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.

The myth of winter selling

Tuesday, July 23, 2019

It’s the biggest myth in property and home owners currently waiting for Spring should really heed this message. Winter is NOT a bad time to sell! In fact, winter is usually an excellent time to sell because the number of competing homes for sale goes down (because people believe the myth!)

When you have fewer homes competing with yours for buyers, you’re far more likely to get a strong sale price. It’s the law of supply/demand and I believe winter is the best season to tip the balance in your favour.

Spring and autumn are the busiest times of the year – that’s when most people sell. I’m not saying you can’t sell well in these seasons but when the market is soft and buyer demand is lower, like it is now in Sydney and Melbourne, it’s best to sell when competition is lower, too.

In the first month of winter, we saw a bounce in auction clearance rates. Both Sydney and Melbourne began trending above 60%. This reflected not only a change in market mood following the election but also a change in supply/demand, with fewer homes going under the hammer.

If you believe the myth, buyers hibernate in winter. That’s simply not true. Sellers hibernate – and for no good reason!

Right now, a lack of stock in some of the most desirable suburbs is resulting in concentrated competition on only a few homes. Look around in your area – check out the number of homes for sale online. You’ll likely find a stock shortage, particularly in blue chip suburbs.

Buyers who need a new home are not going to be demotivated by a bit of rain and wind. That theory doesn’t make sense. The only people put off by poor weather are those not committed to buying, so think of it this way. On a cold, blustery day, the buyers attending your opens are more likely to be genuine. On lovely, warm summer days, you’re more likely to get a mix of real buyers and window shoppers attending opens for fun.

The other part of the myth is that homes don’t present well in winter. I’d argue that plenty of homes actually present better in winter. Federation homes with open wood fireplaces, period charm and a cosy ambience look fantastic in winter.

People want comfort in their homes and stepping inside a lovely, warm, beautiful family home on a rainy, cold Winter’s day is going to stir up plenty of emotional appeal.

Then, there’s the garden. Don’t believe it can’t look good in winter? These days, most city dwellers create minimalist, low maintenance gardens so they can spend more time enjoying them than working on them. If your backyard is full of manicured evergreens, selling in winter isn’t a problem.

Here’s the other big advantage to selling in winter. It puts you in the driver’s seat to buy in spring. That’s when you want to be buying, when stock levels are up and there’s more choice!

You’re less likely to go over budget bidding at auction if there are several properties you like for your next home. Spring is the ideal time to buy and if you do it early enough, you’ll have Christmas Day in your new home and the holiday season to settle in before the start of the 2020 school year.

 

East coast suburbs are hip

Tuesday, July 16, 2019

A new report from CoreLogic and Moody’s Analytics paints a picture of recovery and modest growth for the East Coast capitals in 2020.

The report predicts that the Australian property market will trough this quarter following two years of decline, with greater falls in house prices (-11% down from the mid-2017 peak) compared to apartment prices (almost -7% down from the peak).

The CoreLogic-Moody’s Analytics Australia Home Value Index Forecast, released in late June, expects a return to gradual growth in 2020, powered by interest rate cuts and some relaxation in lending rules recently announced by APRA. 

Moody’s Analytics has developed an econometric model that enables price predictions for individual regions within a city. So, let’s take a look at what they predict for the three East Coast capitals overall and within their main precincts.

1. Sydney

Moody’s says Sydney’s correction is on track to be the longest and steepest on record but at the end of the day, house prices are still around +60% higher than they were in 2012.

Sydney’s house values declined -5.5% in 2018 and are forecast to fall a further -9.6% in 2019, before a +3.1% bounceback in 2020 and +4.8% in 2021.

Apartment values dropped -3.1% in 2018 and are set to decline by -7.3% for 2019, before a +4% rise in 2020 and +6% in 2021.

