The Property Report AUTUMN 2019 - The Agency

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The Property Report AUTUMN 2019 - The Agency
AUTUMN 2019

The Property Report
The Property Report AUTUMN 2019 - The Agency
PROPERTY REPORT

                                                                        In good news though, we have seen a strong start to the year in
                                                                        terms of the volume of sales, and homes selling that remained on
                                                                        the market from late last year. There has also been considerable
                                                                        buyer activity, with a re-calibration between seller’s price
                                                                        expectations and that of home buyers.

                                                                        As reported by CoreLogic, national dwelling values dropped by
                                                                        0.6 per cent in March, which is a 7.4 per cent decline since the
                                                                        property market’s peak in October 2017. To put this in perspective
                                                                        though, most home owners are still in a strong equity position.
                                                                        Despite the decline over the last year and a half, national dwelling
                                                                        values still sit 15.9 per cent higher than they did five years ago.
                                                                        The property market has always been cyclical and should never be
                                                                        viewed as a short-term investment.

                                                                        CoreLogic’s Head of Research, Tim Lawless, has also noted that
                                                                        the rate of property value decline has slowed in 2019 from its
                                                                        height in December 2018, when home prices fell by 1.3 per cent
                                                                        across the capital cities**. In fact, the rate of home value decline
                                                                        across the nation has slowed again in March, 0.6 per cent is the
                                                                        smallest decline since October 2018 when values fell by 0.5 per cent.

                                                                        Across Australia it continues to be a market of highs and lows.
                                                                        We are still seeing suburb records broken in some postcodes and
                                                                        reserves blown away at competitive auctions, while in others,
                                                                        values have been harder hit. In this report we take you through our
Welcome to The Agency’s autumn 2019 property report. Over               core markets of Sydney, Perth, Melbourne and the Gold Coast,
my 30 years in real estate the two key levers I have observed           providing key property insights and investor advice.
affect property prices have been the rate of employment and
                                                                        Please contact our team with any property questions you may
interest rate levels, but today we are seeing a third lever, that
                                                                        have, our agents are here to help. We hope you enjoy this update.
of tighter lending criteria.

Interest rates are at record lows and unemployment is at the            Matt Lahood,
lowest rate since June 2011, at 4.9 per cent February this year,        CEO The Agency
according to the Australian Bureau of Statistics. But it is the
buyer’s ability to obtain finance and uncertainty around property
valuations in the current market, that we are seeing impact prices.

Post the Financial Services Royal Commission the big four banks
have cited the Commission’s recommendations as a contributing
factor in the credit squeeze, in particular ANZ CEO Shayne Elliott
and NAB’s incoming chairman Philip Chronican. In response,
ASIC Chairman James Shipton refuted these claims, stating the
responsible lending laws have been in place for more than a decade*.

While the financial services regulatory bodies, ASIC and APRA,
and the major banks work their way through to a balanced lending
approach, the property market will continue to feel the effects         *The Australian Financial Review 28.3.19
of this process.                                                        **The Australian 29.3.19

                            Capital city auction statistics CoreLogic data week ending 4th April
                                                                                                                                                Cover Photo - 27 Ashton Street, Queens Park

              City                   Clearance Rate        Total Auctions   CoreLogic Auctions      Cleared Auctions      Uncleared Auctions
             Sydney                      54.3%                  801                  685                    372                    313
           Melbourne                      52.1%                 978                  851                    443                   408
            Brisbane                     33.5%                   195                 161                    54                     107
            Adelaide                     53.9%                  106                   89                    48                     41
              Perth                      40.9%                   24                   22                     9                     13
            Tasmania                       n.a.                   3                   1                      1                      0
            Canberra                     39.6%                   57                   48                     19                    29
       Weighted Average                  50.9%                  2,164               1,857                   946                    911
            Regional
           Gold Coast                     21.3%                  52                   47                    10                     37
The Property Report AUTUMN 2019 - The Agency
SYDNEY

