Australian Property Market Research Articles

Australian property market explorer – a front-end native tool for visualizing property sales data

Online interactive 3D visualizations can enhance understanding of the built environment, including non-physical aspects such as property value and price. With access to large-scale open datasets, a key challenge in building such interactive 3D mapping interfaces is the efficiency of visualization methods. Modern GPU-accelerated front-end mapping libraries present a solution to this problem. This research proposes a ‘front-end’ native approach to create a web-based visual analytics framework for large scale spatiotemporal data. The Australian Property Market Explorer exemplifies this framework by visualizing a large dataset of property sales in New South Wales, Australia. This tool allows users to explore and analyse property market patterns at various geographic scales. The proposed framework offers advantages over traditional methods such as scalability and reliability while promising use-cases such as aiding planners in infrastructure and transportation decisions and assisting property valuation professionals in analysing property price trends.

Housing price prediction incorporating spatio-temporal dependency into machine learning algorithms

Conventional housing price prediction methods rarely consider the spatiotemporal non-stationary problem in a large data volumes. In this study, four machine learning (ML) models are used to explore the impacts of various features – i.e., property attributes and neighborhood quality - on housing price variations at different geographical scales. Using a 32-year (1984–2016) housing price dataset of Metropolitan Adelaide, Australia, this research relies on 428,000 sale transaction records and 38 explanatory variables. It is shown that non-linear tree-based models, such as Decision Tree, have perform better than linear models. In addition, ensemble machine learning techniques, such as Gradient-Boosting and Random Forest, are better at predicting future housing prices. A spatiotemporal lag (ST-lag) variable was added to improve the prediction accuracy of the models. The study demonstrates that ST-lag (or similar spatio-temporal indicator) can be a useful moderator of spatio-temporal effects in ML applications. This paper will serve as a catalyst for future research into the dynamics of the Australian property market, utilizing the benefits of cutting-edge technologies to develop models for business and property valuation at various geographical levels.

‘Property talk’ among Chinese Australians: WeChat and the production of diasporic space

This article examines the ways the Australian property market is addressed among Chinese migrants in Australia on and off WeChat, one of the most popular instant messenger apps installed on Smartphones. Specifically, we focus on how migrant media and real estate professionals’ narratives on real estate properties constitute and reproduce a transnational Chinese diasporic space between China and Australia. Although the latest wave of ‘property talk’ is relatively a new concept to the mainstream Australian societies due to the housing price boom since 2012, talking about land and property ownerships has always been integral part of Chinese diasporic culture. Yet, with the advent of digital media technologies, this cultural conversation is increasingly being delivered, processed and experienced through digital platforms such as that of WeChat. Drawing on observations on WeChat and interviews with Chinese media and real estate practitioners in Australia, we conceive that WeChat plays a vital role in forging and reproducing Chinese diasporic spaces in Australia by articulating the intersection of diasporic spatiality and mediasphere. We contend that WeChat’s affordances of the informational, interpersonal and instrumental have aided Chinese migrants and those Chinese real estate practitioners to co-constitute a social space of property talk that enables new social relations to be negotiated and social networks to be established and reinforced across China and Australia.

A real option approach for the valuation of switching output flexibility in residential property investment

PurposeUncertainties in residential property investment performance require that real estate assets are designed in a flexible manner to respond to impacts of market dynamics. Though estimating the cost of flexibility is straightforward, assessing the economic value of flexibility is not. The purpose of this study is to explore the potential practical application of real option analysis to determine the economic value of a switching output flexibility embedded in a residential property investment in Australia. The study involves the exploration of an optimal strategy for investment in a residential development through real option analysis and valuation of a mixed use investment.Design/methodology/approachThe real option valuation model developed by McDonald and Siegel (1986) is adopted for the evaluation because the switching output flexibility is likened to a perpetual American call option with dividend payout.FindingsThrough real option analysis, the economic value of switching output flexibility of the mixed use building was determined to be higher than the initial upfront costs. Moreover, a payoff of about $4million was determined to be the value of the switching output flexibility, therefore justifying upfront investments in flexibility as an uncertainty and risk management tool.Practical implicationsThis application is an important demonstration of the practical use of options pricing techniques (real options analysis) and delivers further evidence needed to support the adoption of real option valuation in practice. Flexibility can also enhance risks and uncertainty management in residential property investment better than the adjustment of discount rates.Originality/valueThere is limited evidence on the use of real options techniques for the valuation of switching output flexibility in practice, and this comes as an original application; both the case study and data are all initial applications of switching flexibility in the Australian property market.

