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Buying Hayden Groves Investment Real Estate Property Prices Housing Crisis

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

Buying Fremantle Real Estate Hayden Groves Investment Real Estate Property Prices Selling Property Management Housing Crisis

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

Buying Fremantle Real Estate Hayden Groves Investment Real Estate Property Prices Selling

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.

Buying Hayden Groves Investment Real Estate Property Prices Selling Property Management

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.

Buying Fremantle Real Estate Hayden Groves Investment Real Estate Property Prices Selling

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

Buying Fremantle Real Estate Hayden Groves Investment Real Estate Property Prices Selling

Jun 24, 2022

Time to Fix the First Home Owners Grant

by Hayden Groves In times of crisis, governments often throw money at the problem in order to maintain economic momentum. When the global financial crisis hit in 2009, the then Rudd government raised the First Home Owner’s Grant (FHOG) to $14,000 for established homes and a whopping $21,000 for new builds. In some regional towns back then, you could effectively get a free house. COVID-19 brought with it a raft of stimuli including $20,000 from the McGowan government, $25,000 from the Feds and stamp duty rebates on top of existing assistance for first-time buyers. When property prices and rents rise, affordability of housing for first home buyers becomes an area of policy focus. The WA government’s FHOG has undergone many iterations since its introduction and now sits at $10,000 for those first-time buyers keen on buying a new, never lived in dwelling or buying land and building. Those buying an established home get nothing other than a transfer duty exemption for properties purchased at a value under $430,000. The current system is flawed for a number of reasons. Firstly, it can devalue established homes in areas where first-home buyers are most active. Consider two properties side-by-side. One is a vacant lot worth $300,000 whereby a first home buyer can build a $230,000 home (it would be a very small house nowadays) get $10,000 and pay no stamp duty. The other is an established home worth the same combined value of $530,000. A first-home buyer acquiring this home pays $19,190 in stamp duty and doesn’t get the grant; that’s a $29,190 difference, softening demand for established homes in these emerging suburbs. Secondly, first-time buyers choosing a newly built apartment only get zero transfer duty relief up to a buy price of $430,000 whereas those that buy land and build from scratch don’t pay duty until the land value exceeds $300,000. This encourages first home buyers to buy cheaper land on the city outskirts, contributing to the scourge of urban sprawl. $10,000 grant is no match for such increases.. Thirdly, with drastic trade shortages thanks to the COVID-19 stimulus came higher build prices, reportedly up 23 percent in twelve months. The $10,000 grant is no match for such increases adding $76,000 to the cost of the average suburban home. Overall, I think the FHOG has been around for too long and ultimately should be removed. Transfer duty and other such taxes that act as barriers to economic growth (payroll tax the classic example) should also go, replaced with a broader based land tax regime that loosens the shackles on the property market, encourages trade-up activity and releases more affordable established entry-level housing. Established homes south of Fremantle along the coast of Western Australia

Buying Fremantle Real Estate Hayden Groves Investment Real Estate Property Prices Selling

Jun 17, 2022

Perth on the brink of boom

by Hayden Groves Perth’s All Groups inflation rate is running above the national average at 7.6 percent, the share market has taken a hit and interest rates are rising. Not the ideal set of circumstances for Perth’s property market to take off. However, theReal Estate Institute of Australia’s (REIA) Real Estate Market Factsfor the March quarter reveal some remarkable numbers that puts WA in an enviable position for solid property growth in the short to medium term. When looking at median house prices sold during the first quarter of 2022, Perth returned a median price of $525,800 across all detached home sales for the period. In the context ofhousing affordability, we are the cheapest place in Australia to buy a house – by some margin. 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. blowing its chilly winds across price-bloated east coast cities 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. Remembering that these are the median prices (the middle sale of the entire sales sample) for the March quarter’s sales, housing affordability challenges in eastern Australia are significant. Nationally, the combined median house price for the March quarter was $1,033,600 up 17.1 percent in twelve months. In contrast to the national average, Perth’s median house price growth over the past year has been 4.1 percent. Compared to the twelve-month gains in Hobart (31.5 percent), Brisbane (26.7 percent) and Adelaide (24.8 percent), Perth’s property price gains are comparatively very modest. It makes little sense to me that Sydney’s median house price is at three times that of Perth’s. Sure, Sydney’s a true international city attracting more international investment, but is its real estate justifiably worth triple ours? In 2004, Sydney’s median house price was $485,000, Perth’s was $480,000. Sure, I don’t expect Perth’s property values will once again rival Sydney’s, but two-thirds of its value feels about right, not one-third. That puts our median at around $667,000 and Sydney’s at a re-calibrated $1,000,000. It seems irrational that Hobart’s median house price was $820,000 for the quarter, nearly $300,000 more than Perth’s. In six years, the moving weighted annual median house price in Hobart has gone from $405,000 to $745,000. In Perth, the same measure shows prices shifting from $523,000 in 2017 to $521,000 today. Our isolation, smaller capital market, moderate population growth, COVID lock-outs and mining-dependent economy are all factors contributing to a our sluggish property market, but Perth as a destination city cannot be overlooked for long. Even though the recent interest rate rise has taken some of the heat out of the market, Perth is an attractive destination for investors (yields) and owner-occupiers (affordability) alike. The time is right for Perth to weather the inflationary storm currentlyblowing its chilly winds across price-bloated east coast cities.Western Australiais a brilliant place to live, work and play and cashing-out east coasters ought to look our way as the sun sets on their peaking property markets. Aerial view of Southern coastal suburbs Beaconsfield, South Fremantle to Fremantle Yacht Club and Fremantle Port.