Mlc investment management limited

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Please connect with us to get access to Impact Vault. Your request has been sent. Someone from the Aurigin team will be in touch with you shortly. Investment Management Firms. MLC Limited provides wealth management, investment, superannuation, insurance, and private wealth solutions to corporate and institutional customers in Australia. It offers personal solutions that include advisory services in the areas of superannuation, insurance, retirement, and investments; insurance solutions, such as life cover, critical illness, income protection, total and permanent disability, premium waiver, child critical illness, business mld, and other insurance solutions; investment solutions; retirement and pension mlc investment management limited and education and calculators. The company also provides business solutions, such as medical advisory, superannuation, insurance, employee benefits, implemented consulting, and business banking solutions; and advisory services to assist customers in buying and selling the books of client servicing rights.

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Investing in the Australian housing market Investment Insight We believe that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to their accuracy or reliability which may change without notice or other information contained in this communication. Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in the market.

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Investing in the Australian housing market Investment Jlc Mangement believe that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation.

However, no warranty is made as to their accuracy or reliability which may change without notice or other information contained in this communication. Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in the market. This communication contains general information and may constitute general advice. Any advice in this communication has been prepared without taking account of individual objectives, mlc investment management limited situation or needs.

It should not be relied upon as a substitute for financial or other specialist advice. Because of this you should, before acting on any advice in this communication, consider whether it is appropriate ivnestment your objectives, financial situation and needs.

A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on or on our website at mlc. Investing in the Australian housing market Contents There has been much debate in recent times regarding the outlook for the Australian residential property housing market.

This paper analyses some key questions including: What this b Summary 4 Is the Australian housing market significantly overvalued? Is it a bubble and could we see a similar bout of deflation as observed in the US and many other economies since ? The history of house prices in Australia. Mortgage affordability and interest rates likely to determine the direction of house mlc investment management limited. Residential property as investjent investment?

How much of a household s wealth should residential property ideally investmetn What are the alternatives to residential property investing? Investing in the Australian housing market Executive summary The Australian housing market appears expensive on a number of international and historical comparisons, following virtually continuous appreciation over the past decade or.

Managemeny combination of poor affordability, overvaluation and rising mortgage interest rates are likely to undermine the outlook for house prices in Australia over coming years. Michael Karagianis Investment Strategist MLC Investment Management There are some special factors which are likely to prevent the same catastrophic declines in house prices observed in the US over recent years. There could be significant variations around this expected decline across Australia.

Longer term, Australian housing could deliver modest returns for the next five lmc ten years as prices stagnate. Housing has delivered apparently superior returns with lower risk compared with many other investments over the past years.

Based maagement a more cautious view of housing returns in the future, the exposure of Australian households to mlcc appears excessive. The quick answer to this mc that on managwment number of metrics and looking at historical and international comparisons, the Australian housing market does appear to be significantly overvalued.

This view may not be surprising to a large number of limietd people trying to get limitee initial foothold into the Australian housing market. However, it is a view that may not be good news to many who are already well established in the housing market and have a large portion of wealth tied up in residential property assets.

There are a number of independent studies which look at the current valuation of Australian residential property. On the investmsnt, these show the Australian market to be significantly overvalued. Some of these studies are discussed.

House price to rent ratio at extreme levels The Economist magazine inbestment a quarterly update on residential housing markets in major economies around the world.

It looks at the house price to rent ratio for individual markets. The Economist survey did provide an early warning signal for many invetment which invesstment seen severe housing price deflation since the Global Financial Crisis GFC. The Irish observation is even more extreme. Further price declines may well be likely before house prices finally stabilise in Ireland. Australian house prices have outperformed other markets Compared with the US and many other markets, the appreciation of the Australian housing market appears quite excessive over recent years.

The widening gap in market performance has been particularly noticeable in the past 3 4 years. The US has seen a dramatic fall in house prices, yet the Australian housing market has appreciated.

Most Australian capital cities and certain regional areas have seen strong housing price inflation whilst other regional areas have seen prices decline managgement. Land to house price ratio elevated Another indicator of potential housing overvaluation is the land to house price ratio. This is an interesting measure of potential overvaluation, comparing the cost of acquiring the land versus the total cost of the house. It has often been a reliable indicator of market bubbles in many global investmment markets.

This measure has risen sharply in Sydney over the past years. Whilst not as extreme outside of Sydney, the land to house price ratio has generally been rising across all Australian cities compared with history, suggesting land price ilmited is a major driver of rising house prices.

The Organization for Economic Cooperation and Development OECD invesyment, has recognised the role that high land costs and restrictive planning regulations invextment in the cost of housing development.

In a recent review, the OECD recommended member nations increase responsiveness managfment new housing supply to housing demand. Countries should reassess licensing procedures that limit new housing starts and reconsider land use regulations that unduly prevent development.

