The Experts

Mcgrath
John McGrath
Property Expert
+ About John McGrath
About John McGrath - CEO, McGrath Estate Agents

John McGrath is considered one of the most influential figures in the Australian property industry.  As Chief Executive of McGrath Estate Agents, he took the company from a lounge room start-up in 1988 to one of Australia's most successful residential real estate groups, selling $10.1 billion in residential property in FY14.

A total solution company, McGrath Estate Agents currently has offices located throughout Sydney, North Coast, Central Coast, Southern Highlands, South Coast, the ACT and Queensland, as part of its growing franchise network.

In October 2008, he 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 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.

Top 10 most popular suburbs for immigrants

Tuesday, May 22, 2018

New population stats give a fascinating insight into the most popular suburbs with our newest arrivals from overseas.

They show that immigrants continue to favour areas where there is a strong established community of fellow countrymen, affordable accommodation and/or proximity to jobs and universities.  

Along the East Coast states, it was the CBDs that were most popular, followed by suburban areas with big immigrant communities, according to recently released ABS Regional Population Growth figures for 2016-17. 

It’s somewhat surprising to see that Brisbane CBD attracted the highest number of new international residents in 2016-17, with 12,847 net arrivals compared to 9,316 in Melbourne CBD and 8,505 in Sydney CBD. 

Melbourne and Sydney are well known cities overseas and as such attract large numbers of new settlers. However, immigrants are increasingly discovering the other capitals, with Brisbane certainly offering more affordable housing, not to mention great weather all year round and reasonable job prospects.

While the data didn’t specify where immigrants came from, we can draw some conclusions based on where they settled, especially in NSW and Victoria.  Take a look at the tables below.

We know it’s typical for those wanting to start new lives to do so in suburbs popular with fellow immigrants.  We also know that immigration from Asia and India is rapidly rising – in fact, it’s more than doubled over the past 10 years alone.  We also know that Sydney and Melbourne have received the lion’s share of Asian immigration in recent years.

It’s therefore not surprising to see suburbs with a high proportion of Asian and Indian-born residents being the most popular neighborhoods among new arrivals last year. 

In NSW, Parramatta council area in Sydney’s west was the No 1 suburban hot spot for new arrivals, with 7,682 immigrants settling there. More than 20% of Parramatta’s residents were born in India and China, according to the 2016 Census. 

Victoria’s No 1 suburban hotspot was Monash council area in Melbourne, with 6,734 new immigrant settlers. Monash has large Chinese and Indian communities representing a collective 18% of the residential population.

In Queensland, the Gold Coast council area attracted 5,374 new immigrants. The Gold Coast has traditionally been popular with New Zealanders (8% of the current residential population) and English immigrants (5.2%).  However, we’re definitely seeing growing appeal among the Chinese too, partly due to more Chinese development on the coast in recent years. 

More than 3,500 Chinese-born residents moved to the Gold Coast between 2011 and 2016, according to the Census. The opening of a dedicated Chinatown in Southport in 2014 and the first direct flights to China in 2015 reflects the Gold Coast’s rising Chinese resident profile.

 

Immigrant Hot Spots – Top 10 LGAS with new arrivals 2016-17

Net overseas immigration plays a bigger role in our national population growth than natural increase (births minus deaths), so it has a significant impact on our property market.

Prior to the 1970s, Australia attracted mostly European immigrants. Today, we’re attracting mostly Asian immigrants.

Immigrant communities have given great character to their suburbs, with specialty retailers, grocers and restaurants providing traditional foods and goods. Some suburbs have earned special designations due to their large immigrant populations. Sydney examples include ‘Little India’ in Harris Park, ‘Little Vietnam’ in Cabramatta and ‘Little Portugal’ in Petersham.

The 2016 Census revealed that for the first time ever, the majority of Australian residents born overseas are now from Asia, not Europe.

We expect this to remain a growing trend that will influence demand for homes in our most densely populated Asian immigrant communities. 

 

 

 

Budget targets traffic congestion to improve city living

Tuesday, May 15, 2018

 

Looking at last week’s Federal Budget through the eyes of home owners, buyers and sellers, one of the most significant and relevant initiatives to us is the $1 billion Urban Congestion Fund.   It’s basically money for state projects aimed at reducing traffic ‘pinch points’ in our major cities.

The policy idea is concrete proof that traffic is becoming a real issue both economically and socially in our major cities, largely due to rapid population growth – and it needs to be addressed.

The Government is focused on the economic costs of congestion – estimated at $16B in 2015, with Treasurer, Scott Morrison saying busting congestion is “a very important economic objective.”

But for home owners, traffic is a lifestyle issue and it certainly impacts property values.

History tells us that anything done to reduce travel times between where we live and work has fundamentally changed the value of homes in affected areas.

Think about the M5 East in Sydney. The road was completed in 2001 and house prices in Revesby, Roselands and Bexley North went up by more than 40% in 2001-2003.