In positive news for the Sydney market
the auction clearance rates have lifted.
At the end of 2018, we saw the clearance
rate fall well below 50 per cent. In
fact, CoreLogic reported that it had
plummeted to as low as 38.8 per cent in
the lead up to Christmas. However, for
the past few months, it has consistently
reached over 60 per cent and has even
touched 70 per cent some weekends
during March 2019.                               3 Balmoral Avenue, Mosman
In blue chip areas such as Sydney’s Lower
North Shore and Eastern Suburbs, we’re          50 groups throughout the course of each        McGlynn’s advice to any buyer in today’s
seeing even higher rates being recorded.        campaign. This tends to show there is still    market is that they shouldn’t hold off in
On March 20, the Wentworth Courier              genuine buyer interest in the market. By       the hope prices will fall further. “Not only
reported that 75 per cent of the homes          way of comparison, during the property         is it unclear that this will happen, the risk
listed for auction that week were sold at, or   slump in the Global Financial Crisis we        of losing money is minimal if you intend to
prior to auction. One day later, the Mosman     were lucky to have 15 groups through an        hold the property for at least five years and
Daily reported a figure of 88 per cent.         open home.                                     through another market cycle.”
These kinds of numbers are usually              “On the other hand, with the odd suburb        For potential sellers, now is a great time to
indicative of a strong – or even hot –          exception, there has been no corresponding     either upsize or downsize. There are still
property market, where demand far               lift in median property values,” Thomas        strong prices being achieved across all
outstrips supply and prices begin to rise.      McGlynn explains. “What this shows is          segments of the market and suburb records
But that’s not necessarily what’s happening     that sellers have recalibrated their price     being broken.
now, says The Agency’s National Director        expectations and are willing to accept an
of Sales, Thomas McGlynn.                       offer on their property they would not have
“This year, we have been averaging around       accepted in 2018.”

                                                                                               “This is the light at the end of the tunnel,”
                                                                                               Stuart Cox says. “Due to the population
                                                                                               starting to grow again, people are now
                                                                                               looking to rent. The vacancy rate in Perth
                                                                                               is 2.9 per cent and our vacancy rate [at The
                                                                                               Agency] is two per cent. We expect rental
                                                                                               prices to increase as a result of this.”

                                                                                               When rents rise, it tends to make buying
                                                                                               property a more attractive option for
                                                                                               tenants, eventually pushing up property
                                                                                               prices in the first home buyer bracket. It
                                                                                               also means more investors enter the market
 Le Fanu, Cottesloe Beach                                                                      in order to take advantage of stronger
                                                                                               returns, which also encourages price growth.

A slower economy over the past five             CoreLogic. The city’s median dwelling price    For buyers looking to the long term,
years has meant fewer migrants have             now sits around $475,000, and as a result,     conditions like these can be an excellent
been heading to the west coast. This in         housing affordability has not posed the same   time to enter the market or to upsize
turn has impacted housing demand in             problems as it has on the east coast, with     into something larger. Less competition
Perth, with certain property segments           first home buyers a key market segment.        provides the opportunity to find a decent
affected more than others.                                                                     property without having to compromise too
                                                In good news, some green shoots seem to
                                                                                               much. And, when the Western Australian
“There has been an oversupply of                be emerging in the Perth property market.
                                                                                               economy clicks back into gear, property
apartments in WA for a few years now,”          Commodity prices – such as iron ore and
                                                                                               prices will no doubt rise again.
says Stuart Cox, The Agency’s General           gold – have been on the rise. Australian
Manager in Perth. “There was a significant      Bureau of Statistics figures show the city’s
downturn in population a few years ago and      population is growing again, with overseas
this has had a flow-on effect to the market.”   immigration a key factor. And, as The
                                                Agency’s National Director of Property
In fact, since the market peaked in 2014,       Management, Maria Carlino, confirms in
property prices in the western capital          Investor’s Corner, the rental market is
have fallen about 18 per cent, according to     tightening.
                                                                                               PERTH
The Property Report AUTUMN 2019 - The Agency
MELBOURNE

Similar to its northern counterpart,
Melbourne’s property market has slowed,
and we are witnessing a transfer in power
from sellers to buyers. Vendors who are
prepared to make the necessary price
adjustments are seeing prompt sale
results and fair prices.
                                                135 Clark Street, Port Melbourne
The southern capital’s property market has
been shifting a few months behind Sydney’s
                                               General Manager, Peter Kakos, there are         about pricing. If you are not, your property
movements. For example, Sydney’s market
                                               some great opportunities for Melbourne          is likely to remain on the market for some
peaked in July 2017, while Melbourne’s peak
                                               buyers in the market, but he cautions           time, which is evident by days on market
occurred four months later in November
                                               buyers from holding off too long in the hope    increasing, and when this happens, it can
2017. The auction clearance rates are also
                                               prices will continue to fall further.           often impact the final sale price.
lagging. Sydney’s clearance rates lifted to
between 60 and 70 per cent in March, while     “The best advice I can give, having seen        We have seen some very strong results
Melbourne’s have been slightly behind at 50    many up and down markets, is don’t try          for vendors who have approached their
to 60 per cent.                                to time the market. If it’s right for the       sale with realistic price expectations. For
                                               long term, then buy it,” Peter Kakos says.      example, in early March 2019, our agents
We’re seeing greater buyer numbers at
                                               “The current market will present great          Mark Sproule and Peter Kakos achieved
nearly every open home in comparison
                                               opportunities to upgrade. Percentage-wise,      an above market result for 52 Clyde Street
to Spring 2018 when prices were falling.
                                               the upper end of the market will require        Kew East at $2.9 million. And after two
There is a greater degree of confidence
                                               more of an adjustment to provide these          unsuccessful campaigns, Michael Paproth
in the market and, as long as vendors
                                               same opportunities.”                            picked up 67 York Street St Kilda West and
remain realistic, properties are selling. In
                                                                                               sold it within 24 hours for $3.2 million off-
fact, this year we have had great success      For vendors, the key to the current
                                                                                               market.
moving listings that remained unsold during    Melbourne market is to accept that buyers
November and December 2018.                    are wary of overpaying. This means it’s
                                               more important than ever to be realistic
According to The Agency’s Victorian

