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.

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.

 

Rents rise as investors exit

Thursday, May 16, 2019

There has been a seasonally strong increase in weekly rents across the country this year, with CoreLogic’s first Quarterly Rental Review for 2019 showing rents have gone up in every capital city bar Darwin, as well as many regional areas over the first quarter.

National weekly rents rose by 1% between January and March, which was the highest increase in 12 months. Hobart led the pack with an increase of +3.6% over the quarter, following by Perth (+1.8%) and Canberra (+1.5%). Darwin’s rents fell only slightly by -0.3%.

This result hints that the rental market might be tightening as less investor activity across the country starts to have an impact. Investor activity has decreased due to lending restrictions.

Initially, lending restrictions were only targeted at investors. In 2014, APRA introduced a limit on how many new investor loans banks could issue, followed by a second measure in 2017 limiting interest-only terms (preferred by investors) on new loans.

(Since then, the Royal Commission has led to increased credit caution across all lenders for all types of borrowers, so both investors and owner occupiers are now affected.)

As a result, investors have steadily left the property market. Latest ABS figures published by CoreLogic show investor activity has fallen to 18.2% nationally, well down from 30% in 2014 and well below the decade average of 25%.

As a consequence, it appears that rents are starting to rise. Less investor activity means less supply of rentals to provide homes for the 30% of our growing population that either chooses or is forced (out of financial circumstance) to rent.

Here are the figures from CoreLogic.

Rents rise in 2019

Sydney

Median rent: $582 per week

Rents up +0.5% in March 2019 quarter

Rents down -3.1% over the year

Canberra

Median rent: $550 per week

Rents up +1.5% in March 2019 quarter

Rents up +3.6% over the year

Melbourne

Median rent: $454 per week

Rents up +1% in March 2019 quarter

Rents up +2.1% over the year

Brisbane

Median rent: $436 per week

Rents up +0.8% in March 2019 quarter

Rents up +1.4% over the year

Perth

Median rent: $385 per week

Rents up +1.8% in March 2019 quarter

Rents up +2.1% over the year

Adelaide

Median rent: $386 per week

Rents up +0.8% in March 2019 quarter

Rents up +1.2% over the year

Hobart

Median rent: $453 per week

Rents up +3.6% in March 2019 quarter

Rents up +5.4% over the year

Darwin

Median rent: $458 per week

Rents down -0.3% in March 2019 quarter

Rents down -5.7% over the year

Source: CoreLogic Quarterly Rental Review, March 2019

What’s happening now is a precursor to what we can expect there are changes to negative gearing post the federal election.

Should negative gearing be removed for anyone purchasing an established property for investment after January 1, 2020, we will see a further decline in investor activity. That means softer sale prices, particularly for apartments; and rising rents.

There will be a big impact in Sydney and Melbourne especially, where property values make it almost impossible for many borrowers to invest with neutral or positive cash flow.

Negative gearing is a tax benefit that investors get to help them manage losses each year. But it does encourage increasing rental housing stock to serve a continually increasing population.

Other options that require less capital are likely to become much more appealing to future investors. While they flock to shares, bonds or managed funds, we will lose valuable rental housing. That means renters – the young and/or lower to middle income earners will pay the real price for this policy.  

Of course, rising rents have a flipside. It might be bad news for tenants but obviously great news for existing landlords.

The Quarterly Rental Review revealed a national gross rental yield of 4.1% for the first quarter of this year, compared to 3.95% in the December quarter and 3.77% a year ago. This is the highest national yield recorded since May 2015.

Across the combined capitals, the average rental yield is up from 3.5% a year ago to 3.8% today. Regional yields are much higher at 5.1%, up from 4.9% a year ago.

Nationally, the median rent is $436 per week. The combined capital city median is $465 and the regional median is $378.  Sydney is the most expensive at $582 per week.

While investor activity has been declining, first home buying has been picking up with more than 110,000 young Australians buying their first homes in 2018.

Various stamp duty savings across the states and the national super saver scheme have led to the highest number of first home purchases since 2010.

There is now a proposal on both sides of politics to fund a new national equity scheme that would allow first home buyers to buy their first property with just a 5% deposit, subject to property price caps on a region-by-region basis.

It seems to me that rising rents plus more government assistance for young buyers should further boost first home buying activity across the country.

 

Prices still falling but not as fast

Thursday, May 09, 2019

The rate of decline in home values across Australia has slowed this year, with four consecutive months of figures proving a change in market conditions. 