House prices

-        Baulkham Hills/Hawkesbury +6.6% in 2020, +8.7% in 2021

-        Blacktown +6.2% in 2020, +7.3% in 2021

-        City & Inner South +7.8% in 2020, +2.2% in 2021

-        Eastern Suburbs -2.1% in 2020, +0.5% in 2021

-        Inner South West +0.9% in 2020, +5.7% in 2021

-        Inner West +3.8% in 2020, -0.2% in 2021

-        North Sydney-Hornsby -0.4% in 2020, +1.6% in 2021

-        Northern Beaches +2.6% in 2020, +8.2% in 2021

-        Outer South West +2.3% in 2020, +5.8% in 2021

-        Parramatta +3.2% in 2020, +5% in 2021

-        Ryde +1.1% in 2020, +7% in 2021

-        South-West +3.7% in 2020, +4.7% in 2021

-        Sutherland +6.5% in 2020, +9.4% in 2021

-        Outer West/Blue Mountains +1.7% in 2020, +3.7% in 2021

-        Central Coast +4.1% in 2020, +5.5% in 2021

Apartment prices

-        Baulkham Hills/Hawkesbury +3.5% in 2020, +6% in 2021

-        Blacktown +3.6% in 2020, +5.8% in 2021

-        City & Inner South +3. % in 2020, +3% in 2021

-        Eastern Suburbs -2.7% in 2020, -3.5% in 2021

-        Inner South West +2.4% in 2020, +5.6% in 2021

-        Inner West +5.9% in 2020, +7.7% in 2021

-        North Sydney-Hornsby -1.1% in 2020, +0.9% in 2021

-        Northern Beaches +6.6% in 2020, +4.2% in 2021

-        Outer South West +5% in 2020, +9% in 2021

-        Parramatta +6.6% in 2020, +7.9% in 2021

-        Ryde +2.2% in 2020, +5.1% in 2021

-        South-West +5.5% in 2020, +7.7% in 2021

-        Sutherland +2.1% in 2020, +4% in 2021

-        Outer West/Blue Mountains +1.9% in 2020, +7.1% in 2021

-        Central Coast +13.1% in 2020, +13.8% in 2021

2. Melbourne

Melbourne house values are -14% below their peak after an 18-month decline. The fall in values has been most pronounced in the inner suburbs but the worst appears to be over already with a modest recovery expected in 2020.

Melbourne’s house values declined -0.3% in 2018 followed by a sharp fall this year projected to total -10.8%. The recovery will begin very slowly in 2020 with just a +1.3% increase followed by a better result in 2021 at +6%.

The decline in apartment values has been less pronounced with a +1.8% gain in 2018 and a decline this year projected at -3.9%. There will be a further decline in 2020 at -0.3% followed by a +1% improvement in 2021.   

House prices

-        Inner Melbourne +1.3% in 2020, +3.4% in 2021

-        Inner East +5.5% in 2020, +7.7% in 2021

-        Inner South -0.8% in 2020, +6.7% in 2021

-        North East +6.2% in 2020, +11.8% in 2021

-        North West 0% in 2020, +4.3% in 2021

-        Outer East -1.9% in 2020, +8.1% in 2021

-        South East +0.8% in 2020, +5.5% in 2021

-        West -0.6% in 2020, +2.8% in 2021

-        Mornington Peninsula +2.5% in 2020, +5.2% in 2021

Apartment prices

-        Inner Melbourne +4.2% in 2020, +3.8% in 2021

-        Inner East  +6.8% in 2020, +9.8% in 2021

-        Inner South -0.1% in 2020, +0.2% in 2021

-        North East +1.4% in 2020, +3.7% in 2021

-        North West +5.2% in 2020, +4.3% in 2021

-        Outer East +0.3% in 2020, +3.8% in 2021

-        South East -6.1% in 2020, -2.5% in 2021

-        West -6% in 2020, -7.1% in 2021

-        Mornington Peninsula -0.5% in 2020, +3.1% in 2021

3. Brisbane

Brisbane experienced strong growth between 2012-2018 and corrected this year. House prices went up +1.5% in 2018 but lost those gains and will lose a bit more this year for a total projected decline of -1.8%. The years ahead look a bit better with +1.4% growth in 2020 and +2.9% in 2021.

Apartment values dipped -1% in 2018 and will finish 2019 down about -0.7%. The future looks much brighter with predictions of +5.6% growth in 2020 and +5.8% in 2021.

House prices

-        Brisbane East +1% in 2020, +1.2% in 2021

-        Brisbane North +1.4% in 2020, +0.4% in 2021

-        Brisbane South -0.8% in 2020, +2% in 2021

-        Brisbane West +1.5% in 2020, +4.2% in 2021

-        Brisbane Inner City +2% in 2020, +1.9% in 2021

Apartment prices

-        Brisbane East +3.3% in 2020, +3.7% in 2021

-        Brisbane North +5.3% in 2020, +5% in 2021

-        Brisbane South +4.1% in 2020, +5% in 2021

-        Brisbane West +4.6% in 2020, +3.6% in 2021

-        Brisbane Inner City +3.9% in 2020, +5.4% in 2021 

Source: CoreLogic-Moody’s Analytics Australia Home Value Index Forecast, Second-Quarter 2019 Housing Forecast Report, published June 25, 2019

If you’re a buyer hoping to take advantage of the bottom and buy as low as possible, now is the time in most city markets. Start preparing for Spring now when we should see a seasonal pick-up in stock for sale. 

