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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 7, 2023
Short Stay Rentals Australia
A recent visit to the Gold Coast on REIA business revealed one of the more vexing issues around rental affordability in Australia. In one of Australia’s favourite holiday destinations for both domestic and international travellers, the Gold Coast region has a high number of apartment homes traditionally used as a holiday flat or rented investment properties. A search of rental homes available across the Gold Coast region reveals about 1800 properties available for lease. By comparison there are some 5500 short-stay properties available. REIA’s analysis shows investors favouring the short stay market for a typical 2-bedroom apartment earn the same income in 156 days compared to a long-term rented property across a twelve month lease. a deep-dive study into short-stay accommodation Armed with this information, REIA undertook a deep-dive study into short-stay accommodation (SSA) across the nation which we released this week. The numbers reveal a remarkable level of growth for this sector with 133,968 (81.9 percent of which are entire dwellings) short-stay accommodation places across Australia, an increase of 22.8 percent for the period March 2022 to March 2023. Tasmania has witnessed the largest increase in SSA places, up an incredible 66.4 percent in twelve months to 4255 properties. Canberra came in second with a 49.6 percent increase in SSA places, followed by Victoria’s 32.4 percent, NSW’s 25.3 percent and Queensland’s 23.7 percent. Here in WA, there are 8,056 SSA places, an increase of 16.2 percent across the same twelve-month period; the lowest growth rate across the nation. Regional areas have the highest proportion of SSA places, making up 61.2 percent of all properties, with the highest differential between city and regional places found in Queensland (thanks to the Gold Coast and other coastal holiday destinations) at a ratio of 82:18 regional to capital city. In WA, 45.9 percent of SSA places are in the Perth metro area, the remaining 54.1 percent in the regions. Mature tourism destinations along with those more recently discovered thanks to the COVID-19 pandemic, welcome SSA opportunities for visitors with tourists contributing to local economies. Yet, the increase of SSA places has meant fewer properties available to traditional long-term renters with this shortening supply contributing to recent rent increases. SSA investments can be an appealing alternative to the long-term rental market. In Perth, an average two bedroom dwelling in the rental pool, earns $25,800 per year. The equivalent dwelling in the SSA market, based on average nightly rates, earns the same revenue in just 132 days. In regional WA, the gap in earnings from SSA and a long-term rental is even wider, taking just 107 days for a SSA property to earn the equivalent in the long term annual rental market. However, higher management costs (15-25 percent), no regulatory protections, risk of property damage and increased wear and tear are important considerations for SSA investments. The ‘gap’ in earning potential between short and long stay renting poses an immediate threat to further deterioration in rental affordability. Longer-term though, I predict the combination of cost of living pressures, slowing domestic tourism, potential excessive supply of SSA and risks associated with the SSA asset class will see long term rental investments regain favour.
Aug 31, 2023
10 Ways to Fix Rental Crisis
Earlier this week, I appeared before a Senate Inquiry on behalf of the real estate industry looking into renters’ rights. It is widely recognised that insufficient supply of housing is the main cause of rising rents. It’s a simply supply and demand equation; low supply plus high demand equals higher rents. Astonishingly, the main supplier of the rental homes - family investors – are ignored by governments and are actively vilified by the Greens. Policies that disincentivise the suppliers of rental homes, such as rent caps or rent freezes, end up diminishing the supply and rents continue to rise. It is baffling that the Greens continue to oppose the Housing Australia Future Fund legislation which aims to supply affordable housing, but reckon imposing a two-year rent freeze (which sees investors sell) would improve long-term rental affordability. Instead of playing politics, the Real Estate Institute of Australia has come up with a ten-point plan to help tenants: Coordinate State and Territory bond agencies to track data on tenancy numbers and tenures. Monitor rental pain points, particularly tenancies not professionally managed. Develop a cohesive national industry-government program of awareness materials for renters. Develop incentives for vacant properties and short stay rentals to bring them back to long-term rentals. Commit to long term stamp duty reform; and offer immediate stamp duty waivers for purchases of rental properties in areas of high need. Commission an immediate occupancy audit across Government owned and funded housing. Develop a feasibility study for re-purposing non-residential real estate into residential housing. Examine options for non-conventional rapid build homes in high areas of economic growth and housing need. Implement the National Cabinet target to build 1.2 million homes by 2030 and have performance mechanisms that hold governments and industry accountable to achieve this. Pass the Housing Australia Future Fund Bill. Meanwhile, you can contribute to the debate by making a submission to the Inquiry. Just search, “Worsening Rental Crisis” and go to the parliamentary page.
