The Experts

Mcgrath_expert_normal
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.

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.

 

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.

 

MORE ARTICLES

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

More young women buying property

Wiggle, wiggle, wiggle room… just a little bit

Is it the right time to buy yet?

Do auctions still work in this soft market?

Why the big drop in Chinese offshore?

90 minutes from the big smoke

What 20 years in property can do

Property market mood changing

What the Royal Commission report means for buyers

The future of Aussie apartments – lookin’ good!

Big infrastructure re-shaping East Coast cities and the ACT

Two big questions for the property market in 2019

What's ahead for property?

Paid a fortune for your property? What should you do?

My top 5 suburb picks

Does flipping work?

Close to the bottom

Has Uber Eats shrunk the kitchen?

Regional is the new black

House prices in the nation’s capital

Jewels in the crown

Do you call that a cut?

How hot are Brisbane, the Gold Coast and Sunshine Coast?

Sydney will sizzle in some suburbs

The first time ever I bought my home

House prices to drop 40%

Is it safe to get a loan from a small lender?

Winners and losers in top suburbs

How to spruce up your property for an early sale

SOLD! By auction or private treaty?

What are the top growth suburbs across Australia?

West side story

Why are luxury apartments booming in Brisbane?

Why buy property this Spring

Big city income, small town lifestyle

Where are the buyers?

Why selling in winter works

Your end of financial year property round up

What's different about this market slow down?

How low will Sydney and Melbourne prices go?

Top Performing Suburbs of Past 25 Years

City escapees and where they’re moving

Australia's golden triangle of opportunity

Western Sydney Airport brings investment opportunities

Top 10 most popular suburbs for immigrants

Budget targets traffic congestion to improve city living

What happens if your property passes in?

More property listings selling pre-auction

More homes for sale weakens auction clearance rates

Geelong leads regional growth as city dwellers escape stress

Retirement the top priority for property investors

How to buy in Sydney

First time home buyer hot spots in NSW

Growth slows but not in top tier suburbs

Australia's doom prophecy déjà vu

Surge in auction bookings for March

How immigrants are shaping our suburbs

Property trend: The rise of vertical high streets

How do we make housing more affordable?

Changing the way we use our homes

What’s next for Sydney in 2018?

What’s next in the cycle?

The transformation of regional hubs

Biggest property boom winners

High hopes for property in our nation’s capital

South East Queensland – property hotspot

The Melbourne property market outlook

An overview of the Sydney property market

Top 5 suburb picks for greatest capital growth potential

Australia’s top retirement destinations

Time to take stock of housing debt

Spring property so far

Australia's population growth hot spots

Record level of $1 million-plus sales

Stamp duty cuts working for first time buyers

How to rent with a pet

Winter wrap-up – prices levelling out

Tips for Spring sellers

Lack of pet-friendly homes to buy or rent

More kids in public schools raises property prices

More sellers are choosing auctions

Why more Sydney and Melbourne home owners are selling now

Investors depart, first home buyers return

Census insights into property

EOFY property round-up

Sydneysiders moving out

What the NSW Budget means for home owners

Changing nature of apartment developments

NSW affordability package: Stamp duty savings

South East QLD: The value lifestyle choice

Don’t panic! The property bubble isn’t about to burst!

Are Sydney and Melbourne at their peak?

How the Federal Budget will impact property

Australia's most affordable suburbs

Sydney and Melbourne decouple

Capital city hot spots of the past 5 years

Goal posts move on interest-only loans

First quarter results: Which city took top spot?

New first home buyer assistance in Victoria