How about Brisbane’s Inner City Bypass? It was completed in 2002 and house prices went up by more than 50% in Clayfield and Ascot in 2002-2004.

Traffic congestion has a major impact on our lifestyles because so many of us prefer to drive to work. No matter how good the public transport is, we are a car-loving nation and statistics show we’ll drive to work if we can.

But sitting in traffic induces stress and soaks up time we could be spending doing other things. It’s a real deterrent that buyers factor in when making decisions about where to live.

A report by the Grattan Institute published in October 2017* provides a new form of analysis of traffic congestion based on comprehensive Google Maps trip-time estimates.

Focusing on Sydney and Melbourne, the report confirms what every CBD commuter knows – traffic is getting worse. Roads are proven to be busier and slower.

In the morning peak, the average CBD-bound trip in Sydney takes 70% longer than it would in the middle of the night when there’s no traffic; and around 80% longer in Melbourne. The report identified some specific ‘pinch points’ too:

  •   Sydney CBD commuters from Hurstville in the south and Balgowlah in the north face some of the worst delays. Drivers spend an extra 15 minutes on the road as a matter of routine, far longer than drivers commuting over similar distances from other parts of Sydney
  •   Melbourne CBD commuters have a worse time if they live in north-east areas like Heidelberg, Kew and Doncaster. Drivers using the Eastern Freeway and Hoddle Street in the morning peak are often delayed for more than 20 minutes – much longer than drivers from other parts of the city

Another big issue with traffic congestion is the unpredictable nature of it. If it normally takes 30 minutes to get to work but on a bad day it can take 50, then people must allow 50 minutes every day if they want to make sure they’re never late.  The report points out that many people can handle traffic if the required travel time is reliable.  Unfortunately, in major ‘pinch points’, it’s usually not!

Bad traffic is prompting some Sydneysiders leave the city permanently.

According to our McGrath regional NSW Principals, more Sydney buyers are mentioning traffic as a direct reason for their choice to quit big city living.  In years gone by, it was mainly about finding more affordable homes or pursuing a coastal lifestyle but today, traffic is definitely a push factor.

Social researcher Mark McCrindle has identified the same trend. A recent Fairfax article quoted him saying: “It’s discomfort with the affordability of the big cities and the infrastructure challenges that's pushing people out of cities, rather than the pull factor of a particular idealistic location.”

For those of us who stay in Sydney, it’s the loss of personal time that this an issue.

“Commuters are sick of being stuck in traffic rather than spending time with their families,” says Federal Regional Development Minister, John McVeigh.

So, it will be interesting to see what this Urban Congestion Fund can achieve in our trouble spots. If they make good decisions and manage to materially change traffic conditions in suburbs with long-standing issues, it could have a very beneficial impact on people’s lives and on property values.

*Stuck in traffic? Road congestion in Sydney and Melbourne by Marion Terrill, Grattan Institute, published October 2017

 

What happens if your property passes in?

Tuesday, May 08, 2018

The biggest fear among vendors going to auction is that their property will be passed in on auction day. With auction clearance rates in both Sydney and Melbourne in the 60% range, this is a very real risk.

The biggest myth about properties that sell after auction is that they go on to sell for a ‘bad’ price. That is not the case. It’s important to remember that fresh buyers are coming into the market every week. We see properties that have passed in go on to sell at their reserve price or better all the time.

It’s important to remember that the auction process unearths the best buyers in the market at a particular point in time. If your property passes in, the first step is your agent following up with these buyers and potentially negotiating a sale that way.

In cooling markets, buyers can be particularly cagey at auctions. They’re finally getting some power back after years in a seller’s market. Sometimes they won’t bid if no one else does – they’ll let it pass in and contact the agent afterwards because they feel more comfortable negotiating privately.

In my experience, most properties passed in at auction will sell within 14 days. If your property still doesn’t sell, you need to take stock of what’s gone wrong.  Sit down with your agent and have a look at the variables. In my experience, there are only three reasons why properties don’t sell – unrealistic price expectations, poor presentation and/or poor marketing.  If a property struggles, usually one of these are off-track.

In 80% of cases, price is the culprit. This is particularly so in today’s market conditions, with many vendors struggling to accept that boom prices might not be achievable in their suburb anymore.

Review any offers that were made prior to auction.  You might have been expecting $1.5M and the offer was $1.45M. You might have been dismissive of this offer at first, but if no one else put an offer forward, then maybe you need to consider if that is today’s true market value for your home.

Another possibility is that the market has shifted since you listed. This is often a factor in markets that are moving (either up or down). A neighbour might have sold for $1.5M six months ago but that’s not necessarily what you can achieve for your own home today because the market has changed.  

Ask your agent what else has hit the market since you listed your property for sale. Have any comparable properties sold during this time?  Subtle fluctuations in the local market and sales of similar homes during your campaign will influence how buyers value your home.

Once you and your agent have debriefed, you can consider how to move forward. But before you commit to doing anything, it’s a good idea to pause for a breather.

