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Jul 11, 2023
Western Australia remains astonishingly affordable
By Hayden Groves The Real Estate Institute of Australia’s (REIA’s) latest Housing Affordability Report was released last week revealing housing affordability worsened across Australia. As expected, NSW and Victoria remain the least affordable places to buy property with an astonishing 55 percent of a family’s income devoted to meeting the average loan repayment in NSW. In Victoria, 46.5 percent of their hard-earned goes to meeting mortgage commitments. The national average is now 44.9 percent, well above mortgage-stress territory. We are fast approaching record levels of housing un-affordability. Happily, Western Australia remains astonishingly affordable with 34.5 percent of our average weekly family income of $2,471 covering the average loan of $478,236. In contrast, mortgage holders in NSW hold average loans of $731,410 with an average family income of $2,373. As expected, housing affordability has deteriorated over time declining 14.2 percent over twenty years with much of that decline (11.6 percent) occurring in the past five years. Tasmania’s decline in affordability tops the chart with a 21.7 percent fall in affordability over twenty years. Once more, WA’s affordability performance remains appealing to home buyers and investors with a modest 7.4 percent deterioration in affordability in twenty years. Rental affordability is a hot-button topic both politically and in the media. With the average tenant across Australia paying 23 percent of their income on rent, leasing remains significantly more affordable than property ownership. Over the past twenty years, home ownership affordability has deteriorated at a rate almost 18 times faster than rental affordability. Whilst property ownership affordability has rapidly declined over the past five years, national rental affordability has been remarkably stable, worsening by a mere 0.8 percent in twenty years. Rental affordability has, in fact, improved over the past five years by 0.7 percent. Ten years ago, it was less affordable to rent a home in Australia than it is today. In WA, rental affordability has deteriorated by 3.9 percent in five years, but barely changed across the fifteen years prior to 2018. Whilst rental affordability is stable, median rents continue to climb with lack of housing supply the main contributor to the increases. A potent combination of low investor activity, rising interest rates, stamp duties, land taxes, insufficient social housing, tenant-friendly tenancy laws, increasing population, construction industry blockages and short-stay accommodation continue to conspire against maintaining a reasonable supply of rental homes. REIA’s figures show that rental affordability across Australia has barely changed over the past twenty years, proving that markets are cyclical. Whilst we know things are tough for tenants right now, once we get more supply into the market, balance will return.
Jul 3, 2023
Data Gurus: Less Pain, More Gain
By Hayden Groves Data gurus Core Logic produce a quarterly report aptly named the Pain and Gain, providing insight into the profitability of property sales across Australia. The report assess each property sale from its previous selling price in order to determine if the property was sold on a positive or negative margin. It doesn’t take into account the holding (interest payable, land taxes, rates, etc.) or purchasing costs such as stamp duty. The losses or ‘pains’ could therefore be worse than reported. Looking at the figures, it’s unsurprising that when assessed over a ten year period, Perth’s property market has had its fair share of pain during that time. Since the market peak of 2014, the proportion of properties sold for profit steadily declined from 95 percent to near 50 percent by late 2019. Usefully, Core Logic splits the data into detached houses and units with Perth houses performing significantly better than units since 2013. For houses, the portion of profit-making sales on a rolling quarter basis back in 2013 through to early 2016 held steady at 95 percent. It steadily fell thereafter to reach 60 percent April 2019. The market must have been dire for 40 percent of all houses sold in mid 2019 selling for less than their previous sale price. The numbers are even bleaker for units for a period in mid-2020 where only 40 percent of units sold realised a profit. During this ‘peak-COVID’ period we had rental moratoriums, a great deal of uncertainty and a decade of zero growth. Investors fled the market in large numbers, with – as it turns out – 60 percent of them willing to take a loss on the investment in the process. Roll forward to now and unit sales still lag behind houses in terms of profit-making. Perth’s market is still in recovery across the unit sector with only 64 percent of sales profit-making, well below the national average. Comparatively, profit-making house sales represented 94 percent of all houses sold last quarter. The discrepancy here can be attributed to the natural inclination of larger households to sell less frequently coupled with units being more favoured by investors, making them a more liquid asset. For Fremantle, 17 percent of all sales in the March quarter sold for a median value loss of $51,500. Inversely, 83 percent of Fremantle sellers made a median gain of $171,500 across a hold period of 8.9 years when they sold in the March quarter. In Cockburn, the median loss was less at 13 percent at $40,000 with 87 percent of sellers making a tidy $130,000 median profit if holding the property for about 9 years. Overall, the trend for Perth property being sold at profit is upwards as property values continue to grow. Values are up 1.9 percent across April and May this year with the likelihood of further gains adding to the recovery in profit-making sales as the year progresses.