Bubbles and Crashes in the Australian Residential Property Market

This paper analyzes the Australian property market, the relationships between cities, houses and units, and the stock market with a focus on bubbles and crashes. Using monthly housing and unit prices for all eight capital cities we find that bubbles are more frequent, last longer and are more synchronized than crashes. Also, crashes do not immediately follow bubbles and are more prevalent across apartment units. Despite the existence of corrections in property prices the average returns and the risk-return relationships are more favorable in the property market than the stock market. We also identify a strong and positive change in correlations between the stock market and the property market around the global financial crisis consistent with financial contagion. A Vector Autoregression (VAR) further shows that policy interest rates and stock market returns significantly influence property prices which in turn influence the cash rate and the stock market. The relative stability of Australian property prices over the last 20 years suggests that policy makers played a role by providing an accommodating environment.

Sustainability evolution in the Australian property market

PurposeThe relationship between sustainability and value in property has been a major area of investigation over the past decade. However, in spite of the extant literature and research, the connections made by valuers in practice of the value relationship are still unresolved. The purpose of this paper is to investigate, in the Australian context, valuers’ perception of the relationship between sustainability and value; and their experience and knowledge of sustainability in valuation practice.Design/methodology/approachThe research investigates valuers’ perception and knowledge of sustainability and its inclusion in valuation practice in Australia. The approach uses a longitudinal survey of valuers from 2007 to 2015 tracking valuers’ knowledge, understanding, inclusion of sustainability reporting and the perceptions of the relationship between sustainability and market value.FindingsThis paper presents findings from a longitudinal survey that has been conducted in Australia since 2007, identifying changes between 2007, the height of the property market and sustainability engagement prior to the global financial crisis, and the subsequent years to 2015. The growth of sustainability in the property market is significant, however, valuers’ knowledge and reporting on sustainability is not demonstrating the same level of development. As a result, this is inhibiting valuers reporting on sustainability and has implications for practice and treatment of market values.Practical implicationsThis research highlights the need to examine how to assist valuers to more rapidly develop knowledge and experience to reflect the implications of change in practice. Current approaches being developed in the UK and Europe, like the introduction of RenoValue professional development programs and guidance documents, to assist valuers to develop their knowledge needs to be implemented in the Australian environment as current approaches are inadequate, and steps need to be taken in order to assist their development of knowledge and experience as the market demonstrates growth and acceptance of sustainability. This research identifies the need to re-examine how professional development is undertaken and knowledge developed by those practicing in the profession in Australia.Originality/valueThis longitudinal survey is the only research that has spanned a substantial period of time attempting to ascertain valuers’ perception of the relationship between sustainability and value; and attempts to track the knowledge development of valuers in the context of sustainability. The findings identify how the market is developing and adhering to a product model development theory, however, also identifies more fundamental issues and implications for valuation praxis, in the development of knowledge and ability of valuers to adapt to change and reflect these valuations.

Self-exciting effects of house prices on unit prices in Australian capital cities

This paper examines the long- and short-run relationship between Australian house and unit prices across all capital cities over the period December 1995 to June 2015. We find that house and unit prices are cointegrated and, based on the results of Granger causality and generalised impulse responses, that house prices significantly influence unit prices across all cities. However, bi-directional causality (responses) exists only for major capital cities with the exception of Brisbane. We also, for the first time, apply self-excited threshold models to explore the complex interplay between house and unit prices in Australia. We find that when the market for units is self-excited, or bullish, the positive effects of house prices on unit prices are noticeably larger than otherwise. There is a varying degree of herd mentality in the Australian property market with Sydney and Darwin being the most and least ‘excitable’ capital cities, respectively.

