The Experts

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John McGrath
Property Expert
+ About John McGrath
About John McGrath - Founder & Executive Director, McGrath Limited

John McGrath is considered one of the most influential figures in the Australian property industry.  As Founder and Executive Director of McGrath Limited, he took McGrath Estate Agents from a lounge room start-up in 1988 to one of Australia's most successful residential real estate groups, listing McGrath Limited on the Australian Stock Exchange in November 2015.

An integrated real estate services business, McGrath today is one of the most successful real estate companies in Australia with an established and respected market presence in NSW, the ACT, Queensland, and more recently Victoria.

In October 2008, John was honoured by the Real Estate Institute of NSW with the Woodrow Weight OBE Award, a lifetime achievement award for his outstanding contribution to the real estate industry.  John was founding director of the REA Group and served on its board from 1999 to January 2018, serving as chairman from 2003-2007. 

John himself has become a spokesperson for the industry both in Australia and internationally. John has five books that have reached bestseller status including “You Don’t Have To Be Born Brilliant” and “You Inc.”.  In “The Ultimate Guide to Real Estate”, John shares with the reader his invaluable knowledge on the Australian property market.

Do auctions still work in this soft market?

Tuesday, March 19, 2019

It’s not unusual to see a reduced number of homes listed for sale by auction when the market is cooling.  It reflects two trends – fewer owners selling overall and less confidence in the auction method amongst those who are.

CoreLogic’s latest quarterly auction report shows 25,894 homes were taken to auction across the combined capital cities in the December 2018 quarter compared to 32,408 in December 2017. This trend has carried on into 2019 with the most acute change in auction volumes in Sydney and Melbourne.

Weekly auction volumes are down about 30% in February/March 2019 compared to November 2018.

The prospect of going to auction causes anxiety for many sellers, even in the best of market conditions, so of course we expect to see fewer home owners choosing the auction method when the market is challenging. 

But in my view it’s still the best way to sell, especially if you own an ‘A grade’ property that ticks a lot of boxes for buyers.

I have long advocated the auction process as the fairest and most transparent way to buy property. Choosing the best sales method for your property comes down to property type, local market conditions and your personal preferences so, of course, you and your agent need to discuss this and come to a decision together.

However, there are many benefits to the auction process and they’re the same in both hot and cold markets.

Benefits of auction for sellers in hot and cold markets

  1. Auctions create a transparent forum for committed buyers to battle it out, enabling you to truly flush out the very best price in today’s market.
  2. Auction gives you a better chance of a sale in a shorter timeframe compared to private treaty.
  3. The normal 3-4 week campaign timeframe creates urgency and forces buyers to focus and prepare. Lending restrictions mean some buyers need more time to secure their finance these days, so agents are responding by postponing auctions 1-2 weeks, when necessary, to maximise competition
  4. You have three opportunities to sell – prior, at auction or post-auction. An experienced agent with expert negotiating skills knows how to approach all three situations to draw out the best price.
  5. The competition of an auction naturally heightens buyers’ emotions and their desire to ‘win’.
  6. A skilled auctioneer will make the difference between a good sale and an exceptional one.
  7. While it’s typical to see just one or two registered buyers at Sydney and Melbourne auctions today, a skilled agent and auctioneer can work with this. You’d be surprised how many homes are selling for good prices at auction with just one bidder. The auction method has worked – it has forced that bidder to do all their checks and make an offer in the timeframe you’ve dictated.

If you’re going to sell by auction, it’s not only important to find the right agent, you also need the right auctioneer. Just as you would shop around for your agent, you need to do the same with your auctioneer.

I’d recommend attending some of their auctions. If they’re uninspiring, awkward or aggressive, especially when bids are slow off the mark, then I’d encourage you to find one that you are confident with as I believe a great auctioneer can change the likely sale price dramatically

The market might be witnessing a correction in Sydney and Melbourne right now but auction clearance rates have actually improved this year compared to late 2018, mainly due to renewed buyer engagement after the holidays.

In November, the Saturday clearance rate in Sydney and Melbourne was typically in the 40% range, now it’s in the 50% range, according to CoreLogic figures. We generally consider 60% as normal market conditions.

We are seeing that the clearance rate 90 days post auction across the McGrath network is 70.1%, so while it may not see a result on auction day, the auction process is still effective.

My No. 1 tip for auction sellers in Sydney and Melbourne today is to listen to your agent.  Trust their expertise and advice and choose a realistic reserve based on buyer feedback and recent sales of similar properties. 

 

Why the big drop in Chinese offshore?

Thursday, March 14, 2019

The latest annual report from the FIRB reveals a marked decline in foreign demand for Australian residential real estate. It fell noticeably last year – in fact, it more than halved from $30 billion worth of approvals in 2016-17 to just $12.5 billion in 2017-18.