While the downturn is not yet over and prices are still falling, they’re not falling as fast as before. This is a good indicator that the market might be nearing its floor and we’re through the worst of it. 

CoreLogic data show national home values (houses and apartments combined) have been trending lower since the peak in September 2017, with the worst monthly fall in December last year at -1.1%. Since then, we’ve seen a change.

In January, prices fell -1.0% but then slowed to -0.7% in February, -0.6% in March and -0.5% in April. 

Let’s compare to Sydney.  Prices peaked in July 2017 and have declined pretty quickly. The worst monthly fall was also December with a -1.8% dip. Price falls have since progressively slowed to -0.7% in April. 

There is the same trend in Melbourne.  Prices peaked in November 2017. The worst monthly price drop was January this year at -1.6%. The pace of decline has since slowed to -0.6% in April. 

Alongside this, we’ve seen higher auction clearance rates this year, holding around mid-50% in our big city markets; and there was an increase in lending to home buyers in February, according to latest ABS data.

Put this altogether and while it’s not enough to call the bottom, there’s definitely been a shift.

Sydney and Melbourne buyers should see this as an opportunity.  We’ve seen significant price falls and CoreLogic data shows the typical house is $120,000 cheaper now compared to the peak in both cities. 

The savings are even bigger in the best suburbs where prices have fallen the most. Home values in the upper quartile are down -13.7% in Melbourne and -11.8% in Sydney.  This provides a great chance for families wanting to upgrade to a preferred neighbourhood or school catchment.

There’s also opportunity for investors in today’s market.  Investment activity is well down due to credit restrictions and smaller yields following strong price growth in 2012-2017. However, looking long term, there’s value buying out there today and potentially limited time left to negatively gear. 

If Labor wins the election, investors will have to weigh up the long-term benefits of buying now at a more affordable price, having negative gearing grandfathered on their investment; and paying less capital gains tax when they sell versus waiting until after January 1, 2020 and hoping prices fall further.

This has not been a run-of-the-mill downturn. Prices have fallen at a faster pace with credit restrictions exacerbating a normal change of cycle in Sydney and Melbourne. Sydney values are down -10.9% and Melbourne -10.0% over the past 12 months. That’s not catastrophic. 

CoreLogic reports “some tentative signs that credit flows have improved, albeit from a low base” and this will be important in the recovery. The high likelihood of an official interest rate cut this year will further boost market sentiment.  

The unknown element is the Federal election. No matter who wins, the market will be affected. Proposed Labor policy will lead to a fall in prices, especially with apartments; and a rise in rents.  If the Coalition wins, I think the market is more likely to stabilise sooner. 

The top and bottom of the market never becomes clear until after the event. I think today’s buyers are in the best position possible to purchase their next home or investment at more affordable prices, with a view to holding for the long term and reaping the rewards of reliable capital growth. 

 

5 reasons why more Aussies are relocating

Thursday, May 02, 2019

Recent population data published by the Australian Bureau of Statistics and analysed by CoreLogic shows 394,200 interstate arrivals nationwide in the year to September 2018, just shy of the 30-year record of September 2003, when 397,200 people undertook interstate relocations. 

Here are some key reasons why Australians are increasingly willing to make a big change in where they live. 

1. Cheaper house prices

Lower house prices are always a key reason for people relocating from the big cities, primarily Sydney and Melbourne. It’s no surprise that record high interstate migration coincides with the final years of property booms in these cities.

In the year to September 2018, NSW recorded its biggest net loss of residents in a decade, with 22,113 people leaving Australia’s biggest city for greener pastures.  

Some departees head to other major cities, such as Brisbane or the Gold Coast, where there are employment opportunities and homes are cheaper.  Others go to regional cities where wages are not so different from the big cities in many industries but house prices are vastly lower.

2. It’s about lifestyle

The increasingly hectic hustle and bustle of our two biggest cities are starting to play on people’s nerves. Many mums and dads in Sydney, in particular, complain of long commutes to work – exacerbated by ongoing population growth, resulting in less time with their families at home.

Life in regional areas is much easier, with work and recreation options all a short distance away. Many of our regional agents are meeting many city departees who are citing traffic and overcrowding as major reasons for their relocation away from the big CBDs, with cheaper house prices secondary.

3.     Let’s talk about the weather

Weather is also a factor in some interstate migration, with the well-worn path from Melbourne and Sydney to South-East Queensland still a popular choice amongst young families, downsizers and retirees.

