shortage of things when their price is going up.

Strong asset price appreciation distorts the actual demand-supply statistics. THis happened for oil, property in the UK and it may have happened for property here.

A rapidly appreciating asset creates it's own demand, based on the expectation of further gains. People pull out fundamental factors such as peak oil, China, population increase, land can't be created. These factors have always been present. Then in retrospect when things have deflated, people think, "oh, it was just a bubble", and it becomes apparent that the price action and "undersupply" were just due to liquidity factors and increasing credit and leverage.

 

[yorke]

No - they had a shortage.

Wasn't the shortage caused by masses of Eastern Europeans and other foreign workers who have since returned home ? That would leave them with a huge surplus of vacant properties, would it not ?

 

[boomtown]

Just like we have all our recent emigres from the UK and South Africa going back home because its better back there.

Ok maybe not.

 

[Shadow]

So if Australia drops back to 0.4% growth our property prices will collapse?

Hi YM,

Not sure why you would say that. Oh wait - I get it. You're taking one factor out of the many that I put forward, and then building a strawman argument to suggest that I think this is the only factor that makes a difference between the UK and Australia, when in fact my argument was much more detailed than that.

A more sensible question for you to ask would be as follows:

'Shadow, if Australia drops back to 0.4% population growth, and most of the recent migrants move back home to Eastern Europe, and any who do stay start sending their wages home to Lithuania, and the Australian banks stop passing on official rate cuts, and the Australian government misplaces the Future Fund, and the Australian economy transitions overnight into a financial services driven economy, and in the meantime property prices in Australia have grown by another 50% or so to match the UK boom, then will Australian property values fall by 15% or so like the UK?'

Then my answer would be 'yes, probably.'

Cheers,

Shadow.

 

[sue78]

also, in UK there aren't many houses that stand apart from the other. Rows and rows of semi detach look alike, in housing estates, it's all built by the same developer and every house looks the same. There's not much garden etc

When u compare UK prices are still higher than Oz and if you compare what you can buy for the same price as UK, the standard here is much higher. The quality of living in Oz is higher.

But the biggest factor is still negative gearing. with such high income taxes, you would be crazy not to buy a property just to offset taxes.

Pppl are gonna go where there are jobs..play it safe, buy where it's easy to rent out. I always thought WA was over priced.

Mlb CBD apts are under supply and prices r still going up. My bro rented his apt out in QV 3br for $870p/w within a day. It should be neutrally geared.

 

[Sustainability]

So if Australia drops back to 0.4% growth our property prices will collapse?

I believe population growth is irrelevant. What drives prices is homeowners ability to service the mortgage.

The key is jobs. If Australia increased immigration to 10%, but no one could get a job, then they won't be buying houses.

 

[Angelo]

I just pulled this article off the net which indicates that there is an oversupply. It is just one article but it does seem to indicate that there is more housing than they need. I’m still not sure if there is an over or undersupply in the UK. Does anyone know of a source that keeps the stats?

http://www.propertywire.com/news/europe/uk-cities-oversupply-apartments-200808301553.html

 

[Satanoperca]

Shadow,

I really appreciate your response especially in detail and with facts and thank-you for responding and your contribution to the forum.

As I posted the thread, I was trying to get as many facts about what is happening both locally, nationally and international to determine where my best opportunities lie given my situation.

For those that wish to know, the Docklands and namely the Yarras Edge precient is holding values well under $1mil. To give some background, my apartment is north facing, 127 sq mtrs, 2 Bedroom, 2 bathroom, 2 Carparks with broad city views, on the yarra river overlooking a marina for only $730,000. The interest has been strong and I expect to sell in the next week or so. Given that, the apartment was purchased off the plan for $600,000 almost 8 years ago and any growth has been seen only in the last 3 years when I purchased. In those three years rentals have increased 50% as they were way down to start with (2004 - 450pw and 2008 680 pw) as it is was a new area and unknown to most of Melbourne. A lot of people have lost money in the Docklands but those who picked the right apartment at the right time have done extremely well. With interest rates dropping the returns as an investment are only increasing. The only restriction to these apartments is the body corporate + rates at $11,000 p.a.

I wish to sell as I cannot add value to the assest, it has already been done and while I love living here if I can sell and get a fair price I will, taking the family to a rental in the near by area and wait. The last recession I was in uni and after much research I still have little idea on what is going to have over the next 6-12mnths. I see better buying opportunities outside the area at the moment, I must stay due to a few more years of having my son already established in child care.

The current market is a change from the last years where I see opportunity for those willing to take a chance. I hope to buy a small house in Sth Melbourne area in the next 12months that I can look to renovating before the next boom comes along, until then I still need somewhere to live.

Whether the market is going to see any further falls, the area I am looking in has already seen 10% falls from peak I do not know, but there is still greater opportunity as there was 12 months ago.

The financial meltdown has been reported in the media, goverments around the world have thrown large amounts off cash at it, in Australia as just a family man with good wages from my wife and I, I am yet to feel the pain but I am sure that there has to be some ramifications to it in the months to follow and if not years but that does not mean it is all doom and gloom - opportunities will always exist.

Regards

Benjamin

 

[yorke]

The key is jobs. If Australia increased immigration to 10%, but no one could get a job, then they won't be buying houses.

You are correct, they would be renting. That would push the rents up which in turn would push up the house prices. It could take a few extra months but the end result would be the same.

 

[yorke]

Just like we have all our recent emigres from the UK and South Africa going back home because its better back there.

Ok maybe not.

I haven't seen any evidence of this amongst the 2 dozen or so South Africans that I know or the Zimbabweans that got here via SA. Most come here to settle for good and only return to for holidays. Besides, the things there are getting worst so they have no reason to return.
UK is possible although there are probably more coming this way then going back and if you also look at the Aussies returning from UK then I'd say most of the traffic is coming this way.

 

[Sustainability]

You are correct, they would be renting. That would push the rents up which in turn would push up the house prices. It could take a few extra months but the end result would be the same.

I hope the immigrants have deep pockets. Reality is, if I loss my job, I lose my unit. Centerlink payments don't even cover my rent these days. It would be back home with Mum and Dad.