 

The worst is behind us

Tuesday, July 09, 2019

We’re ending the 2019 financial year on a positive note, with the first month of price growth in both Sydney and Melbourne since their respective peaks in July and November 2017.

CoreLogic’s June report indicates a turnaround in Sydney and Melbourne, with home values up +0.1% in Sydney and +0.2% in Melbourne for the month of June.

Although these movements are very small, they indicate a real change in sentiment following the federal election and the first interest rate cut in 30 months in June.

Recently, auction clearances have bounced above 60%, which is the benchmark for normal market conditions. Extra reductions in fixed home loan rates by the banks, coupled with APRA’s decision to ease credit criteria, are also factors waking buyers up to the opportunities of FY2020.  

For the financial year 2019, the CoreLogic report shows Sydney home values fell a total of -9.9% and Melbourne dipped -9.2% over the 12 months to June 30. This is more reflective of losses in 2018, with the pace of price declines slowing every month in 2019, as the market began to regain strength.

Now we’ve got the first positive numbers, which indicates to me that we are through the worst of this downturn, at lease in these two cities. We might get some fluctuations in monthly figures from here, as markets rarely recover in a straight line, but I think the bottom is either here or might have even already passed.

The results for FY2019 broken down between houses and apartments are as follows:

Sydney FY2019 

Median house price: $866,524

House price change: -10.8%

Median apartment price: $682,374

Apartment price change: -8.0% 

Melbourne FY2019 

Median house price: $709,092

House price change: -11.8%

Median apartment price: $527,748

Apartment price change: -3.3% 

Source: CoreLogic Hedonic Home Value Index, June 30, 2019 results

With change in the air, what opportunities does the market floor present for you?

Opportunities in Sydney and Melbourne in FY2020

·       Should you upgrade? You might sell for less while prices are soft but you’ll also be buying up the ladder for less, too

·       Should you buy an investment? Prices have fallen significantly and rental yields are stabilising or growing

·       Should you buy your first home? From January 1, you can access the First Home Loan Deposit Scheme and buy with just a 5% deposit; you also have the Super Saver Scheme where you can make deposits into super and use the tax benefit and investment yields to fast track your savings; plus there are various stamp duty concessions and first home buyer grants available in many states. All of this on top of fallen property values…

People often say to me, “John, when is the best time to buy?” The common response to this question amongst agents is “20 years ago” but today I’ll give you a different one – I believe it is NOW. 

I’ve been in real estate for 35 years and if there’s one thing that concerns me and that is people missing obvious opportunities.  Property is an incredible effective wealth creation vehicle and even more so if you can buy at the bottom and sell at the top!

Buying a property is a big financial decision and that’s why most people wait for the comfort of the herd to move first, at which point prices will already be on the rise.

You should always buy with a level head when your financial position is nice and secure. Trying to time the market is usually a bit of a fool’s game but if you’re ready to buy now, then I’d encourage it!

Barring some major international economic event, if you buy now you’ll be purchasing at or very close to the market floor.

It’s worth remembering that in high value markets like Sydney, even a 1% price rise means you’ll be paying $8,700 more for a house and $6,800 more for an apartment based on today’s median prices. So, if you’re ready, why wait? 

Let’s take a look at price changes over FY2019 in other capital cities. Only two cities had positive (but small) gains in home values and this is due to credit curbs affecting buyers in every market.

FY2019 change in home values

Brisbane           -2.6%

Canberra          +1.4%

Adelaide           -0.3%

Perth                -9.1%

Hobart              +2.9%

Darwin             -9.3%

Sydney             -9.9%

Melbourne       -9.2%

Source: CoreLogic Hedonic Home Value Index, June 30, 2019 results, house/apartment prices combined

Credit has remained the No 1 challenge in property in FY2019. Even though APRA is now easing serviceability criteria, tougher lending conditions are the new norm and we have to get used to it.

Buyers need to do more preparation than ever before, including cleaning up their bank statements and reducing discretionary spending, ideally many months before applying for a loan, to get past the high scrutiny of living expenses we’re seeing today.

