Business Finance: Analysis of Housing Market Trends and Returns

This business finance report offers a comprehensive analysis of housing market trends in Sydney, Hobart, and Newcastle over a 30-year period. It compares real estate returns with Australian stocks and bonds, evaluating the performance of residential property investments. The report examines property prices, income levels of architects, and the house price-to-income ratio in the three cities. Additionally, it explores mortgage mechanisms, referencing SUB Bank of Australia to determine mortgage conditions. The report also includes graphical representations and comparisons, providing a detailed overview of the housing market's dynamics and investment potential, with the data presented and analyzed thoroughly.

RUNNING HEAD: BUSINESS FINANCE
housing finance

Business finance 1
Contents
Introduction................................................................................................................................2
Part 1..........................................................................................................................................2
Housing prices over 30 years.................................................................................................2
Real estate returns VS stock and bond returns.......................................................................3
Part 2..........................................................................................................................................5
Property prices in three cities.................................................................................................5
Comparing the prices..............................................................................................................6
Income level of an architect...................................................................................................6
The house price to income level ratio.....................................................................................6
References..................................................................................................................................7

Business finance 2
Introduction
The report contains an overall analysis of housing prices in the cities named as
Sydney, Hobart and Newcastle. In the first part, the trend in housing prices of each city over
the period of 30 years is been noticed and the performance of real estate market is evaluated.
The performance of housing is then compared to the Australian stocks and bonds. The report
also focuses on the average returns delivered by the residential property in Australia in
relation with its stocks and bonds. The performance is measured on the basis of 10 years and
20 years average annual gross returns given by the direct investment in residential property,
Australian stocks and bonds. The second part of the report contains a comparison of the
house prices in three cities respectively. The income level of an architect in those cities is
also analysed and then a house price to income level ratio is calculated. In third part how
mortgages work and taking the SUB bank of Australia for the purpose of determining the
conditions for mortgage have been analysed in general. A detailed analysis of the same has
been done in the excel sheet.
Part 1
Housing prices over 30 years
The following graph shows the trends in house prices in the cities of Australia. The
cities include Sydney, Hobart and Newcastle. In order to purchase a property in one of these
cities, the trend in their housing prices is observed over the past 30 years.

Business finance 3
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
House prices
Sydney Hobart New Castle
(Source: By Author)
The above graph depicts the trend or movements in the house prices of each city
respectively. At a glance, it can be said that Sydney has the highest prices and Newcastle
reports the lowest. Talking about Sydney, Australia, it is observed that an upward trend is
been there in city’s house prices. In 1998, the price was $141,000 which has now reached to
$880,743. The trend line that denotes Sydney’s prices is continuously moving upwards with
fewer fluctuations (Duke, 2018). During the period of 30 years, the highest price charged for
purchasing a house in Sydney was $972,000 in 2014. During the first ten or twelve years, a
Limitations ant rise was there in the prices. After that in year 2011 and 2012, the prices
reduce and then again increases and reaches to $972,000 in 2014. Post that period, a fall has
been there in the prices (Abelson & Chung, 2005).
As far as Hobart is concerned, its trend line is also in upward direction and its housing
price has also risen during the past 30 years. In 1998, the price was $86,000 which now has
reached to $416,840. A huge increase in the house prices of Hobart was seen during 1992 and
1993. That was the time when the price gets a huge hike and was reported at $150,500 in

Business finance 4
1933 as compared to $126,125 in 1992. After that, a continuous rise was there in the prices
and in 2017 it was $805,000 (Realestate.com.au. 2018).
The trend line of Newcastle has shown a little upward movement and is seems to be
stable for the past 30 years. This city has the lowest housing prices as compare to Sydney and
Hobart. In 1998, the housing price in Newcastle was $77,460 which has now reached to
$198,200. The prices in Newcastle has continuously risen till 2007 after that a decreasing
trend was noticed in the prices (Fred. 2018).
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
0
1000
2000
3000
4000
5000
6000
7000
S&P ASX 200
Adj Close
(Source: By Author)
As compared to the Australian stocks, the housing prices of Sydney has performed
much better as they are been continuously rising since 1988. The same trend can also be
noticed in the stock prices of S&P ASX 200. The prices continuously rise over the period
having less fluctuations and it was reported highest at $5773.4 in 2006. After that the prices
drop to a great extent and then suddenly rise. The stock is currently trading at $6087.4. When
comparing such trends with the housing prices of Hobart and Newcastle, it is observed that
both the cities have shown an upward trend in the prices but still has underperformed than the
ASX 200 (Yahoo Finance. 2018).