Compared to most of Australia, the             internal migration of any region in the         in the area when compared to other states.
Gold Coast has been something of a             country, as recorded over 2016 to 2017.
                                                                                               The top end of the Gold Coast market is
recent property success story. After
                                               A growing population is often a key factor      as strong as it has been in some time. In
all, property prices stayed relatively
                                               in helping lift property prices. Importantly,   January 2019, The Agency’s Gold Coast
stable over 2018, even as the Sydney
                                               the Gold Coast is still relatively affordable   office sold two properties for an average
and Melbourne markets suffered
                                               compared to major metropolitan markets,         sale price of $8,675,000, an outstanding
decline, -10.9 per cent and -9.8 per cent
                                               meaning lending restrictions may not            figure for a region with a median sales
respectively, as at the 1st of April 2019
                                               impact prices quite as much as in other         price of around $655,000.
according to CoreLogic data. Predictions
                                               areas. The Gold Coast is also popular with
are it could well continue to defy the                                                         At the other end of the market, property
                                               retirees, who are often cash buyers and
market and post strong gains, especially                                                       in the sub-$750,000 category is currently
                                               therefore relatively unaffected by changes
over the medium term.                                                                          in demand right across the Gold Coast. It
                                               to borrowing criteria.
                                                                                               is the middle of the market where lending
This is partly because Queensland is
                                               On top of this, we are noticing an increase     restrictions have had the biggest impact.
currently attracting more migrants from
                                               in the number of foreign buyers and expats
south of the border than at any time in                                                        The Agency’s John Natoli has noted a
                                               coming into the market, particularly for
the past 14 years. Australian Bureau of                                                        prolific level of building and construction
                                               prestige properties. These buyers have
Statistics data also shows the Gold Coast                                                      work being undertaken on the Gold Coast,
                                               been attracted by a lower Australian dollar
has been attracting the highest level of                                                       this is usually a sign of confidence in the
                                               and the relative value of prestige property
                                                                                               property market.

                                                                                               “Particularly, we’re seeing new homes
                                                                                               being built in areas such as the Isle of
                                                                                               Capri, Broadbeach Waters, Mermaid
                                                                                               Waters, Mermaid Beach and Palm Beach,”
                                                                                               John Natoli says. “Some of these will be
                                                                                               the biggest residential homes ever built
                                                                                               in these areas. A lot of people are also
                                                                                               undertaking major renovations.”

 42/11 Peak Avenue, Main Beach
                                                                                               GOLD COAST
The Property Report AUTUMN 2019 - The Agency
FINANCE WITH JOHN KOLENDA

Official interest rates have been kept        highly restrictive and confusing since the
at a record low of 1.5 per cent by the        Hayne Royal Commission, with tighter
Reserve Bank of Australia (RBA) since         lending regimes and forensic examination
August 2016, but there is continued           of borrower expenses, significantly
pressure on the central bank to lower         reducing borrowing power for consumers.
its cash rate further due to a range
                                              Among the Hayne Royal Commission
of negative factors weighing down
                                              recommendations was the removal of
economic activity and consumer
                                              trail commissions for mortgage brokers.
confidence.
                                              I believe, if implemented, this would
These negative factors include a correction   set the Australian home loan market
in the property market, the impact of the     back 30 years and actually enhance the
Hayne Royal Commission into the banking       major banks control at the expense of
and financial services sector, and reaction   consumers.
to political upheaval locally and abroad.
                                              Brokers account for almost 60 per cent
This includes the US-China trade war,
                                              of all home loans, this shows consumers
the Brexit uncertainty and, of course, the
                                              have favoured dealing with brokers rather
upcoming Australian federal election.
                                              than dealing directly with the banks. Our
Some economists are forecasting at least      industry has spoken out against this
two RBA cuts over the next 12 months due      recommendation and the nation’s political
to the uncertain economic outlook. It’s       leaders appear to be listening. In the
expected the RBA could make a move in         industry’s view, the trailing commission
the months following the election, which      structure paid to brokers protects healthy       John Kolenda,
is due in May.                                competition within the home loan market,         Managing Director
                                              levelling out the big four banks’ control        1300HomeLoan
The lending landscape has also been
                                              over lending.