After passing your home in, it’s natural to feel a bit flat due to lost momentum. You need to recover your positive energy or your lack of enthusiasm can negatively impact the sale.

Sometimes after passing in, vendors will choose to immediately convert their campaign to private treaty and remain on the market as is, or with a revised price guide.

Another option is to ‘rest’ your property for a few weeks. Take it off the market altogether while you consider pricing. It’s also worth asking your agent what else you can do to improve your chances of a good sale. For example, were your photos good enough?  Should you pay for a few more, or re-do them after some new styling?

If you did online-only marketing in the first campaign, perhaps you might consider some DL cards, print ads and social media to reach more buyers.

When you re-launch your property, you can set another auction date or choose private treaty.

You might feel reluctant to try auction again but I’ve actually had huge success re-auctioning properties myself, so don’t be afraid to try it.  Auctions set a deadline for buyers and this can be extremely helpful in bringing about a sale.

Following a failed auction campaign, if you’ve responded to the issues that caused it (price, presentation and/or marketing), there is no reason to think your property won’t sell.

Listen to your agent, take the time to restore your energy and get cracking on that second campaign!

 

 

 

More property listings selling pre-auction

Tuesday, May 01, 2018

In Sydney, more properties listed for auction are now selling prior due to cooling market conditions. With more homes for sale, buyers have more choice and more bargaining power, so sold priors are becoming increasingly common. 

During the boom when stock was tight, most vendors wanted to go through to auction and let the usual five or so registered bidders battle it out to maximise the sale price. 

Today, competition has reduced to an average of one to three bidders per auction. The instances of buyers going quiet before an auction are increasing, with their attention diverted away by more and more new stock. 

These market conditions give buyers greater confidence in making pre-auction offers – often within the first week of a campaign; and vendors are more likely to consider them. 

Top tips for buying prior to auction

  1. Ask the agent if the vendor is willing to consider pre-auction offers. If so, tell the agent you are interested in the home and you want to be included in any negotiations. Sold priors can happen quickly – often within 24 hours, so it’s important to flag your interest even before you’ve made an offer
  2. Let the agent know you have pre-approved finance. This is a very important signal that you’re a serious buyer
  3. Offer a price that is close to your walk-away figure. Vendors will only sell early in a campaign if a strong price is put forward. As with all negotiations, the vendors will assume your first offer isn’t your best so leave some wiggle room
  4. Do more than a verbal offer. Sign the contract and attach a cheque for the deposit. Alternatively, put your offer in writing and mention you have your finance approved 
  5. Waive your right to a cooling off period to show you’re serious 
  6. If your first offer is rejected, consider offering an odd amount. For example, rather than offering $860,000 or $865,000, offer $863,500. An odd amount implies that you’re close to or at your financial limit 

A word of advice for sellers

In Sydney today, the best quality properties are still attracting strong demand and doing very well at auction.  If you have an A-grade property that ticks all the boxes for buyers, your agent might still recommend proceeding to auction rather than taking a strong early offer. 

Don’t be afraid to do this. It’s the A-grade properties that are still achieving hundreds of thousands above reserve. If your agent tells you there are several buyers with similar budgets who genuinely love your home, then auction is still the best way forward.  

When to accept a pre-auction offer 

Before you accept a pre-auction offer, there are a few factors you have to weigh up. You need to do a reality check on your price expectations, taking into account recent sales during your campaign and market feedback on your home. 

Then you need to listen to your agent, who will use all their expertise to determine whether you should accept the offer or not. A good agent will not let you undersell your home. 

Generally speaking, it usually comes down to whether the buyer making the offer has any competition from other buyers at the same price level. 

For example, say your best pre-auction offer (after some negotiating) is $1.5M. If all other buyers are talking $1.4M-$1.45M, your agent will probably recommend you take the offer. 

If you proceed to auction, the buyers will all go to $1.45M and then the best buyer will be on their own from there, with no reason to bid even close to $1.5M.

In today’s market, we expect to see many more homes selling prior. With auction clearance rates consistently around 60%, both buyers and sellers are aware that the market has changed and there is more opportunity for buying and selling prior to auction day.

 

More homes for sale weakens auction clearance rates

Tuesday, April 24, 2018

Sydney’s weekly auction clearance rates have fallen this year and are now pretty consistently in the 60% band. This is happening because the market is plateauing, with more stock for sale and therefore a dilution of buyer interest per property.

According to SQM Research, total listings for sale in Sydney has increased to its highest level since late 2011 (pre-boom). There’s a few reasons why we’re seeing more stock on the market:

  1. There is a consensus that the boom is over, so home owners who have been waiting for full value growth for their homes during the boom are putting out the For Sale board now, in an effort to beat the market slow down  
  2. Stock was very tight last year, with many would-be sellers holding off listing out of fear of not being able to buy back in. Today, every new listing is encouraging more new listings because home owners are finally feeling confident that they’ll be able to find a new home
  3. Some investors are cashing in on their boom time growth. Part of their motivation to sell is the banks’ decision to increase interest rates on investor loans, particularly those on interest only terms which is the preferred loan type for investors
  4. The property boom initiated a construction boom, with thousands of new apartments still in the pipeline or rolling out onto the market now

While it’s clear the market is cooling, on the ground we are seeing patches of strength and weakness.