The No 2 challenge in FY2019 was the possibility of a change in federal government. That created uncertainty in the marketplace and there was concern around Labor’s proposed changes to CGT and negative gearing and how that would impact property prices and future investment activity. 

The Coalition win was a big surprise and the market breathed a sigh of relief. Agents and developers noticed an immediate lift in buyer enquiry and engagement in the week after the election.

Continuity of government and confidence in the Liberals’ economic management will play an ongoing role in property next year. Political certainty and stability will support market momentum.

In terms of predictions for FY2020, I think we’ll see both Sydney and Melbourne continue to turn. There should be a lift in first home buying given so much assistance is now available; and we might see some investors venturing back into property now that tax concessions will remain.

Record low interest rates will help many people make their next move, while also enabling owners to pay down debt. Making extra repayments while you can afford them can reap amazing benefits in terms of years and interest saved later. This is a worthy goal for FY2020.

I’m looking forward to an exciting new financial year in property.

 

Has the property market hit the bottom?

Tuesday, July 02, 2019

Believe it or not, this is actually an exciting time in the property market.  There is change in the air and great opportunity is beginning to present itself.  The biggest question buyers have in Sydney and Melbourne today is: “Are we there yet?”. In other words, have we hit the market floor?

After two years of falling property values in Sydney and Melbourne, plus some falls or softening growth in other cities as a result of credit tightening, I think the bottom is very close.  One thing I know for sure after 35 years plus in this industry – you’ll never know the bottom til it’s passed.

There is consensus among several experts that the election result – which meant no changes to property investment tax offsets, plus APRA easing serviceability criteria and interest rate cuts are going to bring the bottom forward.  Previously, most experts were suggesting mid-2020 as the likely floor. 

Cameron Kusher, CoreLogic’s Head of Research for Australia says: “We predict that price falls will settle later this year, followed by modest price growth starting from 2020.”

Louis Christopher, SQM Research’s Managing Director: “The bottom of the housing market is coming really soon. (The Liberal win, APRA changes and interest rate cuts) means demand for housing is likely to rise from owner occupiers and investors, who have been out of the market for some time now. The market shouldn't spike up but we should see price rises starting to occur later this year.”

Here are the factors changing market momentum…

·       APRA-led easing of assessment criteria for new loans, taking effect probably July/August

·       Best affordability nationally since 2016, with property in some cities and regions the most attainable it has been in decades, according to new CoreLogic/ANZ report

·       Official interest rate cuts – one down, one to go probably this month or next

·       Independent home loan rate cuts by the banks, especially on fixed loans, to attract new market share, with mortgage rates now tracking at their lowest levels since the 1960s

·       The election result/no changes to property investment tax offsets

·       First home buyer deposit scheme – no material change to market, just extra confidence (SQM Research predicts the initial $500M investment will translate to 6,000 transactions)

So, what’s going to happen to prices when the market turns? Don’t expect a dramatic change. Credit curbs as a result of the Royal Commission will continue and household debt remains high, plus we have some economic headwinds both in Australia and internationally that could impact confidence.

SQM Research believes price growth of +8-14% in Sydney and Melbourne over 2020-2022 is a reasonable expectation – but this might be conservative given developments in recent weeks. 

SQM Research released their three-year predictions back in March, based on three scenarios that included a potential Labor win, possibilities with interest rates and an unlikely Liberal win.

Based on negative gearing and CGT staying as it is, a stable economy and a collective 50-basis point cut in official interest rates, SQM Research predicted capital growth in every capital city across Australia over 2020-2022.

This is the exact scenario we find ourselves in now – A Coalition victory, a stable economy and a 50-basis point cut is the minimum expected at this point in 2019.  And remember, these predictions were made before APRA told us that loans would be getting easier for some people.  

Predicted price growth 2020-2022

·       Sydney +8-14%

·       Melbourne +8-14%

·       Brisbane +7-13%

·       Canberra +9-14%

·       Perth +9-17%

·       Darwin +0-9%

·       Adelaide +9-16%

·       Hobart +11-19%

Source: SQM Research, Labor’s Negative Gearing Policy – A Market Update, published March 21, 2019  

Over a three-year period, these figures are by no means big price growth expectations. They represent pretty normal growth that you would expect under normal market conditions.

I think buying conditions in Sydney and Melbourne right now are about as good as they’re going to get before the market turns.

The traditionally busy Spring season is just a couple of months away and now is the time to start planning your next move.

Selling in Winter provides a supply/demand advantage to vendors because new stock is always lower. Spring should bring many more listings to the market, providing greater choice for buyers who have already sold and are ready to make their next move.