Business finance 5
Real estate returns VS stock and bond returns
It is historically and statistically true that Australian residential property or real estate
market has offered high and stable returns in for of both capital growth and rental income.
Evaluating the past five years, it is observed that residential properties situated in the capital
cities of Australia has offered relatively high returns based on their historical performance.
(Source: Brickx.com, 2017)
The above graph shows the real estate returns generated by the capital cities of
Australia. It can be seen that Sydney has offered highest returns of 85.3% over the five years
and also its prices have increased limitation instantly. Whereas, Hobart has only offered
28.8% returns as per its historical performance. Melbourne offered returns of 51.7% which
are pretty good but less than Sydney (Brickx.com. 2017).
When comparing such residential property returns to Australian stocks, bonds and
other assets over the time period, following chart is been shown

Business finance 6
(Source: Brickx.com, 2017)
The above graph compares the returns generated on the direct investment done in
Australian residential property with other investment assets. The comparison is done for the
10 years starting from 2005 to 2015. It is observed that over the 10 years, the residential
property returns outperformed other traditional modes of investment. It gave an average
annual return of 8.0% which is way more than the returns generated by Australian stocks and
bonds. In comparison to this, the stock generated returns of 5.5% and bonds offered 6.2%
average returns. So, it can be said that making investment in residential property is much
better than investing in other assets (Brickx.com. 2017).

Business finance 7
(Source: Brickx.com, 2017)
The same outcome was there when the comparison was done for the past 20 years. In
this also, the real estate market of Australia has performed much better than its stocks and
bonds. Making investment in the residential property has yield a return of 10.5% over the
past 20 years. While during the same time period, Australian shares has offered a return of
8.7% and the bonds’ average annual return was reported at 6.8% (Brickx.com. 2017).
However, from the above comparison one thing is very clear that the country invest
more in its residential property rather than going for shares and bonds. The reason behind
such differences was the phenomenal increase in the median house prices across the nation.
However the popularity of property investment is not reflective of its accessibility. As
reported, with the increases prices many Australians have been locked out of property
market. In other words, the people can no longer have a means of achieving the exposure to
the potential returns offered by real estate investment.
Part 2
Property prices in three cities
One property per city is researched which meets all the requirements of having 3
bedrooms, 1 car park, two bathrooms and a small garden (Young, 2019). Among the various

Business finance 8
properties available in Australia’s capital cities, following are been chosen from Sydney,
Hobart and Newcastle
Cities House Property
Sydney 15 Kale Road, Spring Farm, NSW 2570
Hobart 5 Gardenia Grove, Sandy Bay, TAS 7005
Newcastle Kirkwood Place, Gosforth, Newcastle upon Tyne
The above properties are selected from each city and the do match with all the three
requirements that are needed. Since, situated in different cities the prices are also different. A
snapshot of their prices is as follows:
Cities House Property Prices
Sydney 15 Kale Road, Spring Farm, NSW 2570 $749,950
Hobart 5 Gardenia Grove, Sandy Bay, TAS 7005 $840,00 plus
Newcastl
e
64, Park Avenue, Cooks Hill NSW 2300 $1087500
Comparing the prices
Looking at the prices, the house property in Newcastle seems to be the most
expensive than the other two. Despite the prices, the amenities provided are better (Hurley,
Wood & Groenhart, 2018). The house property in Sydney is situated at the riverside estate of
the spring farm and is a beautifully designed home. It is located close to schools, main market
and sporting fields which are easily accessible. The property offers 3 bedrooms, 2 bathrooms,
a garden area and 2 car parking lots. All these are the requirements which are needed to be

