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Jun 27, 2024
Beat the Spring Rush
One of the major problems with the local property market 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 3,250 properties listed for sale on reiwa.com buying opportunities are limited considering there were around 14,000 listings less than five years ago. However, if you are considering selling your property, it's worth considering bringing your property to market sooner rather than later. Off the back of higher-than-expected inflation figures reported this week, interest rates could be on the rise again come August and with the usual spring listing rush not far away, more supply could come into the market. That said, it remains likely overall supply will remain below average levels for some time, particularly given higher levels of state migration, piling pressure on the demand side. Buyers remain hungry for quality property despite recent interest rate rises with sales numbers running at about 900 per week metro wide. Average days on market have settled though, stable at 8 days for the past three months. The Reserve Bank’s rapid increases in official cash rates 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 will 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 relatively under-valued market.
Jun 19, 2024
Get Your Price 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 throughout the area. FOMO enthusiasm gives rise to some ‘unicorn’ selling outcomes too, with seller expectations sometimes rising faster than market sentiment. 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. friends, lovers and others have their own opinions 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 property is largely a subjective exercise; various agents will have differing views of market price, and friends, lovers and others have their own opinions that influence would-be sellers. 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 might bear. The result can be price expectations that 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 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 that 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 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.
Jun 13, 2024
Is the market too hot?
Thinking I should have heeded my own advice two years ago and bought real estate (which I foolishly did not), I enquired recently about a neat, two-bedroom duplex half in Rockingham advertised at $459,000. A little high, I thought, given it had sold three years’ earlier for $230,000. The agent informed me, she had received offers already - site unseen – for over $500,000, a gain of about 120%! Value gains of more than 33% per annum are generally unsustainable, but stories such as this are not uncommon in the current market. Meanwhile, broader economic conditions are posing some challenges, with the national economy slowing to an anaemic 0.1% for the March quarter, the worst quarterly performance in 24 years. Interest rates are not likely to come down anytime soon with March’s inflation at 3.6%, higher than hoped. The inflationary costs of fuel, rents and food are pressuring family budgets with household spending still on the rise as is credit card debt. We are more pessimistic too with a recent survey finding the percentage of people feeling optimistic about their personal future falling from 32% in July 2022 to 13.5% in February 2024. cost of living and housing affordability have been the two top issues Without the recent surge in migration levels, Australia would be in a technical recession. A recent survey of current and future concerns by Foresee Change, reveals cost of living and housing affordability have been the two top issues for Australians since October 2022. Issues like climate change and security of personal information have since dropped out of the top ten major issues of concern. With the economy faltering and pessimism rising, most property commentators would be predicting a significant slowdown in the housing market. So why not this time? Housing supply and the lack of it remains the core challenge of housing affordability and the primary factor behind the rapid rise in house prices locally. Our ‘lost decade’ of meaningful net value gains from 2010 to 2020 has deterred substantial investment in sufficient housing across WA. Meanwhile, there has been a significant rise in population growth, well exceeding forecasts of net migration of 90,000 per annum where actual migration gains from 2008 and 2019 was 225,000 annually. Despite the surge in population since 2007, dwelling approvals never exceeded 50,000 nationally in a quarter until the 2023 December quarter. Currently, we are running about 20,000 dwellings per quarter short of our national target to meet the federal government’s target of 1.2 million homes by mid-2029. At this rate we will miss the target by at least 400,000 dwellings. There is a sense of inevitability that local house prices will continue to rise due to the potent and enduring relationship between demand (through migration) and supply (the lack of it) irrespective of broader economic conditions.
