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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.

May 19, 2023

Waiting on Spring to Sell?

By Hayden Groves During the winter months, when market conditions can flatten out, vendors often choose to hold off on their selling plans until spring when both gardens and moods improve. In a balanced market, this can be a reasonable strategy; an attractive garden can add genuine value to a property and there is a more positive atmosphere once winter ends. Locally, the residential rental market normally slows during winter with notably fewer tenant enquiries for vacant properties during the cooler months of the year. REIWA’s statistics consistently reveal vacancy rates often move with the seasons, even during high rental demand periods. From September through to March the vacancy rate normally drops, rising again during winter. it is wise to sell and re-buy contemporaneously Property owners also tend to be less enthusiastic to move during the winter months. Often for reasons similar to those displayed by tenants, although broader market conditions have far more impact on selling outcomes than the seasons alone. However, with current market conditions of short housing supply and high demand, seasonable variables matter far less. The current market conditions indicate that sellers and tenants could comfortably transact property now on the proviso they stay in the market. For tenants, finding a rental is hard enough and with rents likely to continue to rise, securing a twelve-month lease at a fixed rent now makes sense. For sellers, in current market conditions, it is wise to sell and re-buy contemporaneously. Buying in winter is a reasonable idea, as some buyers (like tenants) are more inclined to stay put during the cooler months, giving those that are looking to buy an environment with fewer competing buyers about. However, with property listings down to 6,157 (of which 1,629 are blocks of land) compared to 8,294 a year ago, buyer activity remains elevated. Rental listings have plunged to 2,047, 400 fewer than last year. With such low stock levels, buyers and tenants are having to complete for properties which counters any typical winter seasonal decline in demand. Many local homes are also lovely and cosy in winter and present themselves well to would-be buyers. Those homes with effective solar passive design, northern orientation shine and a crackling fire in the corner can do wonders for buyer sentiments. If selling in winter, make sure your winter weeds are pulled, any moss and mildew on paths, walls and bathrooms removed, and try and hold inspections when the weather forecast is fine, and the sun is high in the sky.

May 12, 2023

Presenting your home for sale

By Hayden Groves Not unlike a first date, first impressions count. Just as you would dress to impress, smell lovely and chew with your mouth closed, your home ought to be preened with the same level of care when presenting it for sale. It is a good idea to get around to completing those jobs around the house you had been intending to do for years. Build that garden bed, paint the front fence, fix the side gate, remove the old couch etc – all typical examples of small jobs that fit into the “I must get to that one day” category. Small things do make a difference When preparing your home for sale, these “little” jobs are important in achieving an expedient sale at the highest possible selling price. This is because buyers typically notice the little jobs too; a rusty downpipe is easily and cheaply replaced yet can loom large in the buyer’s mind as a more major problem and hints that other areas of the property may be neglected. Of course, you need to be cautious about “over-capitalising” when preparing to sell. Replacing a bathroom and renovating a kitchen are expensive and depending on the property and its location, may prove to be counterproductive in the effort to achieve the best price. Conversely, an original cottage in Fremantle is more likely to benefit from renovations when preparing to sell due to the higher demand for “all finished” properties in our more popular streets. Obviously, each property and circumstance engenders a variety of options for sellers when preparing to sell and opinions from real estate agents on the matter are, as always, subjective. In general terms however, presenting a neat, clean, and tidy home is always going to help your cause in selling at the best price. “Present it like you don’t live in it,” a client suggested recently and is probably a fair description.  Paint out bright colours on internal walls, de-clutter by storing away trinkets and excess family photos, clear the fridge of magnets and kids’ school art and place items neatly in storage cupboards. For vacant properties, the hire of some stylish furniture makes a huge difference and almost always speeds up the sale. Small things do make a difference. With paint and gardens another two areas of focus that can make a disproportionate difference to the selling price relative to their cost and the effort involved. It is also worth considering seeking advice from a qualified home stylist who, whilst a measured investment, can mean the difference between a higher than expected selling price and no sale at all.

Apr 21, 2023

Investors Not to Blame

By Hayden Groves 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 is not a single new housing policy that seeks to encourage the investor cohort into supplying more homes. there is not a single new housing policy On the contrary; governments shun the idea of stamp duty reform, land taxes continue to rise and tenancy laws continue to swing in favour or 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. Recent comments made by an industry leader in NSW that suggested property investors were selling their properties because, ‘they’re tired of being labelled “greedy landlords”’, was criticised, but is absolutely true. A Queensland ‘shock-jock’, locked horns with the REIQ’s CEO recently over unaffordable rents and tenancy laws in that state saying he ‘didn’t care’ how landlords felt. Adam Bandt, leader of the Greens, after his party called for a two-year rent freeze, is on the public record as saying, ‘they’re a landlord, they can afford it,’ when questioned about the impact of a rent freeze on investors carrying rising mortgage costs. 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 – 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.