Desirable properties in sought-after and tightly-held suburbs close to the city and beaches are still selling very well and often above reserve. Softening market conditions don’t tend to hurt these types of A grade roperties at auction. For the rest of the market, things do change.

I asked Kon Stathopoulos, Head of Sales for McGrath’s company owned offices to give us a snapshot of what he is seeing on the ground.

Kon says: “Many people are realising that it’s a great time to buy, especially buyers who have been looking for 12-18 months and have been forced to compete at auctions with double digit registration numbers.

“There is more choice for buyers in certain price and geographical sectors of the Sydney market, however it is not across the board as specific pockets are still tightly-held. 

“Where increased stock levels exist, open home numbers are lower and therefore auction registration numbers are somewhat diluted. 

“New supply is more of an issue in the apartment market. There is noticeably more choice for apartment buyers around the $1M mark but the volume of house listings is still pretty low in many areas of the city, which creates scarcity and competition.

“A further tightening in lending practices has resulted in many buyers (mainly investors) struggling to achieve formal finance approval by the auction date. Lenders are requesting additional documentation and the approval process is taking longer.

“This is creating frustration for buyers and many only receive notification literally the evening prior to the auction. If they don’t get it in time, they can’t bid and this reduces competition and can impact the likelihood of a sale, especially on properties with only a few interested parties.” 

With more stock available, buyers have got a bit of power back and this has made them more discerning. The urgency has been removed from the market and some buyers are avoiding auctions altogether.  

So, I asked Kon the question that is on many buyers’ minds. Why should they still compete at auction when there is plenty of other stock to choose from? 

“Auction is the most effective and efficient method to secure a property for a buyer,” Kon says.

“On the day of the auction, there is full transparency around who is bidding and at what price. Buyers usually don’t enjoy this luxury on campaigns marketed via expressions of interest, private treaty or pre-auction tender. 

“The other big advantage is that contracts are signed immediately.”

As always, I encourage buyers and sellers to take a big picture view of their next move in real estate. 

Property is an outstanding investment over the long term. In Sydney, the market is cooling and buyers have a bit more time and leverage, so it’s easier to make smart decisions. 

Regardless of market conditions, the best time to buy is always when you can comfortably afford a good quality property in a good location. Plan to hold on to it for the long term and don’t panic if prices fall or stagnate.

It’s very easy to make great money in real estate if you follow these few simple steps. Don’t let market conditions sway you too much.

 

Geelong leads regional growth as city dwellers escape stress

Tuesday, April 17, 2018

 

The inevitable ripple effect seen in regional markets at the end of capital city booms has always been driven by affordability. City buyers see phenomenal price growth in their city and buying becomes too hard, so they look further afield – usually to nearby regional areas with the best commuter access, for a cheaper family home.

While affordability remains an important factor, we are finding that more city dwellers are looking to regional areas to escape the stresses of city life, in addition to achieving better affordability. 

Our McGrath Geelong Principal, Jim Cross, says “The biggest difference with the family buyers from Melbourne and Sydney compared to two or three years ago is the reasoning behind moving to Geelong, with liveability a key driver.” 

CoreLogic data shows regional markets are now outperforming capital cities in terms of price growth. This trend is not surprising given the disparity between city and regional home values, and hence the demand in those areas increases and price growth ensues.

Leading the top five regional areas for price growth over the past year is Geelong at 10%; followed by Southern Highlands/Shoalhaven at 9.5%; Capital Region NSW and Newcastle/Lake Macquarie both at 8.3%; and Coffs Harbour/Grafton at 8.1%. 

I asked some of our McGrath Principals in these areas to give us their insights into today’s market trends. Here’s what’s happening on the ground in Geelong, Coffs Harbour and the Southern Highlands.   

GEELONG (VIC) 

10% price growth over 12 months

Our expert: McGrath Geelong Principal, Jim Cross

“The culture in Geelong has changed dramatically over the past five years with the café lifestyle in full swing,” Jim says. “There’s trendy laneway restaurants, cafes, boutique shopping all mirroring Melbourne trends so Melbourne buyers are not seeing Geelong as a sleepy, backward city anymore. 

“The number of Melbourne buyers coming through open homes in the premium areas of Geelong has increased from approximately 10% to 35%, in some cases, over the past two years. 

“We haven’t experienced demand like this before. In the past, Melbourne and Sydney buyers, investors and developers were a passive trickle but now the flood gates have opened, as people genuinely see Geelong as the next big property market.