 

Green your home for less

Tuesday, June 25, 2019

Soaring electricity prices and climate change are two hot button topics in Australia right now. Political leaders want to be seen to be doing something on both scores through various programs designed to help us pay our power bills and reduce our carbon footprints.

The latest offering came in the Victorian State Budget – a $1.3 billion upgrade to their existing Solar Rebate Scheme to help Victorians access cheaper energy.

They’re offering up to a $1,000 rebate on the purchase of solar hot water systems; and householders can expect to save up to $400 per year on electricity costs.

There’s also a point of sale discount of up to $2,225 on solar panel systems; and you can take out an interest-free loan to help cover the rest. The approximate saving on electricity bills is $900 per year.

In NSW, there are discounts for home owners replacing halogen downlights with energy efficient LEDs. Both the lights and costs of installation are subsidised through approved suppliers, with ongoing savings of $210 per year on 20 light replacements.

New schemes include the Empowering Homes Program, which provides interest-free loans for NSW home owners who purchase home batteries, with the first lot available for installation in late 2019.

Solar systems will also be installed for free in 3,400 low income pensioner or veteran households as part of a trial commencing later this year in parts of Sydney and along the north and south coasts.

All these offers sound great and help meet some of the financial and environmental concerns of home owners today.  But I see benefits beyond this.

Climate change, other environmental issues and the cost of living will undoubtedly become even more front of mind for buyers in the future. In today’s property market, buyers certainly appreciate green features but they’re not yet willing to pay much more for them. I believe this will change.  

People design their lifestyle around what’s important to them. We’ve seen this in the rise of apartment living – it’s more affordable, there’s plenty available in desirable suburban areas and they provide greater security and peace of mind for the increasing number of Australians who live alone.

The latest Federal Election proved that climate change and cost of living are rising concerns amongst the public and it’s inevitable that this will continue to translate through to how we all live.

In the future, homes with significant eco-features are likely to have high emotional appeal for a growing number of buyers who are increasingly mindful of their own carbon footprints.

Green features like solar hot water, solar panels, batteries, recycled water and fixed appliances with high energy efficiency ratings will become a big point of difference amongst other homes for sale.

Not only will buyers feel good about purchasing greener homes, they’ll also see value in the energy cost savings. Will a home with low running costs justify higher bids at auction? Depends on how emotional people get about saving the environment.    

So, here’s my advice.

Home owners should be taking advantage of today’s political pressure around power and climate to green their homes at a significantly reduced cost. There are many small and large rebates or discounts available, you just have to do a bit of Googling to find them.   

Green your home today and your power bills will be lower, you’ll feel good about contributing to the environment and you’re likely to see a capital growth benefit when you sell. That’s a win-win-win.

 

Buying just got easier

Tuesday, June 18, 2019

Buyers in Sydney and Melbourne have enjoyed almost two years of falling prices and many have been waiting until they see a floor in the market.

Over the last two weeks, a strong signal that the market has bottomed has appeared after the election result, which coincided with credit easing and talk of two rate reductions. And buyers have marched straight back into the market as a result.

The latest CoreLogic report reveals a continued easing in the rate of decline in both cities, with the market trough now expected sooner rather than later. Home values fell -0.5% in Sydney and -0.3% in Melbourne in May, which was the smallest decline in both cities since March 2018.

So, one or two rate cuts will provide further incentive for buyers to re-enter the market and give them confidence that the bottom has been reached.

I can’t emphasise enough the phenomenal opportunity today’s record low cash rate presents, not just for buyers but importantly, also for home owners and investors with debt.

We’ve never seen the cash rate this low. Compare today’s cash rate of 1.25% with that of June 2008 when it was 7.25%!  And remember that was the cash rate, not mortgage rates, which are always higher than the official rate.

Your mortgage will always be your single biggest debt and the lower rates go, the easier it becomes to pay some of it down.

Here’s the other big impact of the recently lowered cash rate (which is expected to go another 25 basis points lower very soon, by the way)…

APRA has recently told the banks that instead of using the 7-7.25% benchmark for serviceability assessments, they can now use a 2.5% buffer on top of their advertised mortgage rates instead. That means every cash rate cut should enable more loan approvals. 

This change hasn’t taken effect yet, with APRA still talking to the banks about how this will work. Probably around late June, APRA will formally announce how these changes will be implemented. So, stand by buyers, financing for your next purchase is about to get a little easier.