May 29, 2024
New Laws Arrive
The state government has introduced its first tranche of tenancy law changes designed to further protect renters in the face of stubbornly low vacancy rates, rising rents and ongoing supply shortages. As national debate about the ‘housing crisis’ rages on, becoming more political by the day, the frustrations of those impacted by housing affordability constraint continues to rise. Thankfully, everyone agrees that the lack of housing supply goes to the heart of the problem of housing affordability, yet there is yet to be substantive, needle-shifting policies from our state or federal governments that has meaningfully focused on this core issue. So far, we’ve seen a series of back-slapping fringe policies that are either promissory or tinker around the edges. there’s no law against being a rude, vindictive narcissist For example, the federal government’s promise of building 1.2 million new affordable homes by 2029 came off the back of protracted negotiations with the Greens over the Housing Australia Future Fund; a political promise that sets a wildly ambitious construction target. Housing approvals over the past five years reached about 925,000 boosted by the HomeBuilder grants of 2020/21. The trajectory for new approvals is troubling for adding supply having fallen back (down 9.5% in December) sharply as construction material costs continue to rise, up 32.5% since 2020. Add to this rising inflation elsewhere in the economy, poor productivity, NIMBYism, high property taxes, planning constraints, lack of building innovation, higher interest rates and falling employment, we’ll miss the 1.2 million home target by miles. Meanwhile, our state government celebrates fringe policies such as the $5,000 landlord incentive for property owners who, after having their ‘extra’ property lay empty for six months, can claim the $5k for putting in a tenant. Our Treasurer reckons this could add an additional 1000 homes to the rental pool. Sorry, but anyone that can afford leave their investment property empty for six months, won’t be swayed by five grand. Other government actions around housing included changes to the Residential Tenancy Laws, two of which came into effect this week. Firstly, there is now a ban on ‘rent bidding’. This effectively means landlords and property agents are banned from encouraging tenants to “pay extra” to secure a rental home. Nor can properties be advertised at a “from” weekly rent. The intention is sound but in response, initial asking rents will rise to account for the competition in the market. Tenants can still offer more than the asking rent if they choose to. The second new law is referred to as the ‘retaliatory rule’ whereby a landlord cannot respond to reasonable requests from a tenant regarding property maintenance and other matters by not renewing the lease, for example. Some tenants can be unreasonable to deal with and there’s no law against being a rude, vindictive narcissist. It will be interesting to see how the new law deals with circumstances like this where the property owner seeks to not renew a lease on the grounds of their tenant being unreasonably difficult. There is no quick fix to the housing crisis, but every effort to add supply to the housing stock in an affordable way must be the priority.
Apr 4, 2024
Perth Property Takes Lead
It doesn’t seem that long ago when Perth’s property values made us the cheapest major capital in the nation. At the time, it failed to make any sense that Hobart and Adelaide’s median house prices were significantly higher than ours given our low unemployment, high wages, lifestyle and economic strength. Two years ago, Perth’s median home value for the March quarter was reported by Core Logic as $525,800. The current median house value for Perth as reported this week sits at $703,502. In March 2022, we were the most affordable place in Australia to buy real estate with all the evidence pointing to Perth being on the brink of a property boom. Back then, buyers dabbling in the Hobart property market parted with $820,000 during the quarter, in our nation’s capital they paid $982,000 and in Brisbane $760,000. In Darwin, the median house price reached $583,000 and Adelaide put on a tremendous 7.1 percent spurt from the previous quarter to reach a median of $649,000. Melbournian buyers paid a median of $1,121,500 for a detached house and Sydney topped the list with an extraordinary median of $1,590,900 for the quarter. Perth’s median house price growth for the twelve months to March 2022 was 4.1 percent. Compared to the same twelve-month gains had in Hobart (31.5 percent), Brisbane (26.7 percent) and Adelaide (24.8 percent), Perth’s property price gains back then were comparatively modest. Perth’s annual house price growth is now a nation-leading 19.8 percent and showing no signs of slowing. Brisbane sits in second place at 15.9 percent, Adelaide 13.3 percent and Sydney (somewhat remarkably given their high median price) has put on a further 9.6 percent. Remaining capitals are still growing but by less than 3.5 percent. Usefully, Core Logic’s statistically references ‘series peaks’ demonstrating current market sentiment within the context of a ‘since -COVID’ cycle. Brisbane, Adelaide and Perth are the last remaining cities to be at peak since that time with Sydney, Melbourne and Hobart all having peaked in early 2022. It would appear Perth has some way to go with Adelaide’s median home value at $734,173, and Brisbane’s – the capital most typically value-aligned with Perth – at $817,564 with both still growing. I predict Melbourne will continue to constrict from its current $778,892 median value, Hobart’s anaemic growth at 0.3 percent could turn negative at the year progresses and Sydney’s growth pattern will stall. I punt Adelaide is close to peak growth and whilst remaining positive will only gain 5 to 8 percent over the next twelve months and Brisbane should continue its double-digit performance for the remainder of 2024. With Perth gaining 1.9 percent in March and 5.6 percent for the quarter, we could see gains of around 22 percent this year. Meanwhile, local rents are up 13.7 percent for houses and 15.9 percent for units. Housing affordability has deteriorated and will get worse before more supply arrives.
Feb 22, 2024
Who’s to Blame?