Jun 23, 2023
Blame Me
By Hayden Groves Several years ago, local real estate agent (now retired) Peter Sim, boldly ran full page advertisements in the local press headed, “Blame Me.” Why Peter was standing in his suit up to his ankles in the Swan River, I’m not sure, but the message was on point; an agent acting for a client (the Principal) must take responsibility even when things go wrong. As an agent working in a community, acting in the best interests of the seller often puts you at odds with the buyer who, depending on their buying experience may call on you when it is time to sell in the future. There is, therefore, a natural tendency for agents to discharge their responsibilities in a more neutral, conciliatory way to the extent it can become unclear if the agent is working for the buyer or the seller. The law says ‘be fair’ to the buyer This attempted neutrality is even being promoted by some agents with some proudly proclaiming they get the “best outcome for buyers and sellers” in their advertising materials. Transacting in real estate has evolved and now demands greater transparency from sellers when offering property for sale. Some legal practitioners have commented that the entire concept of caveat emptor (buyer beware) has all but gone from the process. This is a concern because a buyer has less responsibility to satisfy themselves about key details about the property before they buy. Nowadays, many buyers are surprised that the seller has a responsibility limited to the contract upon settlement; for example, the seller is not obliged to professionally clean the property when they leave it unless specified. This erosion of caveat emptor makes it more difficult for agents to be clear which side of the fence they sit. For example, should an agent prompt a buyer to include certain contractual provisions in a sales contract that protects a buyer’s interest such as a building inspection clause? One argument is that it is not the agents’ role to suggest the buyer includes any conditions at all. The law says that the agent must act in the best interests of their Principal (almost always the seller) and ‘be fair’ to the buyer. Yet, some agents have pre-printed offer and acceptance contracts that predict their sellers will happily provide warranties outside their normal contractual obligations. Usefully, such initiatives clear up many a small argument before settlement as to who is responsible to fix, for example, a wobbly ceiling fan, but does this discharge the agents’ responsibility to act in the sellers’ interest? Perhaps not. Sellers should spread their risk by thoroughly informing their agent about their property before hitting the market, buyers should take responsibility in finding out all they can about a property and agents need to remember who pays their commission.
Jun 16, 2023
Sellers are holding the competitive advantage in the market
By Hayden Groves One of the major problems with the property market across the nation right now is the blockages caused by short housing supply. Would-be sellers - whether up or down-sizing – are ‘stuck’ because they are struggling to find property that meets their needs and with short rental supply too, the usual ‘fall-back’ of renting for a period is also problematic. With only around 5,000 properties listed for sale on reiwa.com buying opportunities are limited considering there were around 14,000 listings only four years ago. However, if you are considering selling your property, it's worth considering bringing your property to market sooner rather than later. With interest rates rising and the usual spring listing rush not far away, more supply could come into the market. Sellers are holding the competitive advantage in the market. That said, it remains likely supply will remain below average levels for some time, particularly given anticipated increases in migration, piling on pressure on the demand side. Buyers remain hungry for quality property despite recent interest rate rises with sales numbers running at about 925 per week metro wide. The Reserve Bank’s rapid increases in official cash rates have added 35 percent to average mortgages in 12 months, or about $1,000 extra per month for an average mortgage. This is beginning to hurt those borrowers who took on low interest fixed rate mortgages in 2021, many of whom have properties in the outer suburbs. Supply in these markets is likely to rise if these borrowers can’t meet these higher repayments. For property owners in and around Fremantle, coming to market now gives sellers the opportunity to buy closer to a settlement period that will align with more property coming to market in spring, avoiding the need for a ‘double move’. Sellers are holding the competitive advantage in the market so there’s opportunity to negotiate outcomes that include things like an extended settlement period or ‘rent back’ options. Importantly, in this market selling and buying within the same time-frame is preferrable as property values continue to rise, choice remains constrained and investors turn their attention to our under-valued market.