Business finance 9
fulfilled. The land area is 390sqm. The house is stylish and gives a perfect view of riverside
(Realestateview.com. 2018).
On the other hand, the property located in Hobart is situated in a quiet street which is
surrounded by other quality homes. It gives a view of River Derwent, have high end fixtures
and fittings and provides a comfortable living. It has 3 bedrooms, 2 modern style bathrooms
and 2 car parking. Along with this the house is surrounded by many bushes providing a
garden area also. With the land area of 860sqm, it perfectly fits with the requirements.
However, the prices are too high to afford (Realestateview.com. 2018).
The house in Newcastle is available at very high price worth $1,087500 and also
fulfils all the requirements. It is located in the area which covers the local shops, cafes, close
to transport facilities and fireplaces. (Li, Bao, Sellis, Yan & Zhang, 2018). The house is six
bedroom semi-detached bungalow which offer beautiful private gardens, 3 garage spaces, a
balcony, and I ground swimming pool and secure parking facility. A bungalow style house
offers great facilities apart from the mentioned above include alarm and floorboards
(Onthemarket.com. 2018).
Income level of an architect
Architects are been known for designing and creating new houses and building. In
different cities of world they are been paid differently (Akimov & Stevenson, 2017). Talking
about Sydney, the average income of a design architect is $62,457 per year. The skills which
make a person to get highly paid for his profile are Arch CAD, GRAPHISOFT, Project
management and many more. While, in Hobart architects are paid $92,939 per year. This is
almost 1.6 times more than the median wage of the country. However, the tax charges on
income level amounted to $23,878.07 which makes the net income of $69,060.57. In

Business finance 10
Newcastle, the average income level of an architect is $107,500. In April, 2018 the income
level roses by $7,635 that is 25% increase was there.
The house price to income level ratio
Sydney Hobart Newcastle
House prices 749,950 840,000 1087500
Average income level 62,457 23,878.07 107,500
House price to average income
level 12.01 35.18 10.12
Sydney Hobart Newcastle
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
House price to average income level
House price to average income level
(Source: By Author)
Part 3
How mortgages work
The mortgage market is very well developed in Australia and there is a huge choice of
mortgage providers and products. A sound knowledge of mortgage is useful in determining
about the different types of mortgages. As an expert there are wide varieties to access the

Business finance 11
options. The first decision shall be the decision about the rates whether the selection shall be
the variable and fixed rate. Fixed rate mortgages are associated with the same interest rate
will be applicable for the duration of the agreement (Blöchliger, Égert, Alvarez & Paciorek,
2015). They are applicable usually for few years. Variable rate mortgages however can
fluctuate according to the variability of cost. They typically track the standard variable rate
which is decided by the bank, or the central bank rates. Another option for the first buyers
can be is the hybrid options which contain the discounted variable rate, before moving on to
the bank’s standard variable rate. This is sold as a honeymoon offer, especially for new
customers but might end up costing more than what is expected as the standard variable rate
is not necessary the best reliable rate available for the customers.
There are also certain types of products which are available only to the buyers in
specific situations (Wilson, 2015). This is also known as the professional package under
which the services are revolving around the concept of the home loans which is made
available to the professional buyers which are made variable for professional buyers.
Applying for home loans requires some conditions which are discussed as follows.
The personal information includes the fulltime employment history, current and
previous addresses, details of the current assets are required to put up collateral security such
as car, bike or other properties and most importantly the proof of your income and current
outgoing expenses (Robertson & Rogers, 2017).
Current records of the salary, latest return of the tax and notices if nay for the purpose
of assessment, copies of the recent credit card statements are required which confirms the
credit limits. The last six months bank statements. Also the stamp duty and lender’s mortgage
insurance is reviewed.

