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Feb 1, 2024

Property Taxes Back on Agenda

The federal government’s revision of the Stage 3 Tax cuts has re-enlivened debate for a comprehensive tax review, with negative gearing and capital gains tax settings once again part of that discussion. The ability for investors to claim property-related expenses against other income (normally their taxed wages) has been a key part of Australia’s housing spectrum for generations, underpinning the supply of affordable rental homes for millions of tenants. Governments, unable to supply enough taxpayer funded rental homes has relied on property investors to supply property to the market at a ratio of 9:1. Calls from teal independents and others to remove negative gearing in order to address housing affordability fails to consider the impact this would have on supply, rents and the budget. With 27 percent of all homes in Australia rented, the estimated value of this asset class is $2.835 trillion; nearly three times annual GDP. The burden on taxpayers in Australia is already substantial (as a measure of overall tax take, only Denmark collects more tax than we do from wages), so without investors supplying the market (which would surely diminish if negative gearing was disallowed) how can government afford to supply the rental homes? The 2019 election campaign featured proposed changes to negative gearing with then would-be Treasurer, Chris Bowen saying, “Don’t worry if your property value falls.” I cannot imagine how the community could possibly think such a comment is okay given household consumption makes up about 45 per cent of the economy and if housing values fall, so does their spending and so does, therefore, the economy. Bowen’s comment back then is telling because it paints property investors as being aspirational and therefore on the wrong side of certain political agendas. If he’d said, “Don’t worry if your rent goes up,” he’d have been in trouble, but the brutal truth is that both comments are the same. Abolish negative gearing on established homes and prices will fall and rents will rise. Any plan to mess with the current negative gearing provisions is fraught because it is so deeply entrenched (it’s been part of our tax system for more than 100 years) and therefore interlinked with our vast and complex tax system. We know about 80 percent of investment properties are owned by mum and dad types who only have one investment property. Proposals to remove negative gearing is hardly taxing the wealthy and ignores the fact that not all investors choose to buy property to avoid tax otherwise payable. A loss is a loss and pressure on families to meet their daily expenses means investors are often attracted to property investments that either break even or are positively geared in order to maintain cash flow. The last time a government tried to abolish negative gearing it was back in several months later as the voter backlash from soaring rents and plunging property values frightened them into a retreat. If Labor once again wades into the negative gearing morass, the Opposition will be one step closer to winning government.

Jan 10, 2024

Missing Out

Licensed real estate agents are regulated by the Department of Mines, Industry Regulation and Safety (DMIRS) with consumers able to seek advice and lodge complaints about agents’ behaviour to that department. The Real Estate Institute of WA (REIWA) also has a community hotline where consumers can obtain real estate advice when dealing with a member agent. Current market conditions of savagely low supply and strong demand for both sales and rentals often leads to a spike in enquiry with REIWA and DMIRS, especially from tenants and buyers that have missed out on the opportunity to either buy or rent a home. Most are just wanting clarification of the process. When representing their vendors and landlords, agents have a role to play in ensuring their communication with interested buyers and tenants is clear and thorough, especially in circumstances where there is strong competition to either buy or rent the properties they represent. In the first instance, agents should make it clear to buyers and tenants that there is competition for the home. This can include asking prospective buyers to sign a document that acknowledges an awareness that their offer is one of many and that they’ve had sufficient opportunity to put forward their best offer. Similarly for tenants, the sheer volume of visitors to a home open should indicate that renting a home will be competitive. It is unlikely your application to rent will be the only one submitted. Local agents mostly manage competition amongst buyers and tenants in a professional, process-driven manner. However, it’s worth noting that agents are not obliged to inform you that there is competition for a property, albeit best practice to do so. Buyers and tenants ought to remember the agent is duty bound to act for their client and is not working in your interests. Agents are merely obliged to be honest, ethical and fair in their dealings with tenants and buyers. Despite this, buyers and tenants who miss out on a property are often quick to blame the agent. Some will lodge formal complaints against an agent even though the agent is simply discharging their responsibility to their client in seeking the best price or highest rent. A recent experience from a buyer who was repeatedly told a property would likely sell for above $900,000, was aware they were in competition and still insisted on submitting an offer for $875,000, was livid when told someone else had paid $975,000. Similarly, a tenant who offered $80 per week above the asking rent lodged a formal complaint against the agent when their landlord accepted an offer to lease $130 above the asking rent. Higher rents and selling outcomes are part of the natural market in action. Agents understand that buyers and tenants are trying to secure a property for the lowest possible price or rent, but it is not the agents’ role to achieve that outcome.