“Typical scenarios include young double income professionals living in an apartment in Richmond, for example, who want to start a family and are purchasing in a trendy area of Geelong at an affordable level with great schools and lifestyle. 

“Downsizers are selling the big family homes in Melbourne and Sydney for $1.5M - $3M and purchasing a nice townhouse in a trendy area of Geelong for $750,000 to $1M and putting the balance into super.

“Sydney investors are buying affordable properties in Geelong North – typically three bedroom, one bathroom brick or weatherboard homes on around 600 sqm with the intention of sitting on them for five to 10 years and subdividing or re-selling in the future. 

“We are also seeing a fast growing trend in mid to large size developers focusing on Geelong for residential and commercial projects and investments.” 

“Renovated period-style three or four-bedroom character homes in trendy areas are coming back into vogue in a big way. New townhouses in trendy areas near shopping strips and the waterfront are also in high demand.” 

RECENT SALE 

“We sold 188 Aberdeen Street, Geelong West to a young family from Melbourne for $810,000, which was $100,000 over reserve. They were living in Fitzroy in a very small dwelling with a dog and needed more space. They wanted a character home near schools and shops in a trendy suburb.” 

SOUTHERN HIGHLANDS/SHOALHAVEN (NSW)

9.5% price growth over 12 months

Our expert: McGrath Bowral Principal, Anne Stone

“Eight out of 10 buyers in the Highlands are out of Sydney and this has driven prices up,” Anne says. “They’re coming here to escape Sydney’s traffic congestion, find a more affordable home and enjoy the beautiful climate and good schools. 

“The majority of our market is Sydney downsizers looking to sell in older areas, often where they have lived for a long time, buy in the Highlands and put money into their super funds.  

“There are also families who generally work from home or commute to Sydney once or twice per week. They tend to buy in the newer established areas.

“Schools have been a big drawcard to our area; and now with more flights leaving Canberra, we are attracting more work-from-home businesspeople. 

RECENT SALE 

“We sold 70 Centennial Road, Bowral for $1.55M prior to auction to a couple from Chatswood, who are intending to semi-retire. They sold their Sydney home well through McGrath Crows Nest, which allowed them to buy well here opposite the golf course for a great lifestyle change.”

COFFS HARBOUR/GRAFTON (NSW)

8.1% price growth over 12 months

Our expert: McGrath Coffs Harbour Principal, Martin Wells 

“The population shift out of capital cities is quite noticeable at the moment,” Martin says. “Sydney is the most notable with approximately 30% of all buyer enquiry at the $750,000-plus level originating there. 

“There’s many young families leaving the capitals to live a more ‘simple life’ with significantly smaller mortgages. 

“We are seeing an increase in executive purchasers who can commute to Sydney, Melbourne or Brisbane on numerous flights a day. Air travel to Sydney of just 60 minutes is less than a lot of people spend in their cars from home to work in Sydney.

“We are also one of the only major regional cities to have benefitted from Fibre to the Premises NBN access, which has enabled city executives to establish start-ups or tech businesses as part of their lifestyle change.

“The Coffs Harbour population is forecast to grow to almost 95,000 by 2036, significantly up from around 77,000 in 2017. This means we will be facing a supply shortage of approximately 10,000 homes. This will keep price growth strong and likely outstrip numerous regional markets and capital cities moving forward.  

RECENT SALE 

“We sold a seven bedroom home overlooking the ocean at 25 Charlesworth Bay Road, Coffs Harbour for $1.75M. It sold to a Sydney family looking to escape the city hustle and take advantage of the coastal lifestyle and employment opportunities at tertiary medical and specialist facilities here.” 

As with any property purchase particularly in a new area, savvy buyers will do their research and build a good relationship with a local area expert in order to secure the right property.

 

Does flipping work?

Tuesday, April 10, 2018

Flipping is a strategy employed by property investors who typically buy, make improvements (such as renovating, sub-dividing or securing DA approval for development) and re-sell within a very short timeframe for a profit.  

It sounds like a great idea and all those TV renovation shows make it look pretty easy. The reality, however, can be far different, especially for people with no experience or skills relating to home renovation.

Mistakes get made, costs and timetables blow out and in the meantime, you’re covering the full loan repayments yourself with no rental income to help.

Successful flipping means recovering the cost of the purchase, the improvements, the loan repayments during your hold period and hefty trading costs, including stamp duty when you buy and agents’ fees and capital gains tax when you sell. After you’ve covered all of that, what’s left is your profit.

In short – it’s tough to do well and this is why flipping accounts for only a very small percentage of sales each year.

CoreLogic data shows only 1.3% of homes re-sold over the 12 months to June 2017 in Australia were held for less than a year. Only 5.7% were re-sold within 1-2 years of purchase.

Does flipping work? Well, yes it can, if you get absolutely everything right, including buying the right type of property at a good price in the right location; adding enough value through high quality renovations, sub-division or other means; and selling in reasonably strong market conditions.