Capitalisation of residential solar photovoltaic systems in Western Australia

Due to government financial incentives and falling prices of photovoltaic (PV) systems, solar power has become the fastest growing renewable energy source in Australia. As financial incentives are being reduced or phased out, there is a possibility that adoption of this technology will slow down, thus creating a need for improved policy instruments targeted at adoption of residential PV systems. One of the factors affecting adoption of solar technology in the residential sector is its capitalisation in property values. Yet, the awareness of the capitalisation of PV investments in the Australian property market is limited. Our data indicate that homeowners who anticipate selling their properties in the near future are reluctant to adopt PV systems. This paper presents the first empirical estimate of the property price premiums associated with residential solar PV systems in Australia using residential property sales data from the Perth metropolitan area of Western Australia. An estimated 2.3–3.2 per cent property price premium associated with the PV systems suggests that homeowners fully recover the costs of PV investments upon the sale of their properties. Effective government policy could use this information to encourage adoption of residential PV systems by homeowners.

The black swan effect and the impact on Australian property forecasting

PurposeThe term “Black Swan” has gained recent popularity to describe an extraordinary event that causes extensive damage. The combination of low predictability and major impact makes an upswing in the magnitude of Black Swan events an important factor when making property market forecasts. The difficulty is that the preferred property forecast models traditionally depend on input data constructed on a normal (bell curve) conditions. As outliers, Black Swan events appear not to form part of the property forecast process. The aim of this research is to examine Black Swan events.Design/methodology/approachThis research examines Black Swan events and tests their impact on the accuracy of short term, six month bi‐annual survey forecasts from leading economists and property analysts for key Australian property market determinants: economic activity (GDP), ten year bonds and CBD office vacancy rates for the 2005‐2011 period.FindingsA range of statistical tests showed inconsistencies with the expert forecasts to actual performance and importantly all the experts appeared to miss the start of the Global Financial Crisis in the December 2008 period. The variations in the margin of forecast error suggest that the experts examine the selected property determinants independently. Also, for economic activity and CBD office vacancy rates, there is an interesting trend that in several consecutive time periods, a simple naïve “no change” forecast was better than those of the experts.Originality/valueIn an environment of increasing occurrence of Black Swan events, this inability to forecast short term property market determinants with confidence highlights serious issues with the current approach to forecasting property market performance. The first step for research in this area is to understand and frame the property risks associated with Black Swan events.

A-Reits: Impact of the Global Financial Crisis

For the past 20 years, the Australian Real Estate Investment Trust (A-REIT) sector has consistently produced returns that have outperformed the general equities market. However, the sector has succumbed to the global financial crisis, with the market capitalisation for A-REITs listed on the ASX dropping 53% in the last 12 months to March 2009 to A$47 billion. The relative loss of value was all the more shocking because it followed a period. The current environment is likely to make many features of the previous model difficult to replicate and will almost inevitably lead to a substantial review of the A-REIT structure. It is certain that some will query whether the current model is sustainable. The paper explores the future of A-REITS including conflict of interest management, the impact of higher levels of gearing and falling property values, the potential for a looming catastrophe in the Australian property market as foreign banks exit with no replacement for the CMBS market, the emergence of a government response to market failure through the Australian Business Investment Partnership, the future of the stapled structure and the possible impact of tax review.

Relationships between Australian real estate and stock market prices—a case of market inefficiency

AbstractThis paper explores the relationship between the Australian real estate and equity market between 1980 and 1999. The results from this study show three specific outcomes that extend the current literature on real estate finance. First, it is shown that structural shifts in stock and property markets can lead to the emergence of an unstable linear relationship between these markets. That is, full‐sample results support bi‐directional Granger causality between equity and real estate returns, whereas when sub‐samples are chosen that account for structural shifts the results generally show that changes within stock market prices influence real estate market returns, but not vice versa. Second, the results also indicate that non‐linear causality tests show a strong unidirectional relationship running from the stock market to the real estate market. Finally, from this empirical evidence a trading strategy is developed which offers superior performance when compared to adopting a passive strategy for investing in Australian securitized property. These results appear to have important implications for managing property assets in the funds management industry and also for the pricing efficiency within the Australian property market. Copyright © 2002 John Wiley & Sons, Ltd.