So why the big drop? The FIRB report outlines the reasons: “State taxes and foreign resident stamp duty increases, foreign investment application fees, tightening domestic credit and increased restrictions on capital transfers in home countries.”

China was our biggest foreign real estate investor once again, although the value of Chinese residential and commercial purchases dropped from $15.3 billion in 2016-17 to $12.7 billion in 2017-18.

Mainland Chinese residential buyers, particularly investors, have disappeared for two main reasons. The restrictions in cash outflows from China, making it harder to transfer an appropriate deposit to Australia. Secondly, the relatively recent state taxes that have warned off potential buyers.

The taxes were implemented erroneously, in my opinion, based on the false assumption that overseas buyers were driving up local prices out of reach of Australian residents.

I think it’s now clear that wasn’t the case and hopefully these will change soon.  In a global economy, thriving countries need to be attracting international investment, not repelling it. 

The FIRB report noted that $114 million in foreign investment application fees was collected in 2017-18. The latest figures released by the NSW Government on its foreign stamp duty surcharge showed $154 million was collected in 2016-17 (Chinese buyers paid $126 million of it).

My question is: are these fees and taxes really worth what they’re costing us in lost investment potential?

History shows the bulk of individual foreign residential property purchases are under $1 million. So, let’s say a foreign investor wants to purchase an $800,000 apartment in NSW. Here are the fees he’s up for:

-        $5,600 just to apply for FIRB approval to make the purchase

-        An 8% state stamp duty surcharge of $64,000

-        Regular stamp duty of $31,490

That’s more than $100,000 in taxes. Doesn’t really convey a warm welcome, does it?

There were 10,036 approvals for residential property purchases in 2017-18 compared to 13,198 in 2016-17.

Victoria was by far the most popular state with foreigners, with 46% of approvals for residential property purchases, followed by NSW at 23% and Queensland at 17%.

Meantime, Australian Chinese buyers are as active as ever. They’re now entrenched like anyone else as a local buyer and they are astute property purchasers.

Many Chinese families who settled in established Chinese communities at first are now upgrading to premium suburbs as their wealth grows.

Davey Hong, who heads up McGrath’s China Desk, tells me that local Chinese and new migrants are still keen to participate in the Great Australian Dream of home ownership.

Davey says: “We are seeing less interest from Chinese investors but local Chinese and new migrants’ appetite is still healthy for good residential property.”

 

90 minutes from the big smoke

Thursday, March 07, 2019

A combination of recent huge price hikes in the cities, along with commuting gridlock and the ability to now telecommute courtesy of technology, has made living outside of the big smoke more popular than I’ve seen for 30 years. 

Young couples and empty nesters alike are seeing great value in living nearby, but not in, the bigger cities.  I call it the 90 minute arc - areas within 90 minutes of metro cities such as Brisbane, Sydney and Melbourne have been most popular, as they allow easy access to family and grandchildren as well as other business and cultural activities. 

Areas like the Central Coast, Hunter Valley and Southern Highlands in NSW; Geelong and Ballarat in Victoria; and Toowoomba and the Sunshine Coast in Queensland have been some of the most in-demand areas.

The greatest demand has been initially from owner occupiers but there will be a strong follow-on from investors in the near future.  Many investors can no longer afford to buy inner city and are looking to put their investment dollars into safe assets in areas with strong growth prospects. 

We’re even seeing a bit of seachanging amongst real estate agents, as they too recognise the lifestyle available in regional locations, mainly those close to the capitals so they can leverage their city buyer databases to market regional listings to seachangers, downsizers and investors.

Increasing flight services means commuters can get back to Sydney in less than 90 minutes by air.

It’s not just cheaper housing that is inspiring owner occupiers. It’s very much about the lifestyle benefits – less traffic, less pollution, less people and every amenity you could possibly need, including shops, beaches, schools, hospitals and kids’ sporting fields all within a short drive of home.  

Following the booms in Sydney and Melbourne, affordability constraints and lending restrictions that are reducing buyers’ budgets are inspiring investors to look further afield.

More affordable capital cities like Brisbane, Hobart and Adelaide are good choices for investors based on long-term capital growth data and many regional areas also provide great returns.

For example, in regional NSW, it’s far cheaper to buy in and the gap in 20-year capital growth compared to Sydney is only 16.3%.

A recent report by CoreLogic looked at capital growth over the 20 years to January 2019. Regional areas, as expected, did not have as much growth as capital cities, which have continually strong population growth and a growing undersupply, however the gains were still impressive.