Flipping, by definition, is done in a very short timeframe, which is why you can’t afford to make mistakes. There isn’t the luxury of time, which is the one factor that every investor can count on to deliver capital growth on a good quality investment.  

You have a better chance of making a profit flipping during boom markets, when rapid price growth coupled with the value of your renovations can deliver a handsome profit.

In fact, you can buy a property at the start of a boom, do nothing to it; and sell within a few years for a profit, too. We’ve seen that happen in many cases over the past few years in Sydney. But few people get all the ingredients right.

The biggest challenge for flippers during booms is buying at a reasonable price. If you pay too much, there’s less profit to be achieved at the other end because you’re selling in such a finite timeframe.  

CoreLogic recently released its inaugural Property Flipping Report, which provides a national analysis of properties that were bought and re-sold within either 12 months or 1-2 years by sellers specifically aiming to make a profit.

Among the capital cities, it found that flipping was most successful in Sydney and Melbourne, where 9 out of 10 homes flipped within 1-2 years of purchase turned a profit in 2017.

The report doesn’t go into how much of a profit, but it’s not surprising that people made money when both cities were in the midst of a boom.

In flat or normal markets, it was a different story. Only 3 in 10 properties in Darwin and 5 in 10 properties in Perth flipped within 1-2 years of purchase sold for a profit.

The report identified several flipping trends and hot spots nationwide, as follows.

NSW

  • The highest rate of flipping nationally occurred in Sydney, where 6.8% of re-sales in 2017 were flips of properties held for only 1-2 years
  • Nine out of 10 flips in Sydney and regional NSW turned a profit in 2017
  • The Illawarra on the NSW South Coast recorded the highest percentage of flips in the state (8.7% of re-sales within 1-2 years of purchase)
  • About 98% of flips in the Illawarra turned a profit

VIC

  • Most flips occurred in South East and North West Melbourne (7.8% and 7.6% of re-sales within 1-2 years of purchase)
  • The Mornington Peninsula was the most successful regional area for flipping and Bendigo was the worst

QLD 

  • The highest rate of flipping was on the Gold Coast, with flips accounting for 7.9% of re-sales within 1-2 years of purchase
  • Flipping was most successful in Moreton Bay North (95.6% of flips sold within 1-2 years of purchase turned a profit) and least successful in Townsville (48.8% of flips sold at a loss)

WA

  • Losses were high for WA flippers in 2017, with 47.7% of properties flipped within 1-2 years of purchase in Perth sold at a loss
  • North East Perth recorded the highest losses

SA

  • An increasing number of people are flipping in West Adelaide

Flipping is not a wealth strategy I would recommend to the average property investor. It’s a great idea for builders or others in the construction, real estate or interior design industries, as they bring special skills to the table. But for ordinary investors, I will always recommend that you simply buy and hold.

Renovating is a great way to add value and there’s plenty of low cost ways to do it. But time in the market is a much more important and effective element for average investors to achieve capital growth through property.

 

Retirement the top priority for property investors

Tuesday, April 03, 2018

Setting up a good retirement is the main reason people invest in property, with most believing that superannuation or the pension will not be enough to fund a comfortable life after work, according to new research commissioned by the Australian Institute of Superannuation Trustees (AIST). 

I couldn’t agree more. Real estate investment and retirement planning go hand-in-hand because both are long term goals. 

As I’ve said many times before, property investment works best when it's bought and held. Compared to other investment vehicles like shares, property is the easiest to understand. It doesn’t require frequent monitoring and its value changes very slowly. It’s simply easier.      

An investor buying a property in their 30s has decades to let it mature with minimum of fuss. The rent generally pays most or all of the mortgage and tax offsets help cover any shortfalls. Plus, with most loans on 25-30 year terms, the property will be close to or fully paid off by the time retirement rolls around. 

Investing early in life and holding for 30-40 years means you’ll go through several full growth cycles before retirement, delivering excellent capital growth for you to liquidate or a weekly income for life. 

Aside from retirement planning, the research also identified what I believe is an increasingly important motivator for today’s mum and dad investors. While 64% of investors in the Home Truths survey (conducted for the AIST by Essential Media in Feb/March this year) rated retirement planning as the most important factor in deciding to invest, 39% of investors with kids said creating an asset to pass on was also a crucial part of it.

Further to this, 34% of investors with kids said concerns about their children’s ability to afford their own homes also drove them to invest in property and 29% said providing somewhere for them to live was also a primary motivator. 

We’re seeing this on the ground across the East Coast but particularly in Sydney, where more parents are turning up to opens and auctions with their 20 or 30-something aged children looking to buy. Sometimes they’re just funding the deposit; other times mum, dad and child are pooling funds to purchase together. 

Many parents are buying investment properties close to universities so their kids can live there while studying. Their child’s need for a home is the primary driver to buy, with the benefits of investment a close secondary factor. 

Declining affordability, particularly in Sydney, is prompting parents to change strategy on their pathway to retirement. They’re no longer solely focused on paying off the family home, going into retirement debt-free and doing a seachange with money left over from the sale of their home to fund the rest of their lives. 

