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.

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. 

 

Why the big drop in Chinese offshore?

Thursday, March 14, 2019

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

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

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

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

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

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

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

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

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

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

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

-        Regular stamp duty of $31,490

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

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

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

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

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

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

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

 

90 minutes from the big smoke

Thursday, March 07, 2019

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

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

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

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

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

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

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

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

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

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

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

 

Regional vs City

Capital Growth Comparison

2009 – 2019

National 197.4%

Combined capital city markets 212.4%

Combined regional markets 150.3%

Sydney 201.9%

Regional NSW 185.6%

Brisbane 182.8%

Regional QLD 123.6%

Melbourne 274.6%

Regional VIC 179.5%

Adelaide 193.8%

Regional SA 125.1%

Perth 148%

Regional WA 77.5% 

Hobart 237%

Regional TAS 167.2%

Darwin 38.4%

Regional NT 129.5%

Canberra 230.7%


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

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

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

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

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

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

 

What 20 years in property can do

Thursday, February 28, 2019

There’s a recurring question in real estate…

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

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

Some new data from CoreLogic crystallises this message.

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

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

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

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

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

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

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

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

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

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

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

Capital growth over 20 years

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

2.     Canberra 230.7%

3.     Sydney 201.9%

4.     Regional NSW 185.6%

5.     Brisbane 182.8%

6.     Regional VIC 179.5%

7.     Regional QLD 123.6%

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

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

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

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

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

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

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

 

Property market mood changing

Friday, February 22, 2019

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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