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Oct 31, 2022
Budget Blues
By Hayden Groves When Jim Chalmers delivered his first budget this week, he used the word “sensible” often. Keen to establish his credentials as a responsible manager of tax-payers’ money, the Treasurer delivered a budget that focused on Labor’s pre-election promises. Housing supply was also a major centerpiece of the budget. The ambitious target of building one million more affordable homes over five years from 2024 through a new National Accord is particularly ambitious. The real estate sector has long called for a plan to increase housing supply in a real way with proper targets that holds State and Territories accountable and deals with the key barriers in land release, planning and that is pro-investment for the private property markets.If done right, this approach can give Australia’s housing stock the generational injection it so badly needs in the same way policy programs in the 1970s did. The task will not be easy. Obviously, the devil will be in the detail and much more information will be needed especially in relation to the intent to provide opportunities to superannuation funds and build-to-rent developers ahead of Australia’s mum-and-dad investors. Industry will be looking out for any attempted inequities in this space. The Australian real estate industry manages a combined property management portfolio worth $3 trillion and manages $78 billion in rents each year on behalf of family investors and it would be fool hardy to mess with this essential cohort of housing providers. The budget has missed the chance of dealing with the wicked problem of stamp duty by State and Federal Governments which has been entirely and disappointingly omitted within the National Accord. However, one million new affordable homes are a supply ambition to be applauded. The challenge has now been thrown down to get these homes built and Australians housed in a very short period. The task will not be easy. Since May, repayments on a $500,000 mortgage have increased by almost $700 each month and household saving is forecast to slump below pre-pandemic levels. Constraints on housing supply, including a backlog of new builds from supply chain pressures, all mean affordability pressures for home buyers and renters are unfortunately likely to continue in the near term. Whilst this Budget was appropriate for the current circumstances both internationally and domestically the 2023 Budget needs to address how to support delivery of housing supply across all markets in Australia. A serious conversation on tax reform with intent to implement needs to happen.
Sep 7, 2022
More Land Tax Will Mean More Rent
by Hayden Groves To apply from June 30 next year, the Queensland government has decided to apply a land tax to property investors that hold additional property outside that state. This is a remarkable decision that relies on investors of Queensland property that is already assessable for land tax to self-disclose their additional property investments they own in other Australian states and territories. The new tax regime comes off the back of recently passed tenancy laws that swing the pendulum of fairness towards tenants, effectively disincentivising property investors. Having been in Brisbane last week, property managers are telling me their clients are instructing them to sell and that investors have put away their cheque books. This new tax will add to the trend. Tenants will be the ultimate losers It could be that a property investor that predominantly owns property in other states and has, say, a rental apartment on the Gold Coast will be assessed for land tax as if all their investments where in Queensland. I would imagine the first thing this investor will do is sell their Gold Coast apartment to avoid paying the additional tax. It is not uncommon for those living in the chillier southern east coast cities to buy an investment property in Queensland and rent it out with the view to relocating their one day. From next year, holding a single asset in Queensland and others elsewhere will no longer be as appealing. Pandemic-related changes to workplaces, Victorian lock-downs and migration movements has meant the flight to Queensland is already well underway. As a result, rental vacancy rates in Brisbane are at 1.0 percent and rents are already up 13.3 percent in a year; the highest increase in the nation. This new punitive tax captures those investors that own Queensland property that is currently under the threshold value of $600,000 but who own property elsewhere across Australia. Currently, it could be an investor that owns a single property in each state that falls under that states’ threshold land value that would not be liable for any land tax. As an example, an investor that owns land in Victoria valued at $1,565,000 and a property in Queensland worth $745,000 is currently paying $1,950 for land tax. From June next year, thanks to the aggregation rules of cross-state ownership, that same investor will receive a land tax bill of $8,422. Administratively, managing cross-state Treasury departments’ mechanisms to ascertain land values and taxes will not be straight-forward. This will add significant cost to managing the new regulation and combined with the likely sell-off of Queensland investment stock, the new tax may not gather as much revenue as first thought. Unfortunately, higher taxes on property investors leads to fewer investors which, in turn, means fewer homes which always leads to higher rents. Tenants will be the ultimate losers in Queensland’s land tax grab. Aerial view of Hamilton Hill, City of Fremantle
Sep 1, 2022
Getting a Rental