The data showed arrivals from NSW and Victoria to Queensland were at their highest levels in around 15 years. NSW arrivals alone accounted for almost half of the Sunshine State’s total interstate arrivals in the year to September 2018.

It is also interesting to note that arrivals from NSW and Queensland to Tasmania, where the weather is noticeably cooler, were also at their highest levels since 2004 and 2008 respectively.

Australians have traditionally always chased the sun but perhaps climate change impacts, such as more 40-degree days in summer, might persuade more people to venture south in future years?   

4. And then there’s transport improvements

We continue to see families from Sydney and Melbourne moving to commuter towns within 90 minutes of the CBD, such as the Central Coast and Wollongong in NSW and Geelong and Ballarat in Victoria, where homes are cheaper and better transport makes commuting easier than ever before.

Semi retirees or senior executives who only need to be in the CBD periodically are increasingly seeking a change of pace in lifestyle locations such as Port Macquarie, Byron Bay and the Blue Mountains, where improvements in air services and roads have enabled a faster commute.

5. Technology and work flexibility changes

Advances in technology are allowing many people to escape the big city life and commence start-ups in beautiful lifestyle locations.

Forward-thinking organisations are also allowing more flexible work arrangements, such as letting some employees work from home. In such cases, many families have relocated to lifestyle areas that have easy transport options back to the cities. All they need is a strong broadband connection.  

Australia is a beautiful country that enables any individual or family to discover their dream lifestyle.

Advances in technology, workplace reform and improving transport are giving us many more options than previous generations who needed to congregate in the traditional job hubs of our capital cities.

 

What happened in 1985-87

Tuesday, April 23, 2019

Last week I discussed the risks to everyday Australians that I see in the changes to negative gearing and capital gains tax proposed by Federal Labor if it wins the election.

In short, Labor intends to abolish negative gearing on established investment properties purchased after January 1, 2020 and halve the capital gains tax discount for long term investors. 

The likely impact will be a reduction in property values in some segments of the market – particularly apartments and sub-$1 million houses across Australia, as this is the typical stock of investors so these are the properties that will experience a loss in buyer demand.

However, the biggest impact will be felt by tenants! Fewer investors means a reduced supply of rental homes to serve our rising population. Simple supply and demand metrics mean rents will rise.

The property ecosystem is finely balanced with buyers, sellers, landlords and tenants all being impacted by legislative changes.

If we lost even 10% of the buyers who currently invest in residential property because a change in negative gearing locks them out of investment, it would be horrendous for every tenant in Australia.

A reduction in investment stock of that magnitude would put enormous pressure on current rents and materially impact the cost of living for more than 30% of Australians who live in rental accommodation.

Respected property market analytics company, SQM Research has done some modelling that reveals the likely impact on rents in every capital city should Labor’s property tax changes go through.

Rental forecasts 2020-2022

  • Sydney up 3% to 10%
  • Melbourne up 9% to 15%
  • Brisbane up 13% to 22%
  • Perth up 12% to 20%
  • Canberra up 4% to 10%
  • Adelaide up 9% to 15% 
  • Hobart up 0% to 10%
  • Darwin -1% to 4%

Source: SQM Research – figures based on implementation of Labor property tax policies & no cash rate change 

As mentioned last week, we do have a precedent for how a repeal of negative gearing could affect the property market. Labor tried it once before in 1985. The policy remained in place for just 28 months from June 1985 to September 1987.

A recent report by SQM Research details what happened.

  • Increasing rents above national CPI in five out of eight capital cities from June 1985 – September 1987
  • Perth was the worst affected with rents rising 33.5%, well above CPI of 20.6%
  • Rents also increased above CPI in Sydney 31.4%, Canberra 23.9%, Melbourne 22.9% and Hobart 22%
  • Vacancy rates dipped in Sydney, Melbourne and Brisbane, which meant fewer rental properties were available for rent, heightening competition and pushing rents higher
  • Brisbane’s vacancy went from 3.7% in June 1985 to 2.2% in September 1987 and just 0.7% in March 1988
  • Sydney’s already tight vacancy rate of 1.1% in June 1985 fell further to 0.8% in March 1987. Melbourne’s vacancy ranged from 1.9% to 2.4%, still well below a balanced market of 3% 
  • There was a sharp decline in new housing commencements from 39,348 new dwellings in the June quarter of 1985 to 30,067 in the September quarter of 1987

Of course, other market factors were at play during this 28-month period that contributed to the rise in rents, such as a shortage of rental stock in Sydney and a rise in average home loan interest rates from 11.5% in June 1985 to 15.5% in May 1986, followed by interest rate cuts from September 1987.