INVESTOR’S CORNER WITH MARIA CARLINO

                                              The challenge for investors, however, is        But it’s a different story on the west coast.
                                              that this increase in demand has been           According to SQM Research figures as
                                              exceeded by an increase in supply. In           at March 28, the average yield on Perth
                                              some parts of the country, especially in        apartments has lifted an impressive 3.9
                                              metropolitan Sydney and Melbourne,              per cent this quarter. Houses have also
                                              new developments are coming onto the            experienced an increased yield of 1.6 per
                                              market almost constantly. This has led to       cent over the same period. We’re noticing
                                              greater competition for tenants. But, more      a reduced amount of rentals on the Perth
                                              importantly, because new developments           market (there were 6,718 properties
                                              come newly furnished it has raised              available for rent in Perth in late March
                                              tenants’ expectations on what their money       2019 compared to 8,938 a year ago), as
                                              should buy.                                     well as an increase in the number of people
                                                                                              attending open homes. This is leading to
                                              In light of this, we’re advising investors to
                                                                                              more properties being leased directly after
                                              make sure their properties are as attractive
                                                                                              the first open home.
                                              and inviting as they can be. This could
                                              mean renovating outdated kitchens and           Maria Carlino,
                                              bathrooms, as well as applying a new            National Director of
                                              coat of paint or replacing the carpet. Also,    Property Management
                                              because it’s important in today’s market
The first few months of the year are
                                              to be able to approve tenants quickly, we
traditionally a busy time in the rental
                                              recommend giving your managing agents
market and 2019 has been no different.
                                              guidelines that allow them to do this.
There was an increase in activity as
tenants looked for new homes, whether         Remember, in today’s market a tenant is
that was to be settled at the start of the    unlikely to be choosing between one or two
new school year, before beginning a new       properties; they are likely to be weighing
job or just because it was part of a new      up several. With this in mind, we don’t
year plan. There is also an increasing        expect that either yields or vacancy rates
number of tenants looking to upgrade          will move in favour of investors anytime
the property they rent.                       soon – at least not on the east coast.
The Property Report AUTUMN 2019 - The Agency
NEW PROJECTS WITH STEVEN CHEN

The first quarter of 2019 has been            some buyers won’t be able to finance            Our clients have seen immense value in
one of uncertainty and caution in the         their purchase.                                 St Moritz’s location, stunning architecture
project marketing space as buyers and                                                         and design. They have also been extremely
                                              There are thousands of apartments
developers come to terms with a new                                                           impressed by the development’s bespoke
                                              scheduled to settle in the second and third
lending environment. However, the                                                             services, as well as the ability to work with
                                              quarters of 2019 that face these risks.
challenges surrounding funding are also                                                       Gurner to customise their own living space.
                                              There are also many developers under
presenting new opportunities, especially
                                              pressure because their sales and marketing      Steven Chen,
for those in a strong cash position.
                                              teams have not been able to adjust their        Director of Projects
Tighter lending criteria and negative media   prices in light of this market shift.
sentiment have been placing downward
                                              For developers with cash reserves though,
pressure on property prices in Sydney
                                              this current landscape is beginning to
and Melbourne and the project space has
                                              present some great buying opportunities.
become one of the main areas in which
                                              Reduced competition for sites means
this is playing out. Buyer enquiries on new
                                              there are attractive long-term development
developments are down around 50 per
                                              prospects available for much less than they
cent from 12 months ago and the number
                                              were a year or two ago.
of people attending inspections is down a
further 10 per cent.                          One development that has defied the
                                              current off-the-plan challenges is St Kilda’s
The uncertainty surrounding lending
                                              St Moritz in Melbourne, a luxury beachfront
has seen many buyers now preferring to
                                              development by Gurner. The Agency
purchase a finished product rather than
                                              Projects team has been involved with this
buying off the plan. This is because they
                                              $550 million development, which has
can be more certain of their ability to
                                              almost completely sold out this quarter.
borrow and settle on finished stock at the
current market value, than they would be      In my 20 years in projects, I have never
on an incomplete build.                       before seen a project of this scale and
                                              quality sell so well in a challenging market.
Lending restrictions are also affecting
                                              What is even more remarkable is that all
developer sentiment. Many developers have
                                              the apartments have been sold by invitation
become concerned that lower valuations
                                              with no advertising.
and reduced borrowing capacities mean

                                                                                                            St Moritz, St Kilda, Melbourne

                                                         theagency.com.au

             New South Wales                  Queensland                     Victoria                     Western Australia
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