 

Regional vs City

Capital Growth Comparison

2009 – 2019

National 197.4%

Combined capital city markets 212.4%

Combined regional markets 150.3%

Sydney 201.9%

Regional NSW 185.6%

Brisbane 182.8%

Regional QLD 123.6%

Melbourne 274.6%

Regional VIC 179.5%

Adelaide 193.8%

Regional SA 125.1%

Perth 148%

Regional WA 77.5% 

Hobart 237%

Regional TAS 167.2%

Darwin 38.4%

Regional NT 129.5%

Canberra 230.7%


The quality of developments in some areas within the 90 minute arc of capital cities has increased significantly off the back of a wealthier, more sophisticated market arriving. 

The NSW Central Coast is now designing and building high quality apartment buildings of the same standard as Sydney, which have proven very popular with empty nesters seeking a seachange.

Beach culture has been a part of our DNA forever. From a property perspective, living by the beach has never been as popular as it is now. Sydney’s Bondi was considered a somewhat unappealing address when I started in real estate and today it is probably the hottest address in the country. 

Once, if you were uber-wealthy, there was only one place to purchase – Sydney Harbour. Now, just as many of the super wealthy choose beach suburbs above all else. 

One of the greatest aspects of regional living is the affordability of beach homes. You do not need to be wealthy to live an amazing beachside lifestyle in many regional locations around Australia.

With Sydney and Melbourne correcting in value by 10% to 15%, this might slow down the movement of buyers out of the big cities in 2019 but we think a significant number will still choose to relocate. This will be an ongoing trend as our cities get bigger.

 

What 20 years in property can do

Thursday, February 28, 2019

There’s a recurring question in real estate…

‘When is the best time to buy property?’ Answer: Twenty years ago.

‘When is the next best time to buy property?’ Answer: Today.

Some new data from CoreLogic crystallises this message.

Over the past 20 years, national property values have increased by 197.4%.  That means a house worth $500,000 back in 1999 is now worth close to $1.5 million today.

Just think about that for a minute. Where were you 20 years ago? How cheap does $500,000 look today compared to back then?

Over my 35 years in real estate, so many people have told me about the golden buying opportunity they missed 20 years ago because they got scared.

It’s sad to listen to these stories and see the looks on people’s faces as they lament what that one investment 20 years ago could have done for them today. The wealth, security and lifestyle options that such significant capital growth would have given them at this point in their lives.

These stories are all about fear and the herd mentality.  Here’s what Warren Buffett, one of the world’s most successful investors, has to say about fear: ‘Be fearful when others are greedy. Be greedy when others are fearful’.

Let’s apply that logic to today’s market conditions in Sydney and Melbourne.

Are people greedy right now, or fearful?  Yes, they’re fearful. The scary headlines are getting to them. They can see that property prices have fallen 10-15% and the buying opportunities are there but they’re hesitating.

Why are they hesitating? Because ‘the herd’ is talking about how bad it is out there; and no one wants to be the little black sheep who buys amongst all this doom and gloom.    

Here’s the reality – let’s take Sydney.  We had 75% growth over five years, followed by a 10-15% price drop to date.  This is not even remotely catastrophic – nor unexpected.  Even for buyers who purchased at the top, all they need to do is remain in their new homes or hold their investments for the medium to long term, which should always be the plan when you buy real estate anyway.

While there are definitely cycles in the property market, well-located and in-demand property rarely declines in value.

Let’s go back to the CoreLogic stats. Over the past 20 years, combined capital city values have increased by 212.4%. Combined regional markets have jumped 150.3%.  Let’s dig deeper and survey the performance of our East Coast capital city and regional markets…

Capital growth over 20 years

1.     Melbourne takes the cake with 274.6% growth in home values over 20 years

2.     Canberra 230.7%

3.     Sydney 201.9%

4.     Regional NSW 185.6%

5.     Brisbane 182.8%

6.     Regional VIC 179.5%

7.     Regional QLD 123.6%

Now, not every property in Australia will have amazing growth over 20 years. Local factors in different states, like the impact of mining and short-term commodity booms on the regional Western Australia market can have a big impact on long term capital gains.

The data shows that at this point in time, regional WA home values have grown by 77.5% over the past 20 years. Had the data been taken during the peak of the mining boom, it would have been a far more impressive number because this market has declined significantly since then.

However, on the East Coast where we have strong concentrated population growth and housing undersupply, reliable long term capital gains are relatively easy to achieve if you buy well.

People who make the most money out of property have a very long term view with this asset class. They buy when the market is low and either hold, or sell when the market is high. They buy quality property in desirable locations close to major job centres and lifestyle amenities. Then, they pretty much sit and wait.

It’s a simple recipe to follow and we have plenty of historical evidence proving that good Australian real estate delivers wealth.