However, SQM concludes that these other market factors do not explain the immediate acceleration in rents after negative gearing was abolished.

This is one of those elections where the result is going to have a big impact on the property market either way.

We are already seeing an impact, with some long-term landlords choosing to sell now in anticipation of falling prices from next year if Labor wins. They want to lock in recent boom time capital gains and give themselves options for alternative future investments.

On the flipside, some people are aiming to buy investment properties ahead of the January 2020 deadline so they can retain the right to negatively gear and pay less capital gains tax when they sell.

It is really worth your time to properly consider the ramifications of Labor’s proposed changes and how it could impact your current investment position and long-term plans for wealth creation.

 

The risks to everyday Australians in Labor’s property tax policy

Thursday, April 18, 2019

Property is the vehicle that most Australians have utilised to secure financial freedom for themselves and future generations.

Investing in a property beyond the family home has been a safe, easy-to-understand and easy-to-execute wealth plan that has delivered robust, long-term security for generations of everyday Australians.

Puffery that suggests property investment is a haven for the wealthy to park funds and reduce tax is far from the reality that I’ve observed for over 35 years in real estate.

I’ve seen thousands of everyday Australians secure an investment property with a modest deposit and enjoy the long-term benefits of holding it for one or two economic cycles or 10 to 20 years.

In the process of them securing their long-term financial security, this has also provided much needed rental accommodation for millions of Australians.

The local, state and federal taxes and costs associated with buying, holding and selling property, including stamp duty, income tax, local Government taxes and capital gains tax are already enormous.

Most property investors don’t negatively gear their investment as a cute way to reduce their tax, they do it as it’s the only way they can afford to secure an investment property.

Federal Labor’s proposed legislation to remove negative gearing from certain property types could see the killing of the goose that has laid millions of golden eggs for everyday Australians.

With the election fast approaching, let’s re-cap what Labor is proposing.  

  • If Labor wins the election, they intend to abolish negative gearing for established properties purchased for investment from 1 January 2020. Any purchases after this date can only be negatively geared if they are brand new or off-the-plan properties.
  • All properties negatively geared prior to January 1 will be grandfathered, which means these investors can continue to use negative gearing on that investment.
  • Labor intends to cut the capital gains tax discount from 50% to 25% for all investors after January 1. The discount applies to investors who hold their assets for more than one year.
  • Investors who owned assets prior to January 1 will receive the original 50% discount.

Latest statistics released by the Australian Taxation Office in March show there were 2.16 million landlords in Australia in 2016-17.  An overwhelming majority (71%) owned just one rental property.

Among these single property owners, 60.5% were negatively geared, 43% earned less than $50,000 per year and 29% were aged under 40. These are ordinary Australians who aren’t rich but are trying to get ahead using property. 

Labor’s key message is that getting rid of negative gearing and reducing the CGT discount will make property more affordable for first home buyers.  More affordable means cheaper, so they expect property prices to go down. Fewer investors means less rental supply, so rents are likely to go up.

The long-term impact of reduced property investment will mean that far fewer Australians will ever live their dream of financial freedom, impacting both current families and future generations.

In the meantime, tenants will bear the brunt of these changes with a projected 8-15% average increase in rents over 2020-2022, according to modelling by SQM Research*.  For someone paying $500 per week, that means an extra $40 to $75 per week to keep a roof over their heads.

Those aged under 35 might be unaware that we actually have a precedent for all this. Next week, I’m going to tell you what happened in 1985-87 when the Hawke Labor Government got rid of negative gearing. The impact was so bad, the policy was reversed just over two years later.

*Estimated average weighted rise in rents across the capital cities if interest rates remain the same and Labor tax policy proceeds.

 

More young women buying property

Thursday, April 11, 2019

When I started in real estate in the 1980s, it was very rare to conduct an auction and have a 28-year-old female on her own buy the property. Today, it’s normal and right now it seems that falling prices are inspiring more young women than men to buy their first home or investment.  

Many young women today are independent, financially secure and career-oriented. They have no plans for a family before age 30 and buying a property is often their priority ahead of what can be an expensive wedding.

Women equate property with security and are increasingly viewing home ownership as a sign of their success.

More women than men intend to buy a home or investment property over the next five years, according to Westpac’s 2018 Home Ownership Report.