Some people might have noticed that many banks cut fixed loan rates in the week or so before the RBA cut.  

Continued speculation of a further RBA cut in August will assist in the Sydney and Melbourne markets re-gaining momentum this Winter.

This is an excellent time for borrowers to do a home loan health check, with the possibility of switching to a better deal after August.

Rates cuts of 0.25% sound small but they equate to thousands of dollars in savings for borrowers, particularly in the more expensive markets of Sydney and Melbourne where loans are higher.

 

5 economic elements impacting property

Wednesday, June 12, 2019

The health of our economy has a direct influence on property, with a multitude of elements impacting people’s confidence to buy, sell and invest.

Some elements are always a factor in people’s decision-making – they include interest rates and job security. Other economic issues only arise from time to time, like credit restrictions on loans.

So, let’s take a look at some of the most significant economic factors influencing our market today.

1. Availability of credit

Credit restrictions have strongly contributed to a -7.2% decline in national home values over the past year, according to latest CoreLogic data.

Credit flow is a crucial economic element because not only does it dictate whether people can buy at all, it also dictates what price level they can buy at. If buyers can’t get enough finance to achieve their next goal (usually upgrading), then they can’t make offers at a level acceptable to sellers. This means properties either don’t sell and are withdrawn from the market, or they sell for lower prices.

However, credit conditions are about to change and this will have a beneficial impact on both market activity and property prices.

What’s changed is that APRA has told the banks that instead of using a 7% benchmark interest rate to assess serviceability on all loans, they can now choose their own benchmark or simply add a 2.5% buffer to their advertised mortgage rates.

This means serviceability will be assessed at a more realistic level, enabling more people to get loans, translating to more demand in the market.

The other great aspect of this change is that with every rate cut from the RBA (two expected in total this year), the serviceability test will move lower too. The banks will be adding 2.5% to progressively lower mortgage rates (if the banks pass RBA cuts on), which means more people will qualify for loans.

2. Employment

People aren’t going to make major financial decisions when they’re worried about job security, however Australia is doing well in this regard with an unemployment rate of 5.1%.

The RBA wants to keep the unemployment rate low or even lower and some recent softening in the labour market is why interest rates are on the chopping block in 2019.

The return of the Liberal government is also good for job security because it’s the side of politics generally considered best for business.  When the business world is confident, companies are more likely to invest and employ more people.

3. Interest rates

Falling interest rates indicate a weakening economy – but buyers and sellers don’t care much because the benefit to them is so significant!

Unless jobs are at risk, lower interest rates will always buoy the property market.  Lower rates (now at a record low) mean people can more easily afford their loans and this is a big determining factor in whether to buy or sell.

With weak income growth right now, interest rate cuts provide a boost for owners and buyers.

4. Tax cuts

No matter who won the election, we were going to get tax cuts because the Federal budget is finally back to black. This is great news for our economy. The first round of tax cuts is due this financial year, with people earning up to $126,000 receiving $1,080 for singles and $2,160 for couples.

5. Confidence

We’ve gone from total exuberance between 2012-2017 in Sydney and Melbourne when prices were rapidly rising to a much more subdued attitude following significant falls of 15% plus.

Falling property prices make people feel less wealthy.  They get nervous and stay put. They don’t want to sell at a lower price; and they don’t want to buy if prices are going to fall further. So, they wait; and this means lower listing levels and less homes for sale and less demand in the marketplace.

I think confidence levels are definitely changing.  The return of the Liberals, who are seen as prudent economic managers;  no changes to negative gearing or CGT; APRA’s changes to serviceability criteria; and the likelihood of another rate cut by Christmas should all combine to boost sentiment.

It might even be enough to bring the end of this downturn forward.

If our economy keeps chugging along, then once people realise we have passed the bottom (you never know until it’s passed), owner-occupiers and investors will be looking for opportunity again.

By no means is this an exhaustive list, however these are the headline economic items I see as relevant to property today. By all accounts, things look positive. Sydney and Melbourne need good economic conditions to rebound and I think the stage is set whenever the market is ready.

 

Sydney's Metro North West a game changer for The Hills

Tuesday, June 04, 2019

More than 100,000 people lined up to try out the Sydney Metro North West Line on opening day on Sunday, May 26.

About 36km long with 13 stations between Tallawong Station at Rouse Hill and the Chatswood Interchange, the ‘turn up and go’ service provides an easier commute to the CBD within 1 hour from Rouse Hill, about 50 minutes from Kellyville and Bella Vista and 45 minutes from Castle Hill.

