MARKET UPDATE NEWSLETTER
We’d like to welcome you into the New Year, where sentiments in the property market are high and expectations are that the momentum of late 2013 will carry over into 2014. To highlight this strength, Sydney recorded its strongest ever spring selling period, with mid-December seeing a record number of homes going under the hammer.
The Australian housing market is in a definite growth phase, with figures from the Real Estate Institute of Australia and Bendigo Bank revealing that the weighted average median price for capital cities increased 3% for houses and 2.2% for other dwellings during the September quarter. Compared to the same time last year, the weighted average median house price rose 9.5%. Sydney, Melbourne, Brisbane and Hobart contributed to increase, while Perth recorded the biggest drop, down by 3.8%. At $722,718, the Sydney median house price is the highest across the capital cities while Hobart remains the lowest at $352,000, 37.4% lower than the national weighted average.
REIA President Peter Bushby, commented that “For the next year we expect interest rates to stay relatively low and continue to assist the market. We expect continued steady improvement in activity in most markets and generally a more positive year ahead provided there are no left-field global issues that emerge.”
Housing finance figures released by the Australian Bureau of Statistics also show growth in the number of investment housing commitments in response to interest rate cuts and a more positive housing outlook for much of the country.
In October 2013, in trend terms, the value of investment housing commitments rose by 2.9% – continuing two years of consecutive monthly increases. However owner-occupied finance commitments only rose by 0.6% – following increases of 0.7% in September and 0.8% in August, marking one of the lowest monthly increases, in trend terms, since December 2012.
If refinancing is excluded the number of owner-occupied housing finance commitments increased 0.5%, suggesting first home buyers are still having trouble breaking into the market.
It’s hard to believe that Christmas is almost upon us, however a welcome gift is the news that the Australian residential property market has been showing signs of strong improvement over the past quarter. Investors and changeover buyers are being drawn back to the market due to low interest rates and the positive outlook for housing in many centres. However, first home buyers are still at a disadvantage due to a number of reasons – stamp duty, the size of deposit required and the ability to save for it, unemployment and underemployment concerns.
The proportion of first home buyers among owner-occupied housing finance commitments fell to 12.5 per cent in September, which is the lowest figure since data collection began in July 1991. Recent changes to the First Home Owner Grant (FHOG) in most states and territories have added to the uncertainty and impacted on the activity of first home buyers in the market.
However, the good news for first home buyers is that the REIA is firmly behind their cause. According to REIA President Peter Bushby in their latest newsletter, the situation for Australia’s first home buyers is currently disappointing enough for them to advocate the re-introduction of measures to enable and assist first home buyers to secure their own home. Hopefully this will spell changes soon.
In fact, according to news.com.au, politicians, industry figures and academics are calling on the government to reduce stamp duty rates or overhaul the tax for all buyers, especially in NSW after $198 million in stamp duty collections brought the state budget into surplus. “The property market has come to the rescue of the government, so the government needs to return the favour,” said Tim McKibbin, chief executive officer, REINSW.
What is clear is that Australian investors’ love affair with property continues to go from strength to strength. A recent survey by Westpac found that 27.5 per cent of Australian investors believe real estate is the wisest place for savings, a close second to bank deposits and towering over shares at 8.4 per cent. This three-to-one preference for property over shares is despite the Australian share market being the world’s best performing from 1900-2009, according to Credit Suisse.
Australia appears to have weathered the GFC better than the rest of the world, and we’ve got our solid property market to thank for it. According to a recent article published in BRW magazine, our healthy real estate market has helped lift Australia to the top of the global wealth league.
Credit Suisse’s annual Global Wealth Report released in October highlights that Australians have the highest median wealth in the world for the third year in a row, based on our accumulated net wealth. This means there is more wealth spread throughout the Australian population than in any other country.
In fact, we rank number seven in the world for the number of millionaires, and that’s not even a per capita figure, with 1.123 million of us reaching millionaire status. This is the same amount as in China and half as many as the number of millionaires in France and Japan.