Jun 9, 2023
Buyers Competing
By Hayden Groves Property listings throughout the metropolitan area are down to 5,400 on reiwa.com. Four years ago, there were 14,000 properties on offer. Sales volumes are consistently at around 950 per week, outpacing supply so it is hardly surprising that buyers find themselves making an offer to purchase in competition with others. Agents have differing approaches as to how to deal with multiple offers but normally will inform buyers that their offer is one amongst others. When a property is offered for sale by private treaty, details of competing buyers’ offers are not normally revealed so as a buyer offering in competition with others, it is difficult to know what price and conditions will ensure purchasing success without paying significantly more than the next highest offer. ask the agent if there are any other current offers Buyers should remember that agents have a responsibility to act in the best interests of the seller unless it is unlawful or unethical to do so. Agents have a legal responsibility to work at getting the buyer to pay the highest possible price on terms favourable to the seller they represent. One of the most effective ways to achieve this and discharge their fiduciary responsibility is to have multiple purchasers competing to buy. Naturally, buyers don’t like having to compete as it is much harder to gain a negotiable advantage in such circumstances. My advice to buyers is to always ask the agent if there are any other current offers on the property before submitting your own offer. Agents are not obliged to tell you that there are, so this knowledge might influence your initial offer. Also, consider removing any less-essential conditions of your offer such a timber pest inspection clause if one had been done recently, especially for more modern homes and consider aligning the settlement date to suit the seller. A bigger deposit might make your offer more appealing or an ‘odd’ price offering rather than neat 5 or 10-thousand increments might make your offer stand out from the others. The notion that agents should assume the buyer’s first offer is not their “best offer” is nonsense. A buyer who tells the agent that this is their best offer should not assume the agent thinks it is a lie and remember that the seller is under no obligation to provide you an opportunity to negotiate further. Buyers who miss out through competition are naturally disappointed but ought to come away from the experience knowing they gave it their best shot. In this competitive market, buyers will find it difficult to gain any negotiating advantage.
May 26, 2023
Perth Market Breaking Through
By Hayden Groves Perth’s property market has had its fair share of ebbs and flows over the years with market downturn the major feature of our market in the past decade. The years of 2014 to 2019 saw Perth property values drift back for more than 60 months, with house prices shedding 20 percent over that time. This came off the back of two sharper recent market declines in 2010-11 and 2008-9 where our market lost 10.3 percent and 12.1 percent respectively. Recent price rises off the back of record low interest rates during the peak-COVID years were challenged once rates began to rise and high inflation began to bite, had abated by a mere 0.9 percent and are once again on an upward trajectory. The price gains across Perth (up 1.6 percent in 12 months) have been concentrated to the more affordable regions, including Mandurah (up 8.7 percent in 12 months), Kwinana (8.4 percent), Rockingham (7.5 percent) and Armadale (5.9 percent) in the top four. At the other end of the scale, affluent Claremont is still recovering with a -3.8 percent price drop in 12 months. Fremantle is holding steady with prices back where they were a year ago. Buyer choice is diminishing. Compared to east coast markets, the combined capitals are off 7.4 percent over the past 12 months with Sydney down 9.2 percent, Melbourne 8 percent lower and Brisbane down 9. 5 percent. Adelaide is up 0.6 percent putting Perth at the top of the capital city list with 1.6 percent growth. So where to from here? The major contributor to Perth’s property surge is the lack of housing supply. Normally, when interest rates rise and inflationary pressures curb spending, property values pull back. This time, the underlying lack of supply and migration rising has trumped those macro economic factors that would see values fall. Demand is high whilst listing supply continues to drop. Total listing supply is a huge 40 percent below the decade average and continues to trend down. The measure of new listings coming to market is 22.9 percent below the volumes coming to market last year and active listings across WA are 39.5 percent under the five-year average. Meanwhile, sales volumes remain above average levels with about 1,000 sales completed each week. Buyer choice is diminishing. Market conditions point to continued improvement in the Perth market which remains the most affordable of the state capitals as median house prices here reach $599,240, still a long way adrift from Sydney’s $1,253,759. Rents continue to rise too with Perth’s vacancy rate the lowest in the nation at 0.6 percent for houses and 0.8 percent for units. Rents are now at a median value of $592 per week for houses, $516 per week for units. There are no definitive reasons to be found that suggests Perth’s property values will fall in the short term. Thanks to Core Logic for the excellent, comprehensive data set.