Housing affordability is one of the most significant challenges of the modern era. Both house prices and rents are at record highs in Perth and across much of the nation with Perth’s median house and rent prices at around $600,000 and $600 per week respectively and growing faster than any other major Australian capital. We understand that the reason for these rises is down to simple economics, higher demand and short supply means prices and rents rise. Governments have done a spectacular job at shifting blame away from their own housing policy failures to investors, banks, real estate agents, local councils and developers. Yet, each of these sectors play a pivotal role in delivering the existing housing stock. Governments, on the other hand, through their taxation and other policies actively undermine housing supply. Property investors, mostly families that own a single investment property, provide 90 percent of all residential rental homes across Australia, housing millions of tenants. They obtain a moderate benefit by claiming some of the expenses stemming from that investment against their taxable income via negative gearing. However, once positively geared, investors pay tax on the property’s income and pay Capital Gains Tax if they make a profit upon selling. Banks, whilst not the most popular corporate citizens, provide the funding for property through mortgages. Banks also provide the funding for developers. Us real estate agents provide the services that help investors navigate residential tenancy laws, help people into home ownership and enable property transactions. Local councils often stymie property developments, especially increased density but they also adapt their planning laws over time, enhancing our urban environments. Developers provide housing on mass, adding density to areas where people aspire to live, work and recreate. Part of the reason property values are rising is the cost of construction, both labour and materials, has risen by around 40 percent in 3 years with end property values for finished product not at levels sufficient to support the viability of the project. Developers work to a margin and if the project fails the feasibility test, it doesn’t get built. That’s why new emerging density areas such as those around the new Metronet hubs will take several years to be developed; the cost of delivering the project is higher than the combined value of the housing produced. These cost constraints are not limited to construction costs. Land tax, holding costs, public art levies, developer levies, rates, headworks fees and stamp duty are additional cost burdens representing around 25 percent of the total development costs. This is where government ought to step in. If they were serious about housing supply, government would support the groups that provide the housing. Instead, state and federal governments either fail to provide the housing themselves (public housing waiting lists are at record highs) or set policies (stamp duty, tenancy law changes and land tax for example) that actively discourage additional housing supply. If it isn’t government, who is to blame for the housing crisis?
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 23, 2024
Investors Not to Blame
Only a few weeks into the new year and rental affordability is once again making headlines. Core Logic’s latest numbers put national rents at $601 per week, up from $437 per week four years ago. Inevitably, calls to make rents more affordable will follow with campaigners Everybody’s Home calling on the government to scrap negative gearing and capital gains discounts to fund more social homes. This group, amongst countless others, fail to recognise the fundamental fact that across Australia, 9 out of 10 rented homes are provided by private investors. Removing negative gearing and CGT discounts and hundreds of thousands of investors would sell, decimating supply and setting rents soaring. Governments have very successfully shifted the blame for today’s housing affordability challenges away from their own housing policy failures and instead pointed the finger at property investors and the real estate agents that represent them. Politicians have very effectively shifted the narrative away from supporting private property investment to supply homes to the market whilst simultaneously blaming investors for spiralling rents and house prices. This is a remarkable achievement. Like it or not, unsophisticated private investors – ordinary Australians – supply 27 percent of all homes in the nation to tenants. Government supply about 3 percent as social housing. Yet, in this time of greatest need, with supply of rental homes at severe lows, there are few housing policies that seeks to encourage the investor cohort into supplying more homes. On the contrary; governments shun the idea of stamp duty reform, land taxes continue to rise and tenancy laws continue to swing in favour of tenants. Negative gearing and capital gains tax discounts are no longer sufficient incentives to encourage enough investors to buy. Appealing tax settings and returns in superannuation funds, commercial property and syndicated funds offer ‘mum and dad’ investors an alternative to direct residential property investment. Prior to 2014, the volume of investors buying residential homes to add to the rental pool, ran at a higher rate than those selling rented homes. Talk of changes to negative gearing tax laws from the then opposition, along with broader market factors, began to see this trend reverse. Nowadays, there are far more rental homes being sold than purchased. In Victoria, thanks to rising land taxes and changes to tenancy laws, for every three tenanted properties sold, only one remains in the rental market. In WA, there are now 18,000 fewer tenancy bonds being held today by the Bond Administrator than in 2019. When investors are inactive in the market, it falls to government to provide the housing; something they have failed to do. Put simply, governments – supported by the media and tenancy advocates – have been busily whacking investors, whilst simultaneously failing to provide enough rental housing for Australians as the only alternative to the private investor market. And, somehow, they’ve so far been able to get away with it.