Dec 14, 2023

Christmas Markets

Around this time of the year, property markets normally begin to slow in anticipation of and planning for Christmas festivities and the summer holidays that follow. This year is shaping up to be different with buyer enquiry remaining strong and sellers committing to coming to market during the Christmas period. Property values across Australia continue to grow, spurred on from the demand side by higher migration levels and low stock levels. The federal government have already predicted a 115,000-property shortfall by mid-2024 and with dwelling commencements stubbornly stuck below the long-term average, there is little relief for buyers on the horizon. The Real Estate Institute of Australia released the comprehensive September quarter Market Facts report this week, revealing Australia’s median house prices rose 3.2 percent in the past twelve months to rest at $990,807. Perth’s median house price was at $595,000, the cheapest major capital by some margin. Sydney’s median house price as at September 30th was an extraordinary $1,578,000. The remaining capitals (aside from Darwin) returned a median house price of between $710,000 (Adelaide) and $934,000 (Melbourne). With such a yawning gap between our local market and eastern Australia, there is a sense of inevitability that prices here will continue their upward trajectory and the Christmas season will have little impact in quelling buyer and seller enthusiasm. Most agents I speak with expect a flurry of fresh listing activity in January, with new stock to be taken up from buyers bereft of choice. A recent property my agency sold received 20 offers. Another 15 offers. That’s 33 buyers that have committed to purchase, have missed out and will keep trying until they succeed. It is going to take some time for this buyer pool to deplete given stock levels remain below the five-year average, and new buyers keeping entering the pool. Meanwhile, rents continue to rise up to $581 per week nationally and $550 per week in Perth for 3 bedroom homes. Returns on investment for buyers in Perth are at 15.1 percent, leading the nation by some margin. Investors will take note of these numbers and continue to grow as a buyer cohort adding further pressure to our undersupplied market. This year, there will be no Christmas slowdown and buyers holding back waiting for the Santa Claus to deliver a market correction are likely to find their Christmas stocking empty.

Dec 7, 2023

What’s in Store for 2024?

With Perth’s property market growth leading the nation as at the end of last year, some property commentators are predicting a slow-down in capital gains as the year progresses. Returning a 13.7 percent growth rate in property values to date 2023, Core Logic data showed Perth ahead of the rest of the nation in growth with Brisbane the next strongest market performer with 10.7 percent value gains. Perth is at its market peak reaching a median dwelling value of around $650,000 at the end of last month. Yet, despite Perth’s strong market performance, our local market remains the most affordable major capital city aside from Darwin in terms of median prices comparative to average family incomes. It is this relative affordability, strong economy, full employment, an uplift in migration intakes and limited housing supply that will continue to drive our market forward. Whilst it is always difficult to accurately predict property markets, in the absence of significant and unexpected market shocks, WA residential property is likely to put in another strong showing in 2024 with 8 to 12 percent gains predicted. Turning to the rental market, with vacancy rates below 1 percent for most of 2023 caused by a lack of housing supply, it will take some time to deliver enough homes to the market sufficient to bring the rental market back into balance. Rents have risen sharply since mid 2020 after a decade of falling and stable rents, rising a further 13 percent last year. Strong demand from incoming residents and low supply remains the core cause with little relief in sight for tenants struggling to secure suitable accommodation. With less than 2000 properties listed for rent on reiwa.com, supply constraint due to a lack of investor buying activity over the past decade has seen house rents move from $350 per week in 2017 to $600 per week today. Investors have come storming back to the Perth market as they exit the overheated east coast city markets and look to capitalise on the prospect of price growth and nation-leading yields. As more supply comes to market, rents could moderate this year but further rent rises of at least 5 to 10 percent is likely thanks to the slow construction cycle and lacklustre dwelling approval numbers. Overall, WA is the place to watch in 2024 as its property market continues to expand from a base of relative affordability.