Aug 24, 2023
National Cabinet Discuss Potential Rent Freezing
National Cabinet met in Brisbane last week and, despite significant political pressure from the federal Greens, emphatically ruled out imposing a rent freeze and/or rental cap system in the states and territories. I note that the federal government has no jurisdiction to legislate changes to residential tenancy laws, that rests with the states and territories. However, it is the first time that a Prime Minister has worked with the states and territories in implementing a nationally coordination plan in the interests of renters’ rights. On the whole, the nine-point plan that popped out of the National Cabinet meeting strikes a fairly reasonable balance between the rights of tenants and the suppliers of their homes, investors. Importantly, the plan gives the states and territories relative autonomy to tweak their legislative framework to align with the plan but account for their unique markets. The language used in the plan provides a degree of flexibility. For example, the first point of the plan states, “Develop a nationally consistent policy to implement a requirement for genuine reasonable grounds for eviction, having consideration to the current actions of some jurisdictions.” This gives the states plenty of scope. For instance, in Victoria if a tenant wishes to renew a fixed-term lease, the landlord must agree to it unless they wish to move in themselves, sell the property or substantially renovate it. Whereas the WA government has just finalised their review of residential tenancy laws and sensibly retained ‘no-grounds’ completions at the end of a fixed term lease whereby the landlord is not obliged to renew a lease for an existing tenant. for every three rented houses sold, only one remains a rental. Other points in the plan cover the opportunity for tenants to appeal against retaliatory evictions, seek to outlaw rent bidding and protect tenants in situations of domestic or family violence, most of which are legal protections already in place across Australia. Point 3 in the plan seeks to limit rent increases to annually which seems fair enough and is law in most states already. Queensland and WA are the only two states yet to make this change. The remaining points cover limiting break-lease fees for fixed term leases (which will simply give rise to fewer fixed-term leases being offered), designing rental applications to protect renters’ personal information, the phasing in of minimum quality standards for rented homes and better regulation of short-stay accommodation. Now that we have a nationally agreed framework for regulating rental homes, the impact on supply of rental properties is yet to fully play out. Amongst the Greens’ hysterical demands for rent freezes / caps, investors have been busily selling out their assets at the rate of 3:1 – for every three rented houses sold, only one remains a rental. Mortgage costs over the past twelve months have risen at three-times the rate that rents have gone up. Land taxes in some states have doubled. Insurance premiums, council rates and strata levies have all risen too. So, despite this neat, nationally coordinated plan to look after tenants, a crucial piece is missing; who is going to provide all the houses that tenants call home?
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.