The north west is a crucial growth area for Sydney’s long-term future. It’s got the land we need to service ongoing population growth and the development of new communities, housing, schools, recreation areas, shops and job centres.

The NSW Government has rezoned large swathes of land to make way for this growth. The north west region is expected to contribute about 12% of the new homes needed in Sydney to meet demand over the next 20 years.

Major transport projects such as the Sydney Metro are critical to service the 250,000 people who will live in the north west once the region is fully developed.

Developers are proactively acquiring large parcels of land for residential development, particularly around Tallawong Station, not far from Rouse Hill Town Centre.

About 18,000 new homes are expected to be built by 2021 and 33,000 new homes by 2026. A lot of new apartments have already been built in close proximity to the stations.

Major business hubs are situated along the new train line, including Norwest Business Park and Rouse Hill Town Centre, both of which have their own stations. Our McGrath Rouse Hill office is situated in the Rouse Hill Town Centre and we think the Metro will be a game-changer for the area.

Agent Phillip Nicholas of McGrath Rouse Hill says 90% of today’s buyers ask him about the new train network. Many of them say they would never have considered buying in the north west without it.

Although there are growing job centres in the region, access to Sydney’s CBD remains important. The Metro North West will remove a major barrier for aspiring home buyers who would love to take advantage of the value out there but until now have perceived the city commute to be too difficult.

It’s a fantastic time to buy, with local property prices dropping in line with the rest of Sydney over the past couple of years. No doubt, the new train line will provide a boost to price recovery across the north west once the bottom of the market has passed.

Family homes, in particular, that are walking distance to brand new train stations will benefit the most.

Here’s what’s happened to house prices in the suburbs that now have train access for the first time ever on the Sydney Metro North West Line.

Median house prices

  • Rouse Hill: $1,031,000 (down from $1,160,000 at peak in 2018)
  • Kellyville: $1,102,500 (down from $1,230,000 at peak in 2017) 
  • Bella Vista: $1,508,500 (down from $1,736,000 at peak in 2017)
  • Castle Hill: $1,360,000 (down from $1,620,000 at peak in 2017)
  • Cherrybrook: $1,450,000 (down from $1,550,000 at peak in 2017)

Source: realestate.com.au

Anyone see opportunity here?

 

It’s a trifecta of positivity

Thursday, May 30, 2019

No changes to negative gearing and Capital Gains Tax (CGT); the strongest indication yet that the RBA will cut interest rates as early as next week; and APRA’s decision to lower the interest rate benchmark used for new loan serviceability tests is a trifecta of positivity for the property market. 

Credit restrictions have been the biggest challenge in the property market over the past 18 months. Even good quality loan applicants have had to wait longer for approval (often missing out on the property they want in the process) and/or adjust their budgets due to unexpected finance limits.

It’s meant that competition has dropped, leading to dips in home values across the country. Latest CoreLogic figures show price declines of -2 to -11% across the capital cities over the year to May with the exception of Adelaide, which was barely positive at +0.3%; Hobart +3.8% and Canberra +2.5%.

It’s had a particularly noticeable effect in Sydney and Melbourne because the banks got tight with credit right around the peak of the boom, so it has exacerbated the cyclical downturn and forced prices down faster than we’ve seen in other cyclic downturns for decades.

APRA’s decision to let the banks choose their own mortgage rate benchmarks rather than forcing them to continue assessing every applicant’s ability to repay their loan at 7% makes a lot of sense.

Interest rates have been low for a long time and there’s little doubt they’ll go lower as early as next week, so we’re well off the long-term average (which is above 7%) and probably will be for a while.

The 7% benchmark was introduced in 2014, during Sydney and Melbourne’s boom, to raise the standards of responsible lending. Following the Royal Commission, which scared the banks more than any other measure into becoming overly cautious with credit, APRA has judged that a high benchmark is no longer needed.

APRA’s decision isn’t a return to easy lending. They will still require the banks to use a minimum 2.5% buffer above their advertised rates to assess serviceability.

The change will reportedly equate to 9% more borrowing power. This will make a real difference in today’s market where prices have come off the boil and more value is already available.

If interest rates drop, which is highly likely next week following comments from the RBA Governor earlier this month, then that will mean even greater borrowing capacity.

This week I also want to talk about the Liberal Government’s First Home Loan Deposit Scheme, which will allow first home buyers to purchase with a 5% deposit with the government providing a guarantee on the remaining 15%. 