Oct 5, 2023

How to Buy in Perth's Tough Property Market

The current real estate market in Perth is presenting unique challenges for buyers. According to REIWA, there are only 4,895 properties listed on reiwa.com, the lowest number in a decade. This limited supply, combined with increasing demand, is driving up prices and making it tough for buyers to find their ideal family home among the 2,289 available homes. Perth’s current market for available property Comparing REIWA’s report to 5,131 four weeks ago and 8,117 this time last year highlight’s the challenge of purchasing a property due to availability. With further analysis of the 4,895 listings, 1,196 of them are blocks of land and 1,410 are units, making it particularly tough to find an appropriate family home from just 2,289 homes across Perth. Property prices inevitably increasing With supply so constrained whilst demand continues to rise, prices inevitably increase impacting affordability and making buyer conditions especially difficult. No doubt, it is a sellers’ market with these conditions likely to prevail until we can get more supply into the market. Real Estate agents’ buyer databases are bursting at the seams but because we act for the seller, agents will encourage their clients to expose their property to the widest possible market to achieve the highest price possible through competition. A Seller's Market That means a marketing campaign designed to attract as many buyers as possible, leading to dozens of groups through the home and multiple offers made. If buying by private treaty, most agents won’t declare an asking price for fear of adding a ceiling price to the process that could prove below market sentiment – a definite ‘no-no’ when discharging your fiduciary responsibility. This adds to the buyer challenge when competing, fearful of paying too much but not wanting to pay significantly more than the next best offer. Buying in a competitive market Buyers need to be well prepared. Have your finance; if needed, pre-approved and up-to-date, be clear on your preferred settlement date and research your preferred buying areas to gauge likely market values for homes suited to your budget and needs. There is no point thinking you can snag a bargain in this market so if the likely market price is say $1M, don’t think you can buy it for $950,000. Sign up for email alerts on the major portals and when finding something that looks promising, call the agent don’t just email them. Build rapport with the agent; if they like you, they’ll be more inclined to want to help. Ensure you arrive at the first home open early or if you can, try and get an inspection prior. Don’t be disheartened if attending a very busy home open thinking ‘I won’t get this one’ because there will be others thinking the same thing. It is not uncommon to have dozens of buyers through a property, plenty of interest, yet no offers. This ‘groupthink’ mentality can work to your advantage if you’re aware of it. When making your offer, put forward your best offer early in the negotiation, remove unnecessary conditions and propose a generous deposit. In this market, buyers will get very little chance to negotiate hard if competing with others.   Tips for Buyers: So, what can buyers do to try and get an advantage in such a competitive environment? Be Well-Prepared: Ensure your financing is pre-approved and up-to-date, determine your preferred settlement date, and research market values in your desired areas. Utilize Email Alerts: Sign up for email alerts on major real estate portals to stay updated on new listings. When you find a promising property, don't hesitate to call the agent, as building rapport can be advantageous. Early Attendance: Arrive early to the first home open and consider requesting an inspection before the open house. Stay Optimistic: Don't be discouraged by crowded open houses. Many potential buyers may attend, but it doesn't guarantee immediate offers. Understanding the “groupthink” mentality can work in your favour. Strong Offer: When making an offer, present your best offer early in the negotiation, minimize unnecessary conditions, and propose a generous deposit. In a competitive market, buyers have limited room for negotiation.

Sep 20, 2023

2023 Australasian Auctioneering Championships

This week I attended the Australasian Auctioneering Championships, hosted in Auckland. The best auctioneers from across Australia and New Zealand fought it out ‘theatre-style’. An amazing event with the very best auctioneers moving through extraordinarily difficult bidding sequences that, thankfully, auctioneers don’t normally encounter. Christchurch based Ned Allison taking home the 2023 major prize with a stunning call of a very complex bidding sequence. I’m an advocate for the auction process as a method of sale for several reasons. It remains the most transparent selling process with all buyers able to see competing buyers, with the auctioneer bound by an ethical REIWA code of conduct,  bringing fairness to the process. Buyers also usually have the time (unless the seller accepts an offer prior to the auction) to view the property several times, undertake all necessary due diligence, and be ready to buy on auction day. The benefits to sellers include cash, an unconditional contract, a settlement period that suits their needs, a healthy deposit, and the delivery of a price that is the definition of fair market value. The “no price” marketing strategy in the lead-up to the auction day is also beneficial as it captures all possible buyers, including those who may not otherwise consider the property if it were on the market at a fixed price by private treaty. the auction process ‘shakes the buyer tree’ In short, the auction process ‘shakes the buyer tree’ and reveals all possible buyers. If the property is being sold under an executorship arrangement, or the market price is difficult to determine, then auction may be the most appropriate method. And of course, let’s not overlook the X-factor an auction brings which, through fierce competition, sometimes delivers an amazing result well above expectations, one that can be hard to replicate with other methods of sale. Auctions may not be for everyone of course, it’s important that Sellers understand the process and feel comfortable with the strategy. Some sellers can sometimes feel under pressure to ‘meet the market’ on the day of auction if the highest bid is below their original reserve price. The lead-up to the auction day can be stressful too with multiple home opens and inspections during the weeks prior. Some buyers remain deterred by the auction process too; either too nervous to bid or unprepared to buy without certain conditions being met, such as finance approval for example. However, more and more these days, many buyers appear to be welcoming the transparency of the auction process over the blind, confidential negotiation of a Private Treaty sale.   Be sure to ask your agent about all the options when coming to market, as there are benefits with all methods of sale. It’s a matter of choosing one that suits your needs and circumstances, and agents should offer you that choice and confidently explain your options.

