An Update for Residential Property Investors and Managers
This week I’m briefly across two different topics, the first covers new laws that will impact both residential property investors and managers. The second takes a look at recent figures release by the HIA giving us an insight to how new housing construction and supply is starting to shape up in 2020.
Firstly, there are number of changes to NSW tenancy laws that will start on 23 March 2020, changes that will impact both residential property investors and property managers. Details have been published by NSW Fair Trading.
The following information from the department’s website highlights the key changes. As you can see the changes are extensive.
• Minimum standards to clarify ‘fit’ for habitation
• New smoke alarm obligations for landlords
• Changes of a ‘minor nature’
• Damage and removing modifications
• New mandatory set break fees for fixed term agreements
• Strengthened information disclosure requirements
• New material facts
• New information to be disclosed to prospective strata tenants
• Remedies for tenants for breaches to information disclosure requirements
• Water efficiency measures
• New rectification order process
• New standard form of agreement
• New condition report
• Plus, other changes the department has addressed
Property managing agents need to be aware of these new residential tenancy requirements that will apply to all rented properties in NSW.
It’s notable that one of the key changes is a new obligation on landlords to ensure that smoke alarms are working properly. An important change given that there’s potential for both personal and property harm.
Trends in New Housing Supply
My second topic points to some big trends from the Housing Industry Association that focus on housing construction and supply.
According to the HIA the current construction downturn eased in January as house building activity improved. The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index increased by 2.4 points to 41.3 points in January (seasonally adjusted).
The result indicating that the construction industry declined at a slightly slower pace at the start of 2020. It’s worth keeping in mind that results under 50 points continue to indicate deteriorating conditions.
In further clarification the HIA figures showed that across the construction industry, both activity (42.3 points) and new orders (40.9) continued to contract in January, although slowing by comparison to previous month.
However, in a possible sign that supply might still be some way from a stronger improvement, there were steeper falls inputs from suppliers (39.4 points) while employment also recorded further contraction (41.7 points). These figures indicating a general reluctance by businesses to increase their workforce capacity amid ongoing soft demand.
From my point of view, I also reflect these results against comments made in my overview of the market for 2019/2020 where the quality of construction is playing a very big role in for example the delivery and success of new apartment projects.
The results from the HIA Figures do suggests that the housing sector has improved tentatively at the start of 2020 following two months of stable conditions. However, engineering activity also continued to decline, alongside a slowing roll-out of new infrastructure projects. This suggests that such a trend could further cut employment, which is an important element for the housing market.
In the HIA survey respondents indicated significant margin pressures from a highly competitive tendering environment, which can be seen as partly a result of result of increased risk aversion and lower spending among potential clients. There were also concerns about current and prospective supplier price rises for imported materials due to the depreciation of the Australian dollar. The figures were also ahead of any possible delays in materials being sourced from China in the face of the Coronavirus.
House building activity
Further statistics from the ABS and HIA highlights some additional details concerning the supply and construction of new homes and apartments.
For example, the volume of new house building work undertaken (seasonally adjusted) fell by 3.7% q/q and 8.9% p.a. to $8.8bn in the September quarter (Q3) 2019, according to the ABS, and house building accounted for 17.2% of all construction work in Q3.
While an index published by the HIA, indicated that the house building activity index lifted by 1.0 point to 51.7 points in January, a trend indicating a modest expansion in activity after two months of generally stable conditions.
According to the HIA this signalled the first expansion in house building activity since mid-2018. Perhaps showing that buyer demand for new homes is responding to low interest rates and an easing in bank lending restrictions. It’s a trend that I’ve also seen first-hand among clients in Sydney.
House building new Construction
Across Australia the HIA notes that the total number of private house approvals increased by 0.3% m/m to 12.7% p.a. to 8,368 in December 2019, but were down by 10.0% p.a. over the year (trend), according to the ABS. Further the trends were broadly stable in January. However, January 2020 did mark the highest result in 18 months for new orders index.
Apartment Building Activity
For some time now there’s been a trend towards reduced levels of new apartment supply. The HIA and ABS figures so that the volume of new multi-unit dwelling building work in Q3 2019 fell by 3.2% q/q and seasonally adjusted fell 13.3% p.a. to $7.3bn.
Apartment building activity accounted for 14.3% of all construction work done in Q3. (house building accounted for 17.2%).
However, the HIA also notes that the apartment building activity index increased by 0.1 points to 37.0 points (trend) in January. The most interesting fact is that this result was the 22nd monthly contraction.
The rate of contraction was broadly unchanged from December 2019. This lengthy period of contraction in activity will have an impact on market supply in 2020 and 2021.
The figures follow concerns over the level of supply, but the contraction has coincided with declining new orders for most of the period since September 2017 after a decline in apartment approvals from all-time peaks. The impact of future supply needs careful attention in coming months.
Apartment new Construction
According to the HIA, the total number of private ‘other dwellings’ approvals (apartments, flats and townhouses) increased by 4.9% m/m to 5,889 in December 2019 to be 0.4% p.a. higher over the year to November, but a big 38.6% lower than the peak recorded by the ABS in November 2017.
The HIA and ABS figures and trends are notable as most apartment markets across Sydney, Melbourne and Brisbane continue to see strong take-up of current supply and that includes tail-end supply of already completed buildings.
The Australian PCI® apartment building new orders index fell by 1.6 points to 30.4 points in January (trend). This index for apartment new orders has been under 50 points and indicating a decline for 22 consecutive months.
What these figures reinforce is the potential for a sizeable drop in the supply of both homes and apartments in 2020/2021 and this will be a central factor in driving both current and off-the-plan prices for apartments and the demand for new projects and development sites.