In Sydney and Melbourne today, now is the time to buy for future wealth. As Buffett says, it’s time to be greedy. Pull away from the herd, ignore the chatter and focus on the fundamentals of what property can deliver for you.

Don’t be the person that says to me in 2039, “I should have bought back then.”.

 

Property market mood changing

Friday, February 22, 2019

We’re seeing early signs that the market mood in Sydney and Melbourne might be changing, with agents reporting more buyers attending opens, including some investors who have been prompted back into action by the impending election, as well as better auction clearance rates compared to late 2018. 

In the first week of February, Sydney recorded a 49.5% clearance rate from 130 auctions, according to CoreLogic. In week two, this rose to 54% from 322 auctions. The preliminary result for last week indicated further strengthening, with 61% clearance from 521 auctions.

In Melbourne, we saw a clearance rate of 44.3% from 162 auctions in week one, rising to 52.4% from 350 auctions in week two. The preliminary result for last week was 54.2% from 657 auctions.

This is encouraging when compared to November and December, when both cities were consistently recording clearances in the 40% range. 

Agents say buyers are feeling refreshed following the Christmas holiday period and are renewing their efforts to buy, with prices down 10-15%. We always see renewed interest early in a new year but this year it seems to be higher than usual.

Among them are investors, who have been largely absent for a while now following APRA’s decision to limit the banks’ investment loan growth and new interest-only loans (traditionally favoured by investors).

APRA has lifted both caps now, so it’s a little easier for investors to borrow, however they face the same challenges as owner occupiers in terms of a more difficult and lengthy loan approval process.

Latest statistics show lending to both investors and owner occupiers is significantly down.

Australian Bureau of Statistics figures released earlier this month show the value of new loans for owner occupiers fell -6.1% in NSW and -6.6% in Victoria in December in seasonally adjusted terms. In fact, the value of new loans for owner occupiers was down everywhere except Tasmania for the month.

The fall in owner occupier lending was concentrated in the second half of 2018 (down a total of -14.5% in NSW between July and December and -18.4% in Victoria), whereas property investment finance nationwide has been steadily declining for two years. It’s now down -40% from the peak at the start of 2017.

Some buyers have been biding their time, not wanting to buy too early before the Sydney and Melbourne markets hit their floor. Others have unfortunately started to doubt the safety of property, given prices have fallen faster than historically (mainly due to lending constraints).

It's the negative sentiment that is stopping them. If you're a buyer, you can buy something knowing you're getting it for 10-15% less than a year ago but with the same interest rates. Some lenders have just dropped their fixed rates into the mid-late 3% range, which is excellent value.

Now is the time for buyers to be brave and look long term. While I’m expecting cooling market conditions to continue in Sydney and Melbourne, I think we’re through the worst part of the correction and we’re getting close to the bottom now.

Investors, in particular, need to consider their position. If we have a change in federal government in May, negative gearing on newly purchased established properties will be abolished after a certain start date; and there will be a 50% hike in capital gains tax for properties purchased after that date, if Labor proceeds with their plans

I do not advocate rushing into property investment to beat a potential change in property tax rules. But if you’ve been thinking about investment for a while and you’re financially ready, you might as well get into the market now when prices are down and there’s time before the election.

If you’re selling this Autumn, I think auction is still the most effective process, even in today's market.

For a vendor that is aligned on price with buyers, they can still get very good results and sell their home much quicker than private treaty.

 

What the Royal Commission report means for buyers

Thursday, February 14, 2019

Buyers in the property market have been feeling the effects of the Banking Royal Commission well before the final report was released last week.

Greater scrutiny of borrowers’ spending and stricter serviceability and income tests have resulted in in many buyers not being able to borrow as much as they thought, thereby reducing their budgets.  

Loans are also taking longer to approve, often longer than the typical campaign timeframe of four weeks, which has meant many buyers have not been able to bid at auction for the homes they want.

The tightened credit environment has no doubt sped up the cooling of both Sydney and Melbourne and has led to median price falls in other markets as well. Latest CoreLogic figures show weaker conditions across most capital cities and a ‘loss of steam’ in other areas where values are rising.

So, in terms of the Royal Commission’s final report, the big question for buyers was whether the report would make any recommendations that would make it easier or harder to get a home loan.  

The report basically says current rules for loan assessments by the banks are adequate, they just haven’t been followed or enforced well enough in recent years. The report noted that the banks have already begun to address this and have made substantial changes to meet their obligations.

How this translates to today’s buyers is that credit will remain harder to get. The bar has been shifted and we need to get used to it. The era of easy credit is over and this is good because it will help ensure the long-term stability of both our property market and the economy as a whole.  