by Hayden Groves Across the nation, rental vacancy rates are sitting at around 1.1 percent and continue to trend downwards. There is a dramatic shortage of housing supply and demand for homes is strong, fuelling rent rises in Australian cities and regional areas. The rise in popularity of short-stay accommodation houses has taken up normally long-term rental stock, investors have been ‘profit taking’, selling up as home values rapidly grew then peaked in big east-coast cities and population growth continues to fuel underlying demand. In some jurisdictions, land tax hikes, changes to residential tenancy laws and the introduction of foreign investor taxes have discouraged property investors. Across Australia’s entire housing supply, 27 percent is delivered by privately owned rental properties, 80 percent of which is owned by mum and dad types who own one or two properties. A rent freeze would see investors flee the market Over the past ten years, investors have been buying property, with increases in rental stock across all capital cities. It’s just that they haven’t bought enough to meet demand. The National Housing Finance and Investment Corporation estimates we’ll be 160,000 homes short by 2030 unless we increase supply. Since 2018, (coinciding with the threat of changes to negative gearing) the gap between the number of investors selling versus those buying has widened. Meanwhile, the Australian Greens’ proposed solution to impose a rent freeze over the next two years, is a reminder that some of our political leaders have little idea as to how private property markets work. A rent freeze, whilst well-intentioned, would see investors flee the market, leaving stock levels so dramatically short, rents would rise to unsustainable levels leaving many thousands of people with literally nowhere to live. Instead, how about providing incentives for investors to provide the housing stock? Stamp duty concessions if you bought in areas particularly short of housing supply, tax concessions if providing housing for key workers like teachers and nurses in the regions, rebates for investors renting to vulnerable citizens are just some ideas to encourage more private sector investment. For tenants, it is a difficult time. Whilst it hasn’t always been that way (in January 2018, there were about 12,000 rentals advertised on reiwa.com, now there is about 1,900) there is little evidence to suggest the current supply shortage will ease anytime soon. Rents will continue to rise and tenants will normally have to compete to secure a property. If you are looking to rent, make sure you have your references in order, are prepared to meet the market demand and make quick decisions. Those hesitating to sign a lease after being accepted in the hope something better might come along, may find themselves waiting to find a home for longer than expected. Aerial view across Rockingham to Coogee, Western Australia
Aug 25, 2022
Property Managers are Awesome
by Hayden Groves As the Albanese government looks to address the labour shortage across Australia with its Jobs and Skills Summit getting underway, the real estate sector hopes some meaningful solutions come from it. Although, industry is not expecting much as the Summit is mostly aimed to serve the benefits of the ‘big end of town’ with large corporates and unions the main participants. This is disappointing given everyone knows that small to medium enterprises are a significant driver of our local economies. Corporation and taxation laws have been designed to cater for the large corporates with under-resourced small businesses bound by the same rules, so we should have better representation at the Summit. Perhaps next time. Property Managers are in short supply The real estate sector employs about 140,000 Australians working for around 44,000 real estate offices around the nation. 99 percent of these companies are small businesses. These small businesses conduct property transactions worth $350 billion per year and collect about $50 billion in rents. The collective value of residential property in Australia is $9.95 trillion, two-thirds larger than the ASX and superannuation pool combined. For a small business sector, real estate carries a lot of economic responsibility. In the current tight labour market, it is difficult to attract people to work in the real estate industry.Property Managers are in short supplywith 5,000 jobs on offer across the nation. The shortage is especially acute in Victoria where, off the back of prolonged COVID-19 lockdowns, property managers came under enormous pressure from both landlords and tenants as they navigated rental and eviction moratoriums. The negative feedback loop combined with recent changes to tenancy laws proved too much for some and many left the industry. In many parts of Australia, the work of property managers is about to get harder. Pendingchanges to tenancy laws in Queensland and the ACT (and possibly here in WA), will turn more investors away from owning residential property. This is a trend already underway with anational vacancy rateof 1.1 percent and stock levels plummeting in recent times. For example, there are 26.6 percent fewer properties on the market for rent in Melbourne now than a year ago. The rate of investors selling versus investors buying is also accelerating since first crossing over in 2018 when the threat of changes to negative gearing laws loomed large. Property Managersdo much more than collect rent. They are a pivotal part of housing millions of Aussies, housing 27 percent of all Australian households. They are problem solvers, the unsung heroes of property, often working after-hours to open a door for a tenant who’s lost their key, re-light a hot water service, clean an oven for an incoming tenant and a host of other examples. Property Management can be a tough job, but it is also rewarding. Bringing property owners and tenants together, affecting positive outcomes, housing the community, working as a team are all great features of the role. Unfortunately, Property Managers are often undervalued by clients, tenants and some agency bosses. They do difficult and essential work and are thoroughly deserving of our respect and support. Aerial view of Mosman Park across to the Swan River.