Business finance 12
Answer to question-A
Cities House Property Prices ($) Rate
Sydney
15 Kale Road,
Spring Farm,
NSW 2570
724950
3.77%
Hobart
5 Gardenia Grove,
Sandy Bay, TAS
7005
84000
3.77%
Newcastle
64, Park Avenue,
Cooks Hill NSW
2300
1087500
3.77%
A. repayment
per month
20 years’ time
30 years’
time
House-Sydney
Price of house 724950 724950
Loan (price-
DP) 507465 507465
Rate (monthly) 0.31% 0.31%
Period
(months) 240 360
EMI $ 3,013.99 $ 2,355.91

Business finance 13
House-Hobart
Loan amount 84000 84000
Loan (price-
DP) 58800 58800
Rate (monthly) 0.31% 0.31%
Period
(months) 240 360
EMI $ 349.23 $ 272.98
House-
Newcastle
Loan amount 1087500 1087500
Loan (price-
DP) 761250 761250
Rate (monthly) 0.31% 0.31%
Period
(months) 240 360
EMI $ 4521.29 $ 3534.11
Answer to Question B
Refer to Excel sheet
Answer to Question C
Refer to Excel sheet

Business finance 14
Financial situation in each scenario
01/04/1998
01/07/1999
01/10/2000
01/01/2002
01/04/2003
01/07/2004
01/10/2005
01/01/2007
01/04/2008
01/07/2009
01/10/2010
01/01/2012
01/04/2013
01/07/2014
01/10/2015
01/01/2017
01/04/2018
0
1000
2000
3000
4000
5000
6000
7000
8000
Series1
(Source: By Author)
(Source: By Author)
Analysis
From the above graphs it can be observed that the investment in the housing property
happens to be 10.5%, as compared to the average annual gross returns for Australian shares
and Australian bonds. Just over $1.7 million in outstanding home loans more than 65%
accounts for Australian bank assets. This eventually made the city the bed rock of the
household wealth, financial system and economy (Poon & Brownlow, 2015). The prices have

Business finance 15
risen strongly over the past ten years in the Australian’s two biggest property markets
including Sydney and Melbourne.
On the other hand Australian shares slumped to the worst scenario since November
2015, on Wednesday, with the move wiping the $60 billion out of the market as the fright
was taken by the investors as the interest rates are hiking in contrast to rapid inflation
(Cerutti, Dagher & Ariccia, 2017).
The rising rates and the rising inflation are creating a storm in the equity market. The
S&P/ ASX 200 index dropped 193 points, or 3.3 per cent, to 5902 for its worst fall. For so
long markets have been using the low rates and low bond yields. The market is adjusting and
turning up.
A table of difference will clearly define all the comparable.
Considerations Property Shares
General
Benefits
 Generates stability in mind and
peaceful place of residence (Daly,
JGronow, Jenkins & Plimmer,
2013).
 Flexibility in revamping.
Benefits
 Can be easily purchased and
sold.
 The feature of the regular
dividends.
Limitations
 Due to lack of liquidity the
commitments were not fulfilled
Limitations
 It cannot be considered as an

Business finance 16
eventually. asset
 In the short term, it can be
volatile in nature.
Diversification
Benefits
 The correlation with the similar
assets is lacking (Randolph, 2006).
 It can act as a good cover against
inflation.
Benefits
 Exposure can be gained easily
with lots of companies to
minimise the risk.
Limitations
 Diversification is poor and abrupt
and highly concentrated in a single
asset.
Limitations
 Entire market can suffer from
the weak performances.
Leverage risk
Benefits
 The borrowing capacity increases
and the leverage returns can be
improved during times of low
interest rates.
Benefits
 Without leverage the user
cannot lose more than what is
invested.
 Interest rates are typically not
affecting by the share price.
Limitations
 The repayments are higher if the
Limitations

Business finance 17
interest rates are higher.
 Leverage amplifies the losses, so a
user can lose more than you
invested.
 No benefits of higher leverage
during periods of high growth
(Zhu & Hu, 2010).
Taxes and
transaction costs
Benefits
 Potential for negative gearing
benefits.
Benefits
 Potential for franked
dividend benefits.
 Transaction costs and fees
can be low.
 Involves very little
ongoing effort after an
initial investment.
Limitations
 Relatively high transaction costs
associated with buying, selling
and property maintenance
(Oboler, 2014).
Limitations
 Capital gains tax when
shares are sold.
Conclusion
From the above analysis it can be observed that the real estates are the clear winners
of the property but results are even better between the comparison of the shares and property
market. When compared to the average annual returns of the property market and the share
market, property market has a great period of late, so there are full chances that it will come

Business finance 18
back to its normal average rate. Over the 30 years to 2015, Australian shares generated an
average return of 10.8% per year, including dividends. Therefore property is the right choice.