It will be available from 1 January 2020 to single applicants earning up to $125,000 or couples earning $200,000. It will be capped at 10,000 borrowers per year, with purchase price limits by region and they will still need to pass the banks’ serviceability tests.

This assistance will come on top of stamp duty concessions and first home buyer grants available in a number of states.

 

Right now, home affordability is one of the biggest challenges to millennials, especially in the larger cities where prices have skyrocketed. Many people who saved hard to accumulate even just a 10% deposit found price growth was increasing far more quickly than they could save.

These types of schemes will no doubt assist thousands of buyers to get into the market. But this will be a short-term sugar hit of sorts.

I believe the real solution lies in two areas.

Firstly, in supply where local and state councils need to be more progressive in their planning to accommodate appropriate medium density development in the right locations.

In a normalised market there continues to be a significant shortage of supply over demand.

And the second hidden factor are the outrageous costs levied on property by local, state and federal government.

If you look at the overload of taxes and contributions required to be made at the approval and development phase of new buildings and then add in stamp duty, land tax, capital gains tax and many others, it’s not surprising that the cost of property has been spiralling.

So I’m supportive of equity schemes but longer term, more sustainable measures need to be implemented if we are to create more opportunity for young Australians to enjoy home ownership.

 

How much will your house go up by?

Thursday, May 23, 2019

The return of the Federal Liberal Government is highly likely to benefit our property market. Not only do we avoid the significant disruption that Labor’s proposed changes to negative gearing and Capital Gains Tax (CGT) would have caused, we get the stability and continuity of national economic policy.

The Liberals have a track record of good economic management and their return to government will breathe some confidence into the property market. It’s not going to immediately reverse the current downward trajectory of prices, which is being driven by credit restrictions, but it will inject confidence.

The property market always takes a pause in the lead-up to federal elections.  This is because buyers and sellers don’t like uncertainty when they’re making major financial decisions.  Hopefully, the instability within the Liberal party is over and this win will see Scott Morrison running the country for the next three years with the same conservative economic agenda.

This will please most participants in the property market. Whether you support Liberal or Labor or some other party, I think we can all agree that stable management and economic growth is good for home prices. It’s also good for business, which provides the jobs we need to pay off our loans.

Due to the ambitious economic redistribution Labor was proposing, including tax changes for investors, it was likely that a Labor win would have extended the current downturn in home values.

Respected property market analytics company, SQM Research did some modelling in March showing how this might have played out.

If Labor had won and the negative gearing and CGT reforms had got through the Senate, coupled with a 50 basis point rate cut by early 2020, SQM Research predicted a weighted average capital city price drop of -4 to -8% between 2020 and 2022.

Conversely, with no tax changes and a 50 point cash rate drop, SQM predicted price gains of +8% to +14% by 2022. That’s a very significant difference.

Now the election is over, let’s take a look at what SQM Research predicts for your capital city market.  These predictions are based on a 50 basis point rate cut by early 2020, no property tax changes, a stable economy and less restrictive lending.

SQM Predictions (Home values)

  • Perth – Home values up +9% to +17% in 2020-2022
  • Brisbane – Home values up +7% to +13% in 2020-2022
  • Darwin – Home values up +0% to +9% in 2020-2022
  • Melbourne – Home values up +8% to +14% in 2020-2022
  • Sydney – Home values up +8% to +14% in 2020-2022
  • Adelaide – Home values up +9% to +16% in 2020-2022
  • Hobart – Home values up +11% to +19% in 2020-2022
  • Canberra – Home values up +9% to +14% in 2020-2022

SQM Predictions (Rents)

  • Perth – Rents up +8 to +13% in 2020-2022
  • Brisbane – Rents up +8% to +13% in 2020-2022
  • Darwin – Rents change -9% to +2% in 2020-2022
  • Melbourne – Rents up +4% to +10% in 2020-2022
  • Sydney – Rents change -2% to +5% in 2020-2022
  • Adelaide – Rents up +5% to +9% in 2020-2022
  • Hobart – Rents change -2% to +7% in 2020-2022
  • Canberra – Rents change +0% to +6% in 2020-2022

Source: SQM Research

The Liberal win will bring some confidence and certainty back to the property market. That’s the key gain here.  Just as important though, is the relief and opportunity it gives to property investors.

No changes to negative gearing and CGT…the chance to buy at a significantly discounted level (especially in Sydney and Melbourne)…when rents are starting to improve…and interest rates are likely to go even lower very shortly.  Now that’s opportunity – if you can get a loan.

 

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