Aug 18, 2022
Which Way for the Property Markets?
by Hayden Groves Earlier this week, ANZ published their market predictions for Australia’s property market for the remainder of this year and for 2023. In short, they reckon Perth property values will inevitably follow east coast markets in a downward trajectory through to the end of next year, predicting Perth home values will fall by 7 percent. NAB reckon Perth values will dip 11.4 per cent. Sadly, this is yet another example of an east-coast based bean counter squirrelled away in a back room handed the task of predicting our local property market from afar. I recall when COVID-19 first hit, all the banks thought Australian property values would fall an average of 20 percent; they were about 40 percent out. ..predicting house price movements is hard. With bank economists’ recent predictions spectacularly failing in recent times, it’s reasonable to question the veracity of their current opinions, especially when it looks so obviously east-coast inspired. Undoubtedly,predicting house price movements is hard. There are multiple variables, local or world events can impact, economic conditions change and market sentiment all play a part. However, there is little evidence to suggest Perth property values should fall at all in the short to medium term. One of the major drivers of markets is, of course, interest rates. It is widely predicted interest rate rises will settle within the next 9 to 15 months, leaving a typical variable mortgage rate of about 5.8 percent; historically relatively low. At this level, this will add about $880 per month to the average Perth mortgage compared to their lowest point. That will be tough for many, but manageable by most. Sydney might be different with such a rate rise adding about $1750 per month to the average mortgage – ouch. Migration is moving in the right direction too, keeping demand for housing strong in an under-supplied market. Overall, for-sale listings in Perth are 14 percent below this time last year and 32 percent below the five-year average. At the same time, sales volumes here remain strong, up a whopping 52 percent on the five-year average. And the main reason why Perth property values shouldn’t fall? Affordability. Perth remains the most affordable capital city in Australia at a median house price of $585,000. Adelaide is next on the list at $699,000. Our average of 26.6 percent of earnings going to service our mortgage is well below the national average of 37.3 percent. As east coast markets tank, surely people will look west to take advantage of our enviable lifestyle and relatively cheap housing. I think ANZ (and the other big banks) have got their prediction about Perth’s property market badly wrong. In this snap shot of Fremantle is Fremantle Park, CBC, Saint Patrick's Basilica looking out toward Fremantle Harbour.
Aug 10, 2022
Perth Values Up - Rents Rise
by Hayden Groves Each week, my friend from data house Core Logic sends me a snapshot of residential property market behaviours across Australia. The emerging trend since the rapid rise of interest rates demonstrates that Perth is the most likely place in the nation to hold onto its price gains experienced since the start of 2020. As the weeks tick by, big east coast cities of Brisbane, Sydney and Melbourne continue to retreat down 0.9, 2.0 and 1.4 percent respectively over the past month. Adelaide rose 0.4 percent last month and Perth crept up 0.1 percent. The year-to-date and 12 month change figures are the ones to look to for longer term trends and its these numbers that support Perth’s relative market stability. Everywhere, rental stock is falling; This measure shows Perth rising 4.2 percent year-to-date and 5.2 percent in the past 12 months. All other capitals are retreating at a faster rate than Perth. Sydney’s 12-month growth rate is now at 0.8 percent and Melbourne has gone negative to -0.2 percent. Sales volumes remain strong in Perth too with around 900 weekly sales, unchanged from a year ago. Meanwhile, local listing stock remains tight with 13.2 percent fewer properties listed today than a year ago with fewer new listings coming to market. Elsewhere across Australia, overall listing stock has grown, most notably in Hobart where there’s now 59.7 percent more listings than last year. All other capitals aside from Perth and Canberra have more new listings coming to market than this time last year. East coast markets are now beyond their peak as supply begins to catch up with demand. Rental markets across the nation tell a different story. Everywhere, rental stock is falling; most notably in Brisbane, Melbourne and Adelaide where total listing numbers have fallen by 29.1 percent, 26.6 percent and 22.4 percent respectively. Perth’s rental stock has fallen 15.8 percent in a year, a serious warning to government looking to further disincentivise investment by considering changes to residential tenancy laws. No surprise that rents continue to rise across the nation, up 9.8 percent in a year. Vacancy rates are low everywhere at 1.2 percent nationally, down from 2.1 percent a year earlier. Perth’s vacancy rate has fallen from 1.4 percent to 0.8 percent in twelve months. The relative stability of the Perth property market is the main take-out from these numbers. Our affordability, enviable lifestyle, strong economy and low unemployment rates make for ideal conditions for continued property investment. To borrow from share trading parlance, the numbers make Perth a “strong hold, firm buy” market. After the Winter storm has lifted, the reflection of light through the rain appears as a rainbow from the dark clouds above the city of Fremantle.