Today, they feel they have to act now to set up their kids’ financial futures too. This trend means more retirees are likely to go into retirement with debt – and will probably have to use superannuation to pay it down. 

If we look even further into the future, taking into account declining rates of home ownership across Australia, we’ll eventually see more retirees finishing work without the safety net of owning their own home. 

We hear a lot about affordability’s effect on young people but the truth is this problem has ramifications for other generations too. I can’t emphasise enough the lifelong benefits of buying that first property – whether for investment or first home ownership, as soon as you possibly can. 

Affordability constraints are certainly making it hard in Sydney but I believe both first home buyers and governments need to take responsibility if a solution is to be found. We need to increase supply, create better infrastructure around major employment hubs, take an enlightened look at property-related tax structures (especially stamp duty) and fast track the local government approval process for new development. 

Not only do we need to help young Australians into their first homes, we also need to ensure that our retirees are not struggling with debt or left reliant on welfare well after their working lives are done.

 

How to buy in Sydney

Tuesday, March 27, 2018

Sydney property values fell into negative annual growth territory for the first time since 2012 last month. According to the latest report from CoreLogic, Sydney home values softened by -0.5% over the year to February 28.

All this means is it’s getting a bit easier for buyers.  There’s more stock on the market, buyers have a bit more choice and some new negotiating power.  Auction clearance rates have softened a bit as volumes for sale increase and buyers become more discerning.

I expect this to continue for a while.   Usually when Sydney comes out of a boom, it returns to normal market conditions pretty quickly and it’s a new ball game for both buyers and sellers.

So this week, I’m going to talk about how to buy at this point in the cycle.

While buyers might feel buoyed by the market slow down, reality is we’re still only just past the peak of a boom in which property values grew by about 75%.  It’s therefore understandable that some buyers would be worrying about paying too much in today’s market.

So, what do you do?  Wait a while to see if prices go down, or just get on with buying?

The most important lesson from other booms in Sydney is that prices don’t go down much afterwards.  The city has very strong fundamentals holding prices up (eg strong economy, undersupply, population growth, migration), so buyers shouldn’t expect a big change.

In addition, real estate should always be a long-term play, so even if you do pay a bit of a premium (within reason) today, it’s not going to matter much in 10 years’ time when property values will have probably doubled.

In many pockets of Sydney, we are still seeing properties sell well above reserve. This isn’t happening as much as it was but we are certainly still seeing it with the better-quality homes in the best locations.  So, if you want to buy a great new home, you might still have to pay a premium price.

However, with interest rates remaining as low as they are, this remains manageable. Owner-occupiers can still lock in fixed rates around or even below 4%, so that should help a lot.  

Here are some specific tips on how to get ahead of other buyers, make offers and bid at auction.

How to get ahead of other buyers

Every buyer is online these days, so when a new property listing is uploaded the chances are you and every other suitable buyer will receive an alert to it. At this stage, you’re all on an even playing field.

It’s different when you’re a ‘database buyer’.

Database buyers have registered their buying criteria directly with individual agents and they are often notified of new listings prior to them going on the big portals. This gives you an advantage.

Agents often conduct pre-campaign inspections with database buyers too, so you can get a look at the property and perhaps even make an offer before public advertising begins.  

You can also get ahead of other buyers by doing thorough research on the local market – so you’ll be able to recognise and act on an opportunity sooner; as well as getting your finance approved, as this is a powerful demonstration of your commitment to buy.

Tips for bidding at auction

  • Be clear about your walk away price
  • If you’re going to start the bidding, start low
  • Project confidence – make the other bidders think you have no limit
  • Make your bids fast and assertive. Agonising over your next bid is a sign of weakness
  • Call out your offer in full (i.e. say “$350,000” instead of “$5,000”). When the bidding is down to small increments, it’s easy for buyers to lose sight of the amount of money being bid. Calling out the full amount is a reality check for your competitors
  • If it’s going to pass in, make sure you are the highest bidder so you get first right to negotiate after the event
  • Stick to your walk away price. Short-lived disappointment is better than long-lasting remorse
  • If you miss out, accept that it wasn’t meant to be and look forward to finding something better soon!

Tips for buying pre-auction or via private treaty

  • On auction campaigns, ask the agent if the owners are willing to consider pre-auction offers
  • Tell the agent you’re interested but don’t let on that you’re attached to the property 
  • Don’t start negotiations with your best offer, as it is always assumed your first offer is not your best (or your last!)
  • The best way to show you’re serious is by signing the contract and attaching a cheque for the deposit. This makes your offer a lot more seductive!
  • Put a deadline on your offers to encourage a decision – 5pm the next day is fair. Extend the deadline if the vendor hasn’t decided by then
  • If your first offer is rejected, pick an odd amount to offer next. I have done this myself with great success. For example, rather than offering $460,000 or $465,000, I’ll offer $463,500. I’ll tell the agent: “I’ve looked at the comparable sales as well as my finances and costs and I can offer $463,500.” An odd amount implies you’re at your financial limit
  • Respect the vendor and seek a win-win. Common ground between you – such as the desire for a long settlement, can incentivise the vendor to accept your offer  
  • Don’t make negative comments about the property. Vendors are influenced by their emotions, too! 