I see the role of mortgage brokers becoming even more important in helping customers navigate what will now be a longer and more detailed process.

Alan Hemmings, General Manager of McGrath’s mortgage broking division, Oxygen Home Loans says customers are feeling frustrated and brokers can eliminate much of their confusion and stress. 

“Borrowers need an experienced broker with vast product knowledge to help them through the process. Customers are coming to us saying they feel overwhelmed and need help.

“Brokers should do more than home loan applications. I’d be suggesting for a broker to work with clients well before the application stage to help them budget for their deposit and understand what type of property they can afford.  

The key benefits of brokers today include choosing the right lender whether it be a bank or non-bank, with consideration to how each one has altered their assessment criteria, to get loans approved faster.  

“There are differences in the way lenders look at expenses, especially discretionary expenses; and there are also differences in how they assess income. Understanding these differences helps ensure customers maximise their chances of getting approval,” Alan says.

This is important because when a loan is refused, not only is the buyer’s purchase delayed while they go through the application process a second time, the refusal is recorded on their credit history.

Brokers can also educate clients on new lenders and the opportunities they present.

“Brokers can help customers understand how online-only lenders, smaller banks and non-banks work.  A huge number of small lenders have entered the marketplace over the past few years but many customers don’t know about them.

“Right now, many are offering significantly better rates than the big banks to gain market share, so we’re taking a lot of clients down this non-traditional path to secure a much better rate for them,” Alan concludes.

I have always advocated making the process of getting a loan easier for clients.  That’s why McGrath set up Oxygen in the first place.  But good quality regulation is certainly required to make sure all broking customers receive excellent, open, honest and transparent advice.

Over my 35 years in real estate, I have seen the market adapt to many changes imposed by government or regulators.  Each change causes disruption, the market figures out a way to adapt and life goes on. 

This might already be happening, as many of our agents on the ground in Sydney are telling us that more buyers are attending opens compared to last year.

We always see renewed interest early in a new year but this year it seems to be higher than usual. This will be partly due to prices being down 10-15%, which also means buyers don’t need to borrow as much. 

I'd say we're pretty close to the bottom of the cycle in Sydney, so it’s important for buyers to talk to their broker as soon as possible to find out what they need to do to ready themselves for a loan application.

Once that’s done and you’re out in the marketplace this Autumn, if you find a home you love and the price is right, I think you should jump on it.

 

The future of Aussie apartments – lookin’ good!

Thursday, February 07, 2019

The era of uninspired common areas in apartment blocks is over.

The basic shared gardens, old-style barbecue facilities and kidney-shaped fibreglass pools have become redundant.  They’ve been replaced by glamorous relaxation areas, café-style dining zones, communal kitchens, landscaped gardens and lap pools. 

Rooftops that once had no purpose are now impressive entertaining and socialising zones where residents can stretch out with a drink in their private cabana, cook a meal in a state-of-the-art outdoor kitchen, kick back on a beanbag and pick fresh produce from the communal vege patch.  

As discussed in our 2019 McGrath Report, stylish developments are seeing much more focus on common areas to differentiate their buildings and create more lifestyle appeal for time-poor buyers.

They are adding value and functionality to spare space and aiming to create a significant ‘wow factor’.

The body corporates of older buildings are also investing in the redesign of their common areas.

In 2013, the residents at Paloma in Surry Hills, Sydney hired revered design house, BKH to create a spectacular rooftop terrace, where residents could sit with friends in elegant timber cabanas for a front row view of beautiful sunsets over Prince Alfred Park.

The newest types of common spaces include the shared entertainers’ kitchen, yoga studios and a return to the once despised shared laundry – now considered a socialising opportunity in beautiful rooftop or garden surrounds.

Shared rooms arguably provide better value to young buyers, who would rather pay less for a smaller crash pad that comes with a selection of outdoor areas where they can relax and entertain friends.

As the affordability challenge grows in Sydney, some buildings are purposely being built with smaller, more affordable apartments but much more grand common entertaining spaces that residents can enjoy, rather than entertaining in their own apartments.

The Commons in Brunswick, Melbourne has a communal rooftop laundry amongst its gardens, vegetable plots and timber decks with banana chairs.

Breathe Architecture says the laundry was one of a series of construction savings that made the apartments cheaper to buy and run, earning them scores of sustainability awards, while also encouraging social interaction between the residents.

Shared kitchens are a fairly new idea, with many younger people, in particular, responding to the concept of a stylish, compact apartment with access to larger, more glamorous communal facilities.

They’d rather dial deliveroo for weekly dinners and entertain in the residents’ kitchen when required.