Business finance 19
References
Abelson, P., & Chung, D. (2005). The real story of housing prices in Australia from 1970 to
2003. Australian Economic Review, 38(3), 265-281.
Akimov, A., & Stevenson, S. (2017). Nowhere to Go but Up: A Study of Listed Real Estate
Sensitivity to Changes in Interest Rates. London, John and Wiley sons.
Blöchliger, H., Égert, B., Alvarez, B., & Paciorek, A. (2015). The stabilisation properties of
immovable property taxation. New York, Springer.
Brickx.com. (2017). How Australian Residential property compares to other investments.
Retrieved from https://educationcentre.brickx.com/how-australian-residential-
property-compares-to-other-investments/
Cerutti, E., Dagher, J., & Dell'Ariccia, G. (2017). Housing finance and real-estate booms: a
cross-country perspective. Journal of Housing Economics, 38, 1-13.
Daly, J., Gronow, S., Jenkins, D., & Plimmer, F. (2013). Consumer behaviour in the
valuation of residential property: A comparative study in the UK, Ireland and
Australia. Journal of Property Management, 21(5), 295-314.
Duke, J. (2018). Sydney house prices fall for the first year since 2012. Retrieved from
https://www.smh.com.au/business/the-economy/sydney-house-prices-fall-for-the-
first-year-since-2012-20180301-p4z294.html
Fred. (2018). All-Transactions House Price Index for New Castle County, DE. Retrieved
from https://fred.stlouisfed.org/series/ATNHPIUS10003A
Hurley, J., Wood, G., & Groenhart, L. (2018). Long run urban analysis using property
records: A methodological case study of land use change. United States: Urban
Studies.
Li, M., Bao, Z., Sellis, T., Yan, S., & Zhang, R. (2018). Home seeker: A visual analytics
system of real estate data. Journal of Visual Languages & Computing, 45, 1-16.
Oboler, R. S. (2014). The house-property complex and African social
organisation. Africa, 64(3), 342-358.
Onthemarket.com (2018). 3 bedroom semi-detached bungalow for sale. Retrieved from

Business finance 20
https://www.onthemarket.com/details/4907832/
Poon, J., & Brownlow, M. (2015). Real estate student satisfaction in Australia: what matters
most? Journal of Property Management, 33(2), 100-132.
Randolph, B. (2006). Delivering the compact city in Australia: current trends and future
implications. Urban policy and research, 24(4), 473-490.
Realestate.com.au. (2018). Median price in Hobart. Retrieved from
https://www.realestate.com.au/invest/house-in-hobart,+tas+7000
Realestate.com.au. (2018). Property vs shares: Which is the better investment? Retrieved
From https://www.realestate.com.au/advice/property-vs-shares-what-is-the-better-
investment/
Realestateview.com. (2018). 3 Bedroom Houses for Sale in Hobart, TAS. Retrieved from
https://www.realestateview.com.au/real-estate/5-gardenia-grove-sandy-bay-tas/
property-details-buy-residential-11818253/
Realestateview.com. (2018). 3 Bedroom Houses for Sale in Sydney. Retrieved from
https://www.realestateview.com.au/real-estate/15-kale-road-spring-farm-nsw/
property-details-buy-residential-11872711/
Robertson, S., & Rogers, D. (2017). Education, real estate, immigration: brokerage
assemblages and Asian motilities. Journal of Ethnic and Migration Studies, 43(14),
2393-2407.
Wilson, T. (2015). The demographic constraints on future population growth in regional
Australia. Journal of Australian geographer, 46(1), 91-111.
Yahoo Finance. (2018). ^AXJO Historical prices | S&P/ASX 200 Stock. Retrieved from
https://au.finance.yahoo.com/quote/%5EAXJO/history?
period1=706213800&period2=1526668200&interval=1mo&filter=history&frequenc
y=1mo
Young, C. S. R. (2019). Conference keynote: Subject to Contract: Law as an Artistic
Medium. Keynote given at'Art in Law in Art'international conference, University of
Western Australia, Perth.
Zhu, Q., & Hu, M. Y. (2010). Semantics‐based 3D dynamic hierarchical house property