Aug 7, 2022
Stamp Duty Reform
by Hayden Groves Newly minted Treasurer Jim Chalmers is on the record as a supporter of reforming stamp duty; that hideous, unfair tax that stifles economic growth and impacts affordability. Everyone from the Henry Tax Review through to the National Housing Finance and Investment Corporation (NHFIC) agree with what real estate agents have always known; that stamp duty is a significant barrier to property ownership and is an insidious, transaction-killing tax that should be reformed. Stamp duty significantly reduces household mobility with its removal freeing up more suitable housing for more Australians that would improve economic efficiency. that hideous unfair tax... A buyer keen to relocate their family to places where there are better work opportunities are punished by stamp duty costs each time they move. A household that bought a median priced house four times over the past twenty years will have paid 10 times the amount of stamp duty compared to a household making only one purchase at the start of this period. As an example, Victorians nowadays pay $45,000 in stamp duty on a median house purchase compared to $12,000 in 2002. Thanks to bracket creep, all households across Australia are paying substantially more stamp duty now compared to twenty years ago which is hindering the efficient use of and suitability of housing across the nation. Stamp duty is often borrowed adding years and additional expense to home mortgages. A senior-citizen owner of a large family home on a low income is reticent to move home and down-size, largely because of the stamp duty cost payable on the transaction. NHFIC CEO, Nathan Dal Bon has advocated the benefits of a broad-based land tax as an alternate to stamp duty, stating that a typical household would be better off paying land tax on a median priced property than transfer duty. As an example, a household in NSW would have to pay a broad-based land tax for more than fourteen years to be worse off which is greater than the 12.4 year average holding period of a property. State governments are awash with stamp duty revenue, some $60b last year. This reliance on property transfer related revenue makes it difficult to reform as this tax base needs to come from somewhere. A broad-based land tax on all homes (including the family home) is a popular alternative but the roll out of this program in ACT has had disastrous consequences for the market there due to massive increases in land tax for investment properties leading to a savage shortage of rental stock with soaring rents as an immediate result. Certainly, a broad-based land tax would make state treasurers’ jobs easier. Estimating forward revenues based on property market predictions are difficult. No one would have predicted transactions in 2018 & 2019 in WA (and therefore stamp duty revenues) would be at thirty-year lows. Stamp duty revenues in WA are rising once again thanks to a resurgent property market but the tax remains a significant barrier to many buyers keen to enter the established market. The discriminatory stamp duty assessment of new versus established dwellings for first home buyers would be a good place to start reform. Fremantle Port and Marina
Jul 21, 2022
Private Investor Heroes
by Hayden Groves New federal Minister for Housing and Homelessness, Hon. Julie Collins, met with state Housing Ministers last week to discuss, amongst other things, housing affordability in Australia. The Covid-19 pandemic induced economic crisis dropped interest rates to ‘emergency’ levels and, with that, due to surging demand, came significant nation-wide gains in property values. As the market moved, so too did investors, many of whom made the decision to sell, cashing in their capital gains. Many of these buyers sold their investments in favour of pooling funds towards an aspirational upgrade of the family home. Others sold, consolidated their capital and moved to regional lifestyle areas, a collective ‘flight from the cities’ as working from home became a genuine alternate career choice. In some central NSW coastal areas, property values surged as much as 65 percent in two years. In Western Australia, where property value gains have been relatively modest, long suffering property investors made their ‘cash-out and sell’ decision based upon their asset acquired in 2010 finally returning to what they had paid for it. ...a regime of high taxes and punitive tenancy laws. In some states such as Victoria, property investors sold due to the introduction of tenancy laws that removed their fundamental property rights or because of massive hikes in land taxes such as that experienced in the ACT. In other states, like Hobart for example, lifestyle-seeking buyers from mainland east coast cities have flocked there, snapping up homes that would otherwise be rented. Otherwise long-term rental properties have been moved into the short-stay holiday market. The result of these trends is a massive under-supply of rental stock across Australia. Core Logic stats show national vacancy rates are at 1.2 percent, down from 2.2 percent a year ago and well below a balanced market of around 3.5 percent. Total listings of rental stock advertised for rent across Australia is down by a huge 24.1 percent compared to twelve months ago. Over the past year, ‘for rent’ stock in Melbourne has fallen by almost a third, in Brisbane its down 28.3 percent, in Adelaide it’s dropped by 28.9 percent. Perth, where there are now 14,000 fewer tenancy bonds being held, has lost 14.9 percent in rental listings in a year. Unsurprisingly, rents are up nationally by 9.5 percent and will continue to rise as international borders open and the migration push for more workers to combat labour shortages kicks in. And with interest rates rising, there will be fewer first home buyers who typically rent before they buy. Despite these somewhat alarming figures and expected trends, governments continue on a path of disincentivising private investment in property viaa regime of high taxes and punitive tenancy laws. Instead, there is much attention being paid to building more affordable social housing dwellings which represents only 3 percent of the entire housing spectrum in Australia. Whereas 27 percent of housing stock in Australia is owned by mostly (80 percent of them) mum and dad investors who are leaving the market in droves, a trend likely to continue unless the government starts to pay them the respect they deserve. It is private investors that are the unsung heroes of affordable housing in Australia and remain the key to unlocking supply and keeping rents affordable. Market Street Fremantle WA