In 2016, developer SP Setia launched its Parque luxury apartment project in Melbourne, which included a glamorous banquet-style shared kitchen designed by celebrity chef, Shannon Bennett.

Parque residents have exclusive access to the kitchen with its Miele appliances, a temperature-controlled wine cellar and a dining area for 16 guests – all bookable online for dinner parties and family gatherings.

Shared basement parking is also on the way out – replaced by bike rooms or racks, a GoGet car either in the building or on the street, or no parking at all if enough public transport is nearby.

In Victoria, local governments can waive their planning schemes’ on-site parking rules, as happened with The Commons. Located next to a train station and major bike path, Moreland City Council allowed the block to have a permanent GoGet rental car on site instead of parking.

In New South Wales, planning laws were changed in 2015 to allow new apartment buildings to have smaller floor plans and less parking, as long as public transport options were easily accessible.

The recent construction boom along the East Coast of Australia has resulted in many fantastic new buildings coming to market – many with outstanding residents’ facilities.

As common spaces evolve and more people choose apartment living for lifestyle and/or affordability, buildings with truly exceptional residents’ spaces and facilities will inevitably develop superior reputations in the marketplace that will ultimately add value to every apartment.

Just like house buyers want to buy on the best street or in the best neighbourhood, Australia’s apartment dwellers will increasingly desire certain buildings with the ‘wow features’ they love.  

Keep this in mind next time you’re looking to buy. Modern day common facilities can really enhance your ‘at home’ lifestyle – just make sure the strata levies aren’t too high.

 

Big infrastructure re-shaping East Coast cities and the ACT

Thursday, January 31, 2019

When markets are cooling like they are in Sydney and Melbourne, there are lots of distractions for home owners and investors.  Fear can set in, as property values in your own neighbourhood soften and various ‘experts’ make wild predictions about massive citywide house price declines.

It’s easy to forget the long-term fundamentals that will keep Australian property values strong well beyond the current short-term cycle change. One of them is infrastructure.

It doesn’t matter where you live - if a new train station, light rail link or improved roads are being built in your suburb, or there’s a new shopping centre or café strip, or new recreational amenities like public pools or major services like a new hospital or school, you’re going to see a positive flow-on effect to house prices. 

This is because every infrastructure project usually has direct lifestyle benefits for residents. New infrastructure also means jobs, which means greater economic activity and prosperity for workers. 

As discussed in our 2019 McGrath Report, massive new infrastructure is currently underway in every one of our East Coast capital cities. These are exciting times, with record spending in NSW, Victoria and Queensland all happening over the next few years.

This is great news for home values in the long term and will have a far more significant effect on property prices after this downwards cycle is done. 

Our Report focused on the big infrastructure that is set to benefit whole states and cities but it’s important to remember that small local projects should also boost your property’s value long term.  

So here’s what’s happening from a big infrastructure point of view in your state today. 

New South Wales: The country’s largest state infrastructure commitment ever

Transport infrastructure is the centrepiece of the four year $87 billion building program in NSW.

In Sydney, we’re finally getting close to fruition on some major projects that will transform many areas. The Sydney Metro Northwest rail line – the first rail line for the rapidly growing Hills District will commence operations in the first half of 2019.

It will be followed by the CBD and South East Light Rail and the second stage of WestConnex in 2020.

We’re also at the beginning stages of the Western Sydney Airport at Badgerys Creek, which will result in tens of thousands of new jobs and billions in new investment across the region.

This will be extremely significant for local house prices because the west is Sydney’s most affordable market, where home values have the most room to grow.

The airport will adjoin a 10,000 hectare Aerotropolis housing scores of local and international companies, as well as an Aerospace Institute, high performance secondary school and STEM* university.

Planning is underway on the Sydney Metro West fast train connecting Parramatta to the CBD; as well as the North-South Rail Link connecting St Marys to the airport and aerotropolis; and the Western Harbour Tunnel and Beaches Link.

Parramatta, Sydney’s second CBD, is undergoing a $10 billion rejuvenation including construction of the $2.8 billion Parramatta Square, one of Australia’s largest urban renewal projects ever.

The 20km Parramatta Light Rail will connect several western precincts for the very first time, creating 5,000 jobs and stimulating economic growth with residents able to easily access jobs, entertainment and sporting options.

*STEM:  science, technologyengineering and mathematics

Queensland: Biggest infrastructure spend since the 2011 flood recovery begins

Worth $45.8 billion over four years, Queensland’s capital works program is designed to stimulate economic growth, encourage private sector investment and create tens of thousands of jobs, including 38,000 in FY19 alone.

This should go a long way in raising consumer confidence and encouraging further internal migration, particularly from NSW and Victoria.