Aug 3, 2023
Use a REIWA Property Manager
By Hayden Groves Property management is more about managing the tenancy than it is about managing the property. The property manager’s primary role is managing the tenancy agreement as expressed by the terms of a lease and regulated by the Residential Tenancies Act. The property manager can only inspect the property on four occasions per year on behalf of the owner, so it is important that the tenant understands that it is them as the occupant, that effectively manages the property itself. For tenancies longer than three months, the Residential Tenancies Act (the ‘Act’) applies automatically (whether there is a formal lease or not) and it is foolhardy not to utilise the services of a competent property manager for a property asset, particularly during times of short supply and high demand. There is great value in having a property manager act at ‘arm’s length’ Management fees are not exorbitant and are tax deductible. And for the sake of saving a relatively small portion of the rental income in management fees, the risks of self-management are significant. A sound working knowledge of ever evolving legislation is essential, as is the capacity to properly reference check a prospective tenant. But, perhaps most importantly, much of the risk and responsibility attached to the management process is borne by the managing agent, giving property owners someone to rely on if the tenancy goes wrong. Even thoroughly assessed tenancies go off the rails on occasion due to a change in circumstances of the occupants; job loss, relationship failure and health issues are common reasons. A professional, well trained local agent is equipped to deal with this challenging issues when they arise. Finding the right tenant can be tricky too. Prospective tenants almost exclusively rely on the internet to find themselves a property, so owners without access to the favoured websites will find it difficult to attract the right tenant in the first place. There is great value in having a property manager act at ‘arm’s length’. Many a self-managing landlord has fallen into the trap of sympathising with their defaulting tenant and allowing rent arrears to build up over time hoping that they’ll “make good”. Acting at arm’s length affords the property manager a compassionate ‘just business’ approach to rent payments and the lease agreement more broadly. This is particularly important in these times of rising rents and inflationary pressures. Self-management often works well and for extended periods, but when a tenancy goes wrong, it is costly and stressful and it has been my experience that with all things considered, it is not worth the risk.
Jul 14, 2023
New listings are down a nation-leading 30.3 percent
By Hayden Groves This week, REIWA reported that there are 2,395 houses, 1,461 units and 1,364 vacant lots listed for sale on reiwa.com. This meagre total of 5,220 properties is about 40 percent lower than the same week last year. Meanwhile, sales volumes remain relatively high at 880 last week, unchanged from the corresponding week in 2022. Five years ago, reiwa.com listings numbered 12,417 and there were 29,000 property transactions. Last year, there were 58,000 sales across land, units and houses. Unsurprisingly, this shortage of supply matched with stronger sales volumes leads to one thing – higher prices. The same thing is happening in the rental market. Rental stock hit record highs in January 2018 with 12,000 homes available for lease, last week there 2,123. Rents are rising as a result of constrained supply. The problem of low housing supply for either sale or rent is not confined to the WA market. According to the latest Core Logic data, national listings for dwellings is down 13.2 percent on last year and 28.7 percent below the five-year average. In Perth, total new listings are down a nation-leading 30.3 percent from last year, way below the 18.9 percent average decline. Rental prices are rising at a rapid rate, up 13.4 percent in Perth since last year. Median house rents in Perth have moved from $370 per week in July 2020 to $575 per week today. A decade of relatively flat weekly rents, rapidly rising interest rates (which have risen 35 percent in a year), cost of living pressures and higher migration intake fuelling demand are the core reasons for the current rent price increases. new listings are down a nation-leading 30.3 percent Investors remain cautious about buying in the current fiscal environment and many, faced with spiralling mortgage costs are opting to sell. With 70 percent of all rental homes in Australia owned by persons holding a single property other than their primary home, selling the rental property is often a sensible option is your home mortgage repayments are rising. Chatter about rent freezes, high stamp and land taxes, a wobbly national economy, tenancy risk and yet-to-be tamed inflation disincentivise private investment. The structural nature of our rental housing sector has for generations relied on family investors to supply the market and in the absence of an alternative – such as governments supply more housing – we need thriving investment in housing from ordinary Australians to supply the homes tenants need. Yet, some politicians, advocates and the media have lashed these ordinary investors as being ‘greedy’ or even labelled them ‘dodgy’. Sure, there are some unscrupulous landlords out there – in the tiny minority. But this modern, anti-aspirational rhetoric threatens the fundamental underpinnings of our rental system. The government is unable to supply the $3 trillion worth of rental stock in Australia anytime soon, if that is the aspiration of those looking to undermine private investment in residential property.
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.