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Feb 13, 2024

Blockchain in Real Estate

Like a startled rabbit staring into headlights, this Gen Xer listened intently to the REIWA Trainer awaiting the lightbulb moment for clarity and understanding of what Blockchain is. Unremarkably, blockchain was simply described as a “chain of blocks”. Not that helpful to my understanding. For the benefit of others, here’s how I was able to better grasp the blockchain concept. REIA CEO, Anna Neelagama assisted by pointing out that unless you’re a coder, trying to understand the blockchain from a technical point of view is probably quite pointless. One way to gain understanding is to describe blockchain as a new layer of the internet building on Web1 and Web2. Web 1 was simply information being put out to be consumed in a one-way manner. Web 2 began to enable users to interact with content and “talk back” - remember the first online payment you made online and how revolutionary that was. Web3 will have a new level of the internet called a blockchain. This facilitates legal and financial transactions to occur in a secure way representing a true economic exchange. This is due to the blocks (which are pieces of programming that cannot be altered) enabling a complex transaction environment with many parties simultaneously involved. The blockchain therefore removes the need for a third party - such as a bank – to be involved in the transaction. Bitcoin is a well known example of a blockchain. As blockchains are unchangeable, malicious actors are unable to tamper with the transactions or contracts within it mitigating against fraudulent activity. The “smart” contracts (digitally created agreements) within the blockchain are immutable and record a complete history of transactions within the particular network which can be either private or public. PEXA, the digital settlement system now widely used for property transactions is an example of a private blockchain. Real Estate transactions are, of course, more complex than a simple bitcoin trade, with multiple participants and processes involved in a typical transaction. However, the principles of value exchange remain the same and that’s where blockchain technology can begin to play more of a role. Blockchain technology is able to verify, inform and enable transfer of property ownership. This is where things get complicated with the introduction of Smart Contracts, the Metaverse, Non Fungible Tokens (NFT’s), Decentralised Finance (DeFi) and Decentralised Autonomous Organisations (DAO’s). There is insufficient room to attempt to explain these terms. These are, in short, aspects of blockchain technology that can apply to real estate transactions in both the real and virtual world that are already with us. No doubt, the aspects of blockchain technology will be more easily understood as certain applications of it are applied to real world situations. However, the idea that people are actually buying (spending real money) advertising space in a virtual metaverse is, for this Gen Xer at least, a bridge too far divorced from reality.

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 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 31, 2023

Greens Policy Would Push Rents Higher

By Hayden Groves Greens’ leader Adam Bandt’s impassioned address at the National Press Club earlier this year, demanding the government immediately impose a national rent freeze, continues to feature in the rental crisis discussion. The recently announced National Rental Inquiry initiated by the Greens will be dominated by their supporters’ calls for a rent freeze. Victoria Premier, Dan Andrews chimed in during the week suggesting he’d consider ‘rent caps or freezes’ too. Investors have responded by suggesting that such a move, on top of recent massive land tax hikes and higher interest rates, would be the ‘tipping point’, forcing them to sell their properties. all your policies are designed to whack investors Last time I looked, it is the private investor market that supplies 89 percent of all rental homes in the nation. The government provides 11 percent. If seems obvious that if you disincentive private investors (with things like rent freezes), investors will stop providing enough houses for renters. This leads to shorter supply (investors will sell) which pushes rents even higher. Yet, somehow, the Greens and the Victorian Premier have missed this fundamental economic point. Investors selling is exactly what is unfolding across the nation right now. The CEO of First National Real Estate told me this week that their Bendigo, Victoria office that normally sells about 10 properties per month, sold 38 listings from their rental portfolio in June. In WA, there are 16,000 fewer residential tenancy bonds now than a year ago. Other policies such as calling for changes to negative gearing and capital gains tax discounts (another Greens policy) would demolish the current rental housing system, causing a rental crisis far worse than currently experienced. The Greens say they want solutions to address the rental crisis ‘right now’. Well, you don’t and simply can’t solve it by turning on the very people that supply the houses; you can’t magic more housing supply out of thin air if all your policies are designed to whack investors. The Greens have also called on more government built housing, something desperately needed. Yet they refused to back the $10b Housing Australia Future Fund which aims to deliver 30,000 more affordable homes, blocking it in the Senate. To get more supply in the market immediately, you could start with stamp duty reform. Imagine offering a stamp duty rebate for investors that offered property at a below-market rent that guaranteed a certain reasonable return with fixed moderate annual rent increases. Investors would buy and re-supply the market. Treasurer Jim Chalmers is on the record as a supporter of reforming stamp duty; that 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 rental affordability and is a transaction-killing tax that should be reformed. There is no avoiding that the only way to address rental affordability is by increasing supply and unhelpful policies that seek to diminish supply rather than incentivise it is counter-intuitive madness.