Projects include upgrades to the M1 Pacific Motorway between Varsity Lakes and Tugun and Eight Mile Plains and Daisy Hill, the Beerburrum to Nambour Rail duplication and the 10km Cross River Rail between Dutton Park and Bowen Hills.

On the Gold Coast, an enormous infrastructure spend before and after the Commonwealth Games now totals $13 billion, including the light rail expansion and ongoing conversion of the Athletes Village into a world class Health and Knowledge Precinct, creating 26,000 new jobs and limitless new investment once completed. 

Victoria: New investment worth 7 times the average annual infrastructure spend begins 

Massive new infrastructure over the next four years is needed to service Australia’s fastest growing state, with record population growth higher than any other state or territory in FY17.

Melbourne’s population has soared, hitting the five million mark in late 2018.

In the FY19 Victoria Budget, the Government committed to a $38.4 billion infrastructure program, which is seven times up on the state’s average annual infrastructure spend over the past decade.

Melbourne’s brand new 9km Metro Tunnel and its five stations, due for completion in 2025, will improve CBD connectivity and likely result in price growth in beneficiary suburbs including Kensington, South Kensington, North Melbourne and Parkville.

Investment worth $6.7 billion on the West Gate Tunnel project will aid those in the city’s growing western fringe, which offers family houses for less than $600,000. The underground road will reduce congestion and commuter times when it launches in 2022, linking the West Gate Freeway, Maribyrnong River and the Port of Melbourne. 

International air access to Melbourne will be enhanced by Avalon’s new international terminal, with Air Asia flights commencing in December 2018. The airline expects to carry 500,000 passengers per year between Avalon and Malaysia, Thailand, Vietnam and Delhi.

A 340-hectare greenfield industrial precinct is being built alongside the curfew-free airport, which will generate 1,180 new jobs once operational.

Australian Capital Territory: Canberra’s first light rail opening soon, with CBD renewal projects underway

The first stage of Canberra’s $700 million light rail network, one of the biggest transport projects in its history, is due to open in early 2019. The gleaming new light rail corridors snake through Canberra’s north from the city to the fast-growing Gungahlin region.

The City Renewal Authority, established in 2017 to transform central Canberra including Civic, Northbourne Avenue, Dickson, Haig Park and West Basin, has many projects underway.

Among them is the revival of London Circuit with new office space, a hotel and retailers, as well as the transformation of the 19-hectare Haig Park into a more socially active recreational zone.

 

Two big questions for the property market in 2019

Thursday, January 24, 2019

Two big questions loom large in the Australian property market this year. What will happen to credit conditions once the Royal Commission into banking is over; and how will the Federal Election affect the market, especially if Labor wins and major changes to tax policy on property investments are introduced?

Latest figures from CoreLogic show most regions across Australia were weakened by the banks’ tighter lending practices in 2018.  The effect was magnified in Sydney and Melbourne, where many buyers were unable to purchase at the price level they expected or unable to compete at auction due to longer approval processes.

Property prices and auction clearance rates fell faster than is normal for the first year of a correction, culminating in a -10% dip in house prices in Sydney to a median $918,000 and a -9.1% drop in Melbourne to a median $751,000.

Apartment prices also fell by -6.3% in Sydney to a median value of $711,000 and -2.3% in Melbourne to a median $541,000, according to CoreLogic.

RBA Governor Philip Lowe and Federal Treasurer Josh Frydenberg have both indicated that credit is too restricted but nothing is going to change until the Royal Commission delivers its final report on February 1.

This report will include recommendations to improve accountability and regulation and should lead to more universal standards of lending for property buyers. Those standards should rightly be stricter than in previous years when credit was too easy; but hopefully they’ll also be more workable than they are now.  

The Federal Election will be a major disruption this year.  It’s highly likely to happen in mid-May, which means market activity will dampen down around April, as most people adopt a ‘wait and see’ mentality. This is typical close to elections but buyers and sellers will be even more cautious this year – especially investors.

Here’s a quick re-cap of Labor’s proposed changes to negative gearing and capital gains tax for investors.

  • If Labor wins, it intends to limit negative gearing to new or off-the-plan investments; and it will reduce the current capital gains discount from 50% to 25% if you hold your property for more than a year.
  • These changes will apply to investments purchased after a certain date, which will be announced after the election.  Existing property investments will be grandfathered, meaning those owners can carry on with negative gearing and will still receive the 50% capital gains discount when they sell.

This year in Sydney and Melbourne, I’m expecting cooling market conditions to continue. I think both cities are getting close to the bottom of their cycles, however it might get a bit worse before it gets better.

I think we’re through the worst part of the correction in both markets, so Autumn could be the best time to buy. The bulk of new campaigns will begin after the Australia Day weekend, so buyers should expect to see lots of new options advertised.