Sep 13, 2023

Pricing Your Property Right

Fremantle’s property market continues its positive trajectory with short supply and solid demand. This current imbalance is keeping up property values as buyers continue to compete for the limited homes available in the area. Although interest rates have stabilised and inflationary pressures have tempered some of the FOMO enthusiasm, the limited buying opportunities have buyers competing for homes. The short supply means agents are desperate for listing stock and, unfortunately, one response to this market is for agents to offer ‘happy prices’ to would-be sellers, the aim being to secure the listing and hope the market catches up during their period of authority. Additionally, emotional attachment often leads homeowners to believe their property is worth more than a market consensus of a fair price. Opinion of market value for a property is largely a subjective exercise; various agents will have differing views of market price, and friends, lovers, and others have their own opinions as does the property owner. take in professional advice from a local REIWA agent Sellers who have committed to another property at a higher-than-hoped price will also be pressured to sell their own home for more than the market will bear. The result can be price expectations that well exceed market reality. In truth, the value of a property is not determined until a buyer is found, negotiations finalised and the contract for sale is completed. The combination of market information, comparative property sales analysis, demand and supply levels, buyer activity, and property presentation provide an insight into what fair market price might eventuate for a property, but what does the anticipated or listing price have to do with the final market price? In short, plenty. Statistics show that sellers who over-price their property lose money in the end. Sellers that allow their property to languish on the market due to unrealistic price expectations (either derived from themselves or an over-zealous agent) end up fighting against the buyer sentiment of a stale listing; a property that has been on the market for above average periods of time. Such properties are often simply over-priced and buyers will discount them because they think “there must be something wrong with it if no one has bought it.” Sellers that have to discount listing prices to sell will almost always end up selling for less than if they had a realistic market price expectation from the beginning.  Sellers are well advised to take in professional advice from a local REIWA agent and form a considered, unemotional opinion of value based on facts, evidence and reputable market data.

Aug 10, 2023

Perth Property Leading National Capital Gain

By Hayden Groves Data house Core Logic’s latest housing price index figures reveal what many property commentators expected; that Perth property values now lead the nation in terms of capital gain over the past twelve months. Off the back of more moderate property value increases comparative to east coast cities during the property rush of early to mid-2020, Perth was better positioned to weather the storm of 12 successive interest rates rises in fifteen months and the resulting impact on property values. For the twelve months ending June 2023, Perth is the only capital city to record annual growth with dwelling values up 2.5 percent and moving 2.8 percent for the quarter. Somewhat remarkably, Sydney’s housing values increased an impressive 4.9 percent in the June quarter off a very high base, but have pulled back 8.0 percent from its peak prices in January 2022. Across the year Melbourne is off 5.7 percent, Brisbane backed off 8.2 percent and Hobart has declined the most by 12.7 percent. Overall, evidence is emerging that Australia’s property values are trending back towards a growth phase with almost every capital returning positive gains last month and quarter. Perth is well positioned for property price gains Property values are rising despite a high inflationary environment, higher interest rates and low business confidence off the back of increased immigration levels and low listing supply fuelling demand. Sales volumes have decreased across the year, down 20.3 percent nationally, with the three big east coast capitals’ transaction levels tracking below the national average. Perth’s property sales activity has only declined 3.2 percent last year, the lowest fall in the nation. The interplay between sales volumes, listing availability and property values provides useful insights into likely future market behaviour.  Listing stock continues to trend downwards, dropping 13.2 percent from last year and 28.7 percent lower than the five-year average. Lack of housing supply is the key driver of property values in today’s market. In Perth, total listings are down a massive 30.3 percent compared to last year and new listings coming to market are off 18.7 percent. With such short listing supply, population gains driving demand and relative affordability, Perth is well positioned for property price gains in the short to medium term. Meanwhile, national rents look like they’ve peaked growing by 9.7 percent year-to-date, down from the twelve-month peak of 10.2 percent for the 2022 calendar year. REIWA reported an uptick in vacancy rates to 0.9 percent last month, some welcome relief for tenants looking for a home. I see the biggest challenge for the housing market being the rate investors are selling their property assets, homes that provide rental housing. The decade average of investor property sales is 25 percent of all property sales. This has risen sharply since January to sit at 32.7 percent. Anti-landlord sentiment fuelled by the Greens and others for political purposes and higher interest rates is seriously damaging rental supply.