This encouraging statistic can be put down primarily to increasing real estate prices. The article goes on to say that it’s likely Australia’s higher than global average ownership of non-financial assets – largely property – has kept the wealth of the local masses higher than the rest of the world.
Australia’s ‘real assets’ amount on average to $US294,100 and form 59 per cent of Australians’ gross household assets, according to the report. This average level of ‘real assets’ is the second highest in the world after Norway, the Credit Suisse report states. The article comments further that, in part, this statistic reflects a sparsely populated country with a large endowment of land and natural resources, but it is also a manifestation of high urban real estate prices.
The results of the annual Housing Affordability Sentiment Index are out, and our housing mood is definitely positive. At a national level, Australians’ sentiment towards housing affordability significantly improved in 2013, with an HASI of 4.5 (up +0.1).
In a recent article by ABC’s Alan Kohler he states that investing in property is a no-brainer at the moment. Prices have bottomed, auction clearance rates are on fire, especially in Sydney, and you can get a fixed rate mortgage for 4.8 per cent. However he comments that there’s no sign of a housing bubble just yet, with values only just back to where they were three years ago. Will there be one next year or the year after? Who knows? But he warns that one sure way to make it happen is to sternly warn about one.
By way of confirmation, a lot of the coverage of this month’s RBA minutes focused on the comment that “Property gearing in self-managed superannuation funds (SMSF) was one area identified where households could be starting to take some risk with their finances.” Given the current climate, it seems to be a prudent step to move some of your DIY super money from bank shares into geared residential property. However, the Reserve Bank has warned that self-managed super funds investing in our property market could push up house prices.
In its latest Financial Stability Review, the RBA says changes to legislation in recent years have allowed SMSFs to borrow money to invest in property. The $530 billion or so squirrelled away by mums and dads who have elected to take control of their savings destinies, rather than outsourcing decisions to super fund trustees, has never had much exposure to bricks and mortar. Legislative changes allowing SMSFs to borrow from banks to buy property on a ‘limited recourse’ basis with loan-to-value ratios of up to 80 per cent, and to shift property that houses small business into SMSFs and get capital gains tax.
Since these changes, property holdings by SMSFs have increased and this type of investment strategy is being heavily promoted. The sector therefore represents a vehicle for potentially speculative demand for property that did not exist in the past. The RBA says the trend could inflate property prices.
In any market, especially the rather cautious one we have been experiencing over the past 12 months, pricing your property correctly from the outset is vitally important in securing a successful, timely sale. Price it too high and astute, well-informed buyers will know, leaving your property languishing on the market. It may ultimately even sell for less than market value because buyers have more leverage given the reduced competition for an overpriced property.
As a vendor it’s important that you don’t fall into the trap of selecting an agent based simply on the highest valuation for your property. According to an article on news.com.au, international real estate trainer David Knox says that, “The number one mistake that vendors make in every country on the planet is that they select an agent based upon what asking price the agent offers. And the problem is, agents who need listings can very often be induced to say that high price just to get the listing. The vendor wants to believe it because they think their home is worth more anyway.” Mr Knox said that if a property was listed with too high an asking price, it would later require successive price reductions to secure a sale.
“The greatest challenge for a real estate agent is to tell you the truth, but still get your business. My advice to a vendor would be if you are going to interview more than one agent, ask them to come out and describe their marketing plan and their process and see if they listen and see how they interact with you. Look for market knowledge. Do they really know the market and do they know the process of selling real estate? The agent better be able to describe their entire process, from the management of the marketing all the way through to the final payment.”
While he said liking the real estate agent you choose is important, Mr Knox also rated competency and trust as key attributes. “There are a lot of people who are likable but are not competent,” he said. “It’s nice to get somebody who’s competent and who you have a rapport with, but don’t be fooled by just likability. I think the one characteristic they should have is trust.”