More responsive supply can limit price investmment, excessive price increases It recommended Australia should ease its housing supply constraints. House price to income ratio at an extreme high Ml another measure of Australian housing valuations, the house price to household income ratio is now almost double the level observed in A similar observation can be made for the ratio of house prices to nominal GDP this has almost doubled over the last 20 years. The 7th Annual Demographia International Housing Affordability Survey:uses median house prices to median household incomes as measure of housing affordability.

This is the valuation measure recommended by the World Bank and the UN for assessing urban housing markets. It s one of the most comprehensive reviews of housing affordability done on a periodic basis. This survey is also interesting because it looks at regional as well as capital cities in Australia and ranks them against international cities.

The latest survey ranked all major Australian cities as being severely unaffordable the poorest ranking with median house prices between 5. All Australian cities and towns surveyed ranked as either seriously or severely unaffordable. Collectively these were the highest inevstment for any country outside of China Hong Kong and well above the affordable rating of 3. Housing affordability score has deteriorated in Australia.

By way of comparison London was ranked th scoring 7. During the s, Sydney s affordability rating was within the 3. Around regional Australia, Mildura, Launceston, Bunbury, Albury Wodonga and Shepparton were the more affordable housing markets surveyed although they still had serious unaffordable scores.

Coffs Harbour, the Sunshine Coast and the Gold Coast were the least affordable regional housing markets surveyed in Australia. Demographia International Housing Affordability Rankings Australian city International affordability ranking Median house to median income score Mildura out of 4.

Median score between 4. Score invdstment 5. Mortgage affordability has deteriorated significantly The Demographia housing affordability survey has the benefit of international comparability. However, it doesn t include mortgage interest rate levels within the computation.

Mortgage affordability is managemenf by the size of mortgages reflecting house priceshousehold disposable incomes and the prevailing level of mortgage interest rates. In an environment of managemwnt falling interest rates, as has been apparent in Australia through much of the past 20 years, there has been a dramatic change to the structure of mortgage affordability.

Lower interest rates have allowed households to dramatically increase mortgage balances whilst maintaining similar mortgage repayment costs. This greater limitted to increase household debt levels has translated directly into an increased capacity to pay higher managemejt for housing. In fact, the majority of the dramatic price appreciation of Australian houses over the past 20 years can likely invsstment attributed to the impact of lower mortgage interest rates. The period of declining interest rates was most noticeable in the period through to Affordability improved through to but subsequently deteriorated as the increase in debt outpaced the decline in mortgage interest rates.

Since mortgage interest rates in Australia have generally trended sideways apart from the sharp decline immediately following the GFC. Mortgage affordability has continued to deteriorate since then as households have continued to increase debt for house purchases.

In the absence of renewed declines in interest rates or a sharp jump in household incomes, poor affordability invesfment likely to undermine the scope to further increase debt levels.

This could undermine the potential for further dramatic housing price rises. Given the magnitude of overvaluation suggested, onvestment Australian housing market could be viewed as a bubble by some analysts. The magnitude of over valuation, current poor affordability and rising interest rates, certainly support the case for housing price declines.

However, there are likely a number of factors at work to prevent a catastrophic collapse in Australian house prices as a. These special factors are discussed in more detail later in this paper. Housing price performance likely to vary significantly across Australia The outlook for Australian house prices in unlikely to be uniform across the market. There is likely to be a wide disparity around the average with some regions and areas showing better price performance whilst other regions experience more painful price deflation.

Anecdotally, towns like Gladstone for instance, are seeing strong house price appreciation associated with buoyant mining incomes. However, we are seeing significant price declines in other parts of the Queensland housing market, most notably the Gold Coast, far North Queensland and the Sunshine Coast markets.

Sharp price declines are also being seen in Mandurah and around the mid-north coast of NSW. This is not surprising. These have been some of the most over priced regional housing markets in Australia.

A number of factors could have an impact on future house prices. However, invwstment single most important factor affecting the future direction of Australian house prices is likely to be affordability. Affordability the key driver of future house prices As discussed previously, looking back over the past 20 years, the primary driver of the price appreciation observed in the Australian housing market is likely to have been affordability.

Two of the primary drivers of affordability are mortgage interest rates and mortgage debt levels. Declining mortgage rates have provided households with the scope to undertake a massive expansion in household debt, principally devoted to housing. Mortgage rates reached their lowest ebb immediately following the GFC in when the standard variable rate fell to 5.

This was the lowest manayement in Australia for variable mortgage rates recorded since the late s. The effect of this decline in mortgage rates has been that household debt as a percentage of disposable income has virtually quadrupled in Australia over A diverse housing price performance across Australia Potentially an anaemic price move for 5 10 years Perhaps more significantly longer term, without markedly lower interest rates or a major boost to m,c incomes generally, the Australian limitted market is unlikely to see a quick return to strong price rises.

Rather it s possible we could see a period of weaker house prices followed by a subsequent period of perhaps 5 10 years where the housing market on average experiences anaemic price performance. Net debt held by Australian households has limiter as a percentage of GDP over the same period whilst in the US it has less than doubled.

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