The Sydney market is currently taking a breather with the Easter long weekend approaching and school holidays commencing in mid-April. We typically see a surge of new stock on the market immediately after the holidays, so buyers should ready themselves for a potentially busy May!  

 

First time home buyer hot spots in NSW

Tuesday, March 20, 2018

Since stamp duty exemptions and concessions were introduced on July 1 last year, more than 19,000 people have bought their first home in NSW. This is great news for young people realising their dream of home ownership.

Your first home is not just an amazing personal milestone, it’s also a cornerstone financial asset that will likely serve you in many ways throughout, at least, the first half of your life. 

Primarily and most importantly, it provides you with your own little place in the world, where you can paint the walls whatever colour you like and make improvements along the way to create your perfect space. 

Secondly, your first home also provides a major financial building block that can be used in many ways. For example… 

  • Some years down the track, your first home will probably have some new equity in it that you can use for other things (like buying an investment or starting a business)
  • Maybe you’ll take the capital growth and sell it to help buy your first family home
  • You can also move out and lease it, converting your first home to an investment property for long term income and wealth accumulation

With all these options and benefits in mind, it’s great to see so many young people taking advantage of incentives to purchase their first homes now.

So, where are they buying?

The NSW Government recently released a list of suburbs with the greatest number of first home purchases since July 1, 2017 and there were two clear trends. Take a look.

Top 20 Suburbs for First Home Buying in NSW since July 1, 2017

  1. Liverpool – 406 buyers in FY18 so far, up from 166 in FY17
  2. Kingswood – 399 buyers in FY18, up from 154 buyers in FY17
  3. Camden – 387 buyers in FY18, up from 191 in FY17
  4. Campbelltown – 345 buyers in FY18, up from 114 in FY17
  5. Riverstone – 340 buyers in FY18, up from 319 in FY17
  6. Gosford – 316 buyers in FY18, up from 35 in FY17
  7. Leppington – 304 buyers in FY18, up from 178 in FY17
  8. Westmead – 264 buyers in FY18, up from 114 in FY17
  9. Blacktown – 252 buyers in FY18, up from 136 in FY17
  10. Wagga Wagga – 251 buyers in FY18, up from 62 in FY17
  11. Orange – 230 buyers in FY18, up from 49 in FY17
  12. St Marys – 225 buyers in FY18, up from 48 in FY17
  13. Wyong – 224 buyers in FY18, up from 78 in FY17
  14. Queanbeyan – 222 buyers in FY18, up from 75 in FY17
  15. Penrith – 207 buyers in FY18, up from 65 in FY17
  16. Mount Druitt – 197 buyers in FY18, up from 25 in FY17
  17. Ingleburn – 190 buyers in FY18, up from 95 in FY17
  18. Dubbo – 182 buyers in FY18, up from 47 in FY17
  19. Tamworth – 170 buyers in FY18, up from 39 in FY17
  20. Parramatta – 170 buyers in FY18, up from 81 in FY17

The first trend is the more affordable Western and South-Western suburbs of Sydney dominating the list.

At the top is Liverpool, where the median price of a two bedroom apartment is $440,000*. So far in FY18, 406 young buyers have purchased their first homes here, up from 166 in FY17.

The other westerly hot spots are Kingswood, Camden, Campbelltown, Leppington, Westmead, Blacktown, St Marys, Penrith, Mount Druitt, Ingleburn and Parramatta.

The second trend is a spike in first home buying in country areas, where young people are demonstrating very smart thinking.

At the end of the day, it’s obvious that the stamp duty concessions were primarily designed for first home buyers in Sydney, where property prices are high and affordability is a genuine issue. But country buyers in far more affordable locations can also take advantage of them, so why wouldn’t you jump at that?

According to the figures, young country buyers have been particularly proactive in Wagga Wagga, where the median price of a three bedroom house is $376,000 and the median price of a two bedroom apartment is $257,500. Stamp duty exemptions have prompted 251 locals to purchase their first home in FY18, up from 62 in FY17.

Orange is not far behind with 230 first buyers in FY18, up from 49 in FY17. Here, a median priced three bedroom house costs $338,500 and a two bedroom apartment is $240,000.

Other country hot spots included Dubbo and Tamworth.

I will always be a strong advocate for first home buying, as I think it’s the most important and effective way for young people to create a foundation for personal financial stability.

I encourage young people in NSW to seriously consider how they can use the stamp duty concessions available to set up their futures sooner rather than later. We don’t know how long these incentives will be in place, so it’s a smart move to assess your numbers now.

*realestate.com.au  

 

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