The report revealed that a survey of 1,047 home owners and first home buyers found 28% of all women were looking to buy a home for themselves over the next five years, compared to 20% of men; and 16% were looking for an investment property compared to 13% of men.

The report mirrors long term trends revealed in the ABS Gender Indicators report published in 2017, which shows 60% of all Australian women live in homes they own either outright or with a loan compared to 56% of all men. The gender gap is slightly wider amongst younger Australians, with 26% of women aged below 35 years having a mortgage compared to 20% of men in the same age bracket.

Young female buyers are often well educated and clued in on the economy. They’re looking to make smart decisions with their money.

With Sydney and Melbourne property values down 10-15%, I think it’s an especially great time to buy in our two biggest markets. Looking ahead, I have no doubt that capital growth will continue in these two cities due to the many unique fundamentals supporting home values, including the undersupply of housing and ongoing population growth.

The Australian economy is in good health, with very low unemployment and the first federal budget surplus in 12 years forecast for 2019-20. Economic health is inextricably linked with the property market. A good economy creates confidence to invest in assets.

Young women are increasingly recognising what property can do for them. The Westpac survey found 43% of female first home buyers strongly believed that owning your own home was a ‘reflection of your success in life’, up from 34% the year before. About a third (31%) strongly believed that property was ‘a pathway to wealth’, up from 28%. 

One in five young female first home buyers (22%) were also considering buying an investment property over the next five years compared to one in 10 male first home buyers (11%).

This trend is reflected in new tax statistics released in March by the ATO, which gives a comparison of the number of female property investors compared to male investors earning less than $100,000.

-        In NSW, 209,254 females reported rental income compared to 195,291 men

-        In VIC, 158,231 females reported rental income compared to 150,621 men

-        In QLD, 144,722 females reported rental income compared to 106,506 men

It is clear that young women will continue to be a driving force in the Australian property market.

 

Wiggle, wiggle, wiggle room… just a little bit

Thursday, April 04, 2019

In falling markets like Sydney and Melbourne, today’s buyers have much more wiggle room when it comes to negotiating price. But how much exactly?

We all know that median house prices in both cities are down 10-15% but buyers shouldn’t automatically apply this to asking prices. The wiggle room is less than this and I’ll explain why.

Most vendors have now accepted that the market has dropped and they have adjusted their price expectations accordingly, which means some of that 10-15% has already been factored in when a property hits the market with an initial asking price or auction guide.

A recent report from CoreLogic gives a clearer picture of the wiggle room available for buyers.

The report covers the median vendor discount in every capital city. The vendor discount is the percentage difference between the initial asking or advertised price and the actual sale price.

In Sydney, the median vendor discount over the three months to January was -7.5%.  Very generally speaking, this is how much vendors are willing to negotiate with to get a sale.

This figure provides a clear demonstration of the negotiating power of buyers, with today’s discount actually larger than was recorded during the GFC. Just a year ago, vendor discounting was much lower at -4.8%.

In Melbourne, the median vendor discount is -7%. That’s twice what it was 12 months ago and the highest vendor discount ever recorded for the city.

There’s less wiggle room in other capital cities but those that are weakening (i.e. those with increasing vendor discounts) are doing so much more slowly than Sydney and Melbourne. 

·       Brisbane has a median vendor discount of -5.3% compared to -4.4% a year ago

·       Adelaide has a median vendor discount of -5.3% compared to -4.8% a year ago

·       Perth has a median vendor discount of -6.4% compared to -6.5% a year ago

·       Hobart has a median vendor discount of -4.2% compared to -3.8% a year ago

·       Canberra has a median vendor discount of -2.9% compared to -2.3% a year ago

Source: CoreLogic. Darwin excluded due to very low sale volumes

Market conditions in many regional areas have weakened in 2019, with home prices falling over recent months. This has led to larger vendor discounts everywhere except regional Tasmania.

·       Regional NSW has a median vendor discount of -4.9% compared to -4% a year ago.

·       Regional VIC has a median vendor discount of -4.3% compared to -3.8% a year ago (although higher over the past year, today’s discount is actually much lower than in recent years).

·       Regional QLD has a median vendor discount of -6.7% compared to -5.3% a year ago.

·       Regional SA has a median vendor discount of -6.8% compared to -6% a year ago.

·       Regional WA has a median vendor discount of -8.2% compared to -7.7% a year ago.