First home buyers in Sydney and Melbourne are certainly taking advantage of the market cooldown, with activity in NSW reaching its highest level since stamp duty concessions were introduced in July 2017.

Latest data from the Australian Bureau of Statistics shows 16% of new loans in NSW for the month of November 2018 were for first home buyers. In Victoria, activity was even stronger at 19%.

Changing market conditions always present opportunities. Here’s my advice for 2019:  

  • If you’re a buyer, now’s the time in Sydney and Melbourne.
  • If you’re a seller, seek advice from an experienced agent who has been through market highs and lows before. They will know how to maximise your sale price in today’s market.  
  • If you’re an owner, ignore the scary headlines and focus on interest rates. Some lenders are offering fixed loans at far lower rates than variable, so there might be an opportunity for you here. Loan rates in the 3%-4% range will not last forever. Remember, the long term average in Australia is above 7%.
  • If you’re an investor looking to buy in the future, consider whether you can afford to invest without the benefits of negative gearing.  Every poll has Labor ahead, so it’s best to be prepared for a change in tax policy should that be the case.

Whatever your real estate goals are this year, I wish you all the very best.

 

What's ahead for property?

Thursday, January 10, 2019

A friend chatted to me over coffee recently. He was disappointed and concerned that property values were all falling and even more distressed about a TV programme that predicted a seismic 40% drop in values in the near future. As I listened, I wondered how many other Australians were sitting with this same fear.

Firstly, I pointed out that in Sydney (and Melbourne), the 5–10% drop we’ve seen so far followed a growth cycle that added 60–100% to property values overall. Many Australians owned property for the entire duration of this cycle and therefore have enjoyed the full benefit. I suggested he consider shifting his view. In reality, his particular property had gone up by 70% and that included the recent 10% correction in his area. 

Next I addressed the sensational and erroneous theory being bandied about by some purported experts that there is another 40% drop in values to go. There is zero chance we will see a collapse like this. There would have to be a global economic ice age to generate this sort of slump and then it wouldn’t matter where your cash was tied up, we’d all be in trouble! The fundamentals underpinning property values in Australia remain solid. Rock solid. What we are seeing now is an important part of every major asset cycle – a correction in values after a sustained period of growth. 

Remember, it was only Sydney and Melbourne that had significant growth (over 50%) in recent years. The rest of Australia has had pretty subdued price increases post-GFC. I’ve heard the “40% overvalued” theory four times in my 35 years in property. It’s like the same groups are chasing the same headline impact every time the market corrects. Not once has this provocative prediction come true – or even close to it. It won’t this time, either. 

So, what’s next? Sydney and Melbourne prices might correct by another 5% to a maximum of around 10%. In 2019, I see the strong possibility of a mini rebound as buyer demand grows at adjusted pricing levels. It’s impossible to pick the top or bottom until they are behind us but my instincts tell me the market has corrected quickly and we are within a few percentage points of new price benchmarks. 

Only three things could change this. A spike in interest rates over the next 24 months, which would return us to the long-term average of around 7%. Banks tightening lending even further. Unemployment escalating rapidly. None of these are likely to happen. I believe the worst of this correction is already over and we’re in for a much softer landing than many pundits predicted. 

Meanwhile, it couldn’t be a better time for first home buyers. With the bank of mum and dad by their side, along with generous stamp duty concessions and government savings initiatives, there are excellent opportunities to get a foot in the door after a long period of difficulty. Within the broader market, I believe there is still solid demand across most price points but lending restrictions are ruling many buyers out. In the long run, it’s strengthening our broader financial system but the market needs time to adjust. 

As our major cities become more crowded, congested and expensive, will more people trade off size for location? Will people sacrifice a bedroom or garden to live closer to the CBD? 

As Uber Eats feeds more Australians, will kitchens become less important or even vanish in some instances? Will young families and empty nesters pull the rip cord on city life and escape to our vibrant, re-emerging regional centres that are readily available within a 90 minute radius of the capitals? 

Will Brisbane and South East Queensland finally get their time in the sun? The Sunshine State is once again Australia’s favourite destination for internal migration and most importantly, the economy is turning a corner. Prospects for investment up north are as good as I’ve seen them. 

Finally, a note on Sydney. You might think this great city has reached its limits, with affordability far too strained and little room for further capital growth in the medium term. I disagree. We are on the cusp of what will go down in history as the great renaissance of Western Sydney.  Massive new infrastructure, billions in new investment and tens of thousands of new jobs are about to emerge in Sydney’s most affordable region, where prices have the most room to grow. We hope this provides fresh insights and ideas for your benefit into the future.

 

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