Apr 14, 2023
Ethics and Real Estate
By Hayden Groves As a junior sales agent many years ago, I lost a listing to a competitor. The seller’s rationale surprised, telling me, “We really like you, Hayden, and the other guy makes my skin crawl, but we reckon he can get us the best price.” The idea there was a disconnect between being a good person and achieving the best market price was difficult to comprehend then as it is today. Thankfully, the two are not mutually exclusive. The Governance Institute of Australia undertakes an annual survey of Australian society’s perceptions of ethics across the major occupational sectors. Unsurprisingly, nurses, veterinarians, doctors, teachers, ambulance and fire services all rank in the top ten of ethical occupations. The bottom ten are made up of lawyers, politicians, senior executives and fund managers. Real estate agents rank third last with 46 percent of those surveyed suggesting we were ‘somewhat unethical or very unethical’. Real estate agents rank third last Remarkably, the militant Construction Forestry Maritime Mining Energy Union ranked higher in ethical behaviour than real estate professional associations. Clearly, the community judge us and those that represent our interests (as President of the REIA that includes me) harshly. With such a poor ethical reputation, it is surprising that many real estate agencies survive as long-standing small businesses. It’s hard to imagine a local restaurant, retail shop or other cottage business that suffered such a poorreputation surviving very long. As a local real estate practitioner and employer, your reputation is everything. Damage your reputation through misconduct in the market and word quickly spreads that you’re untrustworthy. Most local agents enjoy a solid reputation, attract repeat business and have serviced theircommunities for years. For example, a quick Google search of Fremantle’s top three real estate agencies boast 418 reviews at an average of 4.6 stars. And ask random folk about real estate agents and the reply is often, “they’re terrible, but mine’s great!”. So, why the disconnect between community perception and most users of real estate services? Part of the answer lies in the history of real estate agents’ behaviour prior to their regulation in the 1970’s. Stories of real estate agents preying on “little old ladies”, underselling their homes to relatives and on-selling for profit, can develop into urban myths that remain stuck to an industry for generations. Mostly though, it is our fiduciary responsibility to work in our client’s best interest that impacts community perceptions of an agents’ ethical conduct. Being duty bound to achieve the highest possible rent and / or market price for a property in times where supply is tight and demand is high, impacts those on the buying and renting side. It follows that a buyer or tenant can feel ‘forced by the agent’ to pay more and that translates asunethical behaviour. It is the daily, necessary work of agents that can be misconstrued as unethical when the reality is the agent is simply respecting their legal obligations.
Apr 11, 2023
Local Market Looking Good
By Hayden Groves This week’s Reserve Bank decision to keep the official cash rate on hold at 3.6 percent will be welcomed by those carrying the burden of the recent surge in interest rates. Inflation remains well outside the 2-3 percent band palatable to the Reserve Bank, but they finally appear ready “…to provide additional time to assess the impact of the increase in interest rates to date.” February’s inflation figures reveal a 6.8 percent rise over the past twelve months, a pull-back from January’s 7.4 percent and December’s 8.4 percent annual inflation numbers. The downward trajectory in inflation seems clear. Some economists have boldly claimed interest rates have now peaked, suggesting that the next rate move will be a cut. government over-reach is now on full display Housing remains a major driver of inflationary pressures, particularly construction costs and residential rents. Rental affordability has deteriorated across almost all capital cities as the supply crunch leads to rapidly rising rents. So far, cost-of-living pressures are no match for population gains and short supply, with underlying demand continuing to put upward pressure on rents. Core Logic’s latest data set has Perth at the top of the national rental list for houses with a 12.7 percent increase in twelve months and continuing its upward trajectory. Local apartment rents have jumped by a similar amount, up 13.1 percent since last March. Elsewhere, house rents have peaked and whilst most capital city rents are up on a year ago, they are now falling or steady. Rents in Melbourne are on a sharp incline as government laws introduced last year begin to impact supply. In Victoria, a typical sample of 100 house sales included 27 rental homes of which only 9 were retained as rentals. The damage caused by government over-reach is now on full display. Lack of supply is not contained to rentals with new ‘for sale’ listings down 17.7 percent on last year and trending downwards. Total listing numbers are down too, 19.5 percent below the five-year average. Sales volumes have started to pick up too with auction clearance rates in east coast cities consistently above 70 percent in recent weeks. This lack of supply is beginning to impact property values with property prices across the nation turning positive again last month, up 0.6 percent marking the end of 10 months of falls. Perth remains the only capital to have recorded positive growth over the past month, quarter and year. Other cities continue to adjust with Hobart pulling back 12.9 percent in the past year, Sydney is down 12.1 percent as is Melbourne (9 percent) and Brisbane (8.6 percent). The Reserve Bank’s decision to hold on further rate increases, combined with an underlying supply shortage is likely to breathe new life into property markets despite affordability constraints in cities such as Sydney where median dwelling values are at $1,014,393. Perth’s median house value of $567,111 and unit median of $409,253 has us remaining the most affordable state capital in Australia. Migration rates, supply shortages, strong economy, high wages and relative affordability continue to underpin values in our property market. REIWA’s prediction of 2 to 5 percent growth by end of June is looking more likely as our market gains momentum.