·       Regional TAS has a median vendor discount of -4.4% compared to -4.6% a year ago.

CoreLogic says housing markets across the country are continuing to deteriorate but all at a different pace. There are fewer buyers but more homes for sale, so vendor discounting might increase further over coming months.

In softer markets, vendors need to listen to their agents and pay attention to comparable sale prices.

The temptation to start your campaign with a ‘dream’ asking price will backfire in these market conditions. Your property will be seen as an ‘old listing’ the longer it is advertised, which reduces its appeal to both current and new buyers in the marketplace. You need to start with a realistic price.

During the campaign, buyer feedback will provide the best indication of whether further price adjustments are needed to achieve a sale.

Good agents will always communicate buyer feedback to their vendors openly and honestly. This is the most important and reliable way of determining a likely ballpark sale price.

If vendors are realistic, flexible and responsive to feedback, agents have a better chance of generating enough buyer competition to flush out the best price possible for their clients.

 

Is it the right time to buy yet?

Thursday, March 28, 2019

In challenging markets, it can be very hard for people to see the opportunities they present.

We know Australian property is a safe and reliable asset class that will always do well if you buy quality homes and investments in desirable locations and hold for the long term.

There will be times when we have buyers’ markets, like we do now in Sydney and Melbourne; and there will be times when we have sellers’ markets, like we did in both cities between 2012-2017.

Every time a boom comes around, we are reminded of the capital growth property can achieve. People kick themselves for not buying five or 10 years ago as they see prices going up and up. Then, the market inevitably turns and people forget that lesson. They huddle amongst the herd where they gain comfort from doing nothing. That’s how people miss opportunities.

You should always buy property for the long term. Generally speaking, I encourage buyers to forget about market timing and focus on personal timing. Simply buy when a great property comes along that is within your budget and then hold it for the long term to catch the next wave or two of major growth. 

But if I had a crystal ball, I’d tell you the best time to buy is either week one of a two or three-year boom or the final week of a downturn. I reckon Sydney and Melbourne are close to their floors and this means there is ripe opportunity for buyers who are willing to go against the crowd.

Granted, this isn’t easy to do.  If you’re looking to buy today, you’ll probably have at least one parent plus a few siblings, friends and colleagues telling you “you’re crazy”.  Some will say the mythical bubble is about to burst, others will tell you that prices are likely to drop further and it’s best to wait.

Problem is, no one can pick the bottom.  Not even those of us with decades of experience in the market. Your best play in Sydney and Melbourne today is to buy a high quality asset, when a really good one becomes available, within your budget at the 10-15% discount available right now. 

How today’s buyers are benefitting in the falling market

·   Prices are 10-15% down, so you’ll pay less than what many other buyers were willing to pay a year ago. (The fact they were willing to pay those prices and the banks were willing to lend on those valuations should give you comfort that prices will go back to those levels again).

·   You’ll have far less competition, with most auctions only attracting one or two bidders.

·   Interest rates remain very low and there is wide speculation of one or two cuts in the near future due to concerns over stalling economic growth and reducing consumption. If you can buy your first property at a time of low interest rates, you have a big advantage as it’s those first five years that are most expensive – when the bulk of your P & I repayments are covering only the interest, with just a little bit paying down the principal.

If we dig down to buyer groups, I’d say first home buyers and upgraders will benefit most from today’s market conditions.

First home buyers who have been saving for a long time and have loan pre-approval (arguably easier for them because mum and dad are often chipping in or going guarantor) have a great opportunity to buy.

In Sydney and Melbourne, these young buyers usually look to apartments for affordability. Right now, they can pick up good quality properties at a great discount with a very manageable mortgage due to low interest rates.

An impending oversupply of new apartments will provide greater choice and there are generous grants and stamp duty discounts in both NSW and Victoria to take advantage of. They’re generous offers and won’t be around forever.

Upgraders who are selling and then buying back into the same type of market can also do very well. If you sell a $1.5m property for 10% less, you are selling at a $150,000 discount to the peak. If you’re buying a $2m property for 10% less, you’re buying at a $200,000 discount.

Buying property is one of the key avenues for wealth creation in our country. It is smart to keep your eye on the market and regularly consider whether current conditions present an opportunity for you to buy, sell or invest. In my view, now is a really good time to consider that proposition.

 

Do auctions still work in this soft market?

Thursday, March 21, 2019

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

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

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

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

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

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

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

Benefits of auction for sellers in hot and cold markets

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

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

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

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

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

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

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

 

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