Jul 24, 2023

3 Reasons Why You Don’t Sell or Lease

By Hayden Groves The current market is tight on supply and high on demand with rising property prices the result. The rental market is equally experiencing supply constraint and with limited availability, rents are rising too. In such conditions, almost any property that comes to market to buy or lease is fair game, snapped up by buyers and tenants at a record pace. In markets such as these, it is unusual to see a property languish on the market for a substantial length of time. According to reiwa.com, median selling days are at 11, compared to 23 days a decade ago and 58 days as little as four years ago. So, if your property since listing on reiwa.com remains unsold after 11 days, you might begin to question why. In itself, not selling in under a fortnight is not necessarily a problem. Your property is still relatively fresh to the market and if, for example, a major sporting event, inclement weather or long weekend coincide early in your campaign, your buyer simply may not have found your property yet. Such a strategy will always deliver a poorer result However, after you’ve been on the market for more than 60 days, there are generally three major reasons why you’ve not achieved a sale. Firstly, you may have chosen the wrong agent to represent you. Choosing an agent based on the cheapest fee, choosing an ‘out of town’ agent or one that’s carrying too much stock are common reasons why your agent isn’t able to expediently attract a buyer. Choose an agent that carries a strong reputation, deliberately takes on a manageable number of listings and is an expert in their local market. Secondly, your marketing campaign may have missed the mark. In this market, buyers are plentiful and some sellers are tempted to try and sell ‘off-market’, without a well considered and implemented marketing campaign to attract every possible buyer, opting instead to rely on an agent’s data base of buyers. This can often deliver a good selling outcome, but leave you feeling like you may have missed the chance of a better outcome had all the buyers had an opportunity to compete. Choose an agent that can deliver both, qualified buyers known to them as well as a brilliant marketing campaign that gives the best chance of a premium result. Thirdly, and the most common reason, is sellers and owners have a desired price outcome that is out of step with the market. Holding out for a price or rent that is well above the reasonable market price will deter buyers and tenants from engaging with the property, simply moving onto the next one that has a more realistic price tag. Use caution in choosing an agent that gives you a ‘happy price’, one that they know if above the market with a strategy to ‘work you down’ after being on the market for a prolonged period. Such a strategy will always deliver a poorer result than one that gives buyers the chance to compete for your property in an open market where price expectation is reasonably aligned with market sentiment. Right now, deploying the right strategy and choosing the right agent should have you sold or rented in a little over a week.

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 11, 2023

Western Australia remains astonishingly affordable

By Hayden Groves The Real Estate Institute of Australia’s (REIA’s) latest Housing Affordability Report was released last week revealing housing affordability worsened across Australia. As expected, NSW and Victoria remain the least affordable places to buy property with an astonishing 55 percent of a family’s income devoted to meeting the average loan repayment in NSW. In Victoria, 46.5 percent of their hard-earned goes to meeting mortgage commitments. The national average is now 44.9 percent, well above mortgage-stress territory. We are fast approaching record levels of housing un-affordability. Happily, Western Australia remains astonishingly affordable with 34.5 percent of our average weekly family income of $2,471 covering the average loan of $478,236. In contrast, mortgage holders in NSW hold average loans of $731,410 with an average family income of $2,373.   As expected, housing affordability has deteriorated over time declining 14.2 percent over twenty years with much of that decline (11.6 percent) occurring in the past five years. Tasmania’s decline in affordability tops the chart with a 21.7 percent fall in affordability over twenty years. Once more, WA’s affordability performance remains appealing to home buyers and investors with a modest 7.4 percent deterioration in affordability in twenty years. Rental affordability is a hot-button topic both politically and in the media. With the average tenant across Australia paying 23 percent of their income on rent, leasing remains significantly more affordable than property ownership. Over the past twenty years, home ownership affordability has deteriorated at a rate almost 18 times faster than rental affordability. Whilst property ownership affordability has rapidly declined over the past five years, national rental affordability has been remarkably stable, worsening by a mere 0.8 percent in twenty years. Rental affordability has, in fact, improved over the past five years by 0.7 percent. Ten years ago, it was less affordable to rent a home in Australia than it is today. In WA, rental affordability has deteriorated by 3.9 percent in five years, but barely changed across the fifteen years prior to 2018. Whilst rental affordability is stable, median rents continue to climb with lack of housing supply the main contributor to the increases. A potent combination of low investor activity, rising interest rates, stamp duties, land taxes, insufficient social housing, tenant-friendly tenancy laws, increasing population, construction industry blockages and short-stay accommodation continue to conspire against maintaining a reasonable supply of rental homes. REIA’s figures show that rental affordability across Australia has barely changed over the past twenty years, proving that markets are cyclical. Whilst we know things are tough for tenants right now, once we get more supply into the market, balance will return.

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.