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Aug 10, 2022
Perth Values Up - Rents Rise
by Hayden Groves Each week, my friend from data house Core Logic sends me a snapshot of residential property market behaviours across Australia. The emerging trend since the rapid rise of interest rates demonstrates that Perth is the most likely place in the nation to hold onto its price gains experienced since the start of 2020. As the weeks tick by, big east coast cities of Brisbane, Sydney and Melbourne continue to retreat down 0.9, 2.0 and 1.4 percent respectively over the past month. Adelaide rose 0.4 percent last month and Perth crept up 0.1 percent. The year-to-date and 12 month change figures are the ones to look to for longer term trends and its these numbers that support Perth’s relative market stability. Everywhere, rental stock is falling; This measure shows Perth rising 4.2 percent year-to-date and 5.2 percent in the past 12 months. All other capitals are retreating at a faster rate than Perth. Sydney’s 12-month growth rate is now at 0.8 percent and Melbourne has gone negative to -0.2 percent. Sales volumes remain strong in Perth too with around 900 weekly sales, unchanged from a year ago. Meanwhile, local listing stock remains tight with 13.2 percent fewer properties listed today than a year ago with fewer new listings coming to market. Elsewhere across Australia, overall listing stock has grown, most notably in Hobart where there’s now 59.7 percent more listings than last year. All other capitals aside from Perth and Canberra have more new listings coming to market than this time last year. East coast markets are now beyond their peak as supply begins to catch up with demand. Rental markets across the nation tell a different story. Everywhere, rental stock is falling; most notably in Brisbane, Melbourne and Adelaide where total listing numbers have fallen by 29.1 percent, 26.6 percent and 22.4 percent respectively. Perth’s rental stock has fallen 15.8 percent in a year, a serious warning to government looking to further disincentivise investment by considering changes to residential tenancy laws. No surprise that rents continue to rise across the nation, up 9.8 percent in a year. Vacancy rates are low everywhere at 1.2 percent nationally, down from 2.1 percent a year earlier. Perth’s vacancy rate has fallen from 1.4 percent to 0.8 percent in twelve months. The relative stability of the Perth property market is the main take-out from these numbers. Our affordability, enviable lifestyle, strong economy and low unemployment rates make for ideal conditions for continued property investment. To borrow from share trading parlance, the numbers make Perth a “strong hold, firm buy” market. After the Winter storm has lifted, the reflection of light through the rain appears as a rainbow from the dark clouds above the city of Fremantle.
Aug 7, 2022
Stamp Duty Reform
by Hayden Groves Newly minted Treasurer Jim Chalmers is on the record as a supporter of reforming stamp duty; that hideous, unfair tax that stifles economic growth and impacts affordability. Everyone from the Henry Tax Review through to the National Housing Finance and Investment Corporation (NHFIC) agree with what real estate agents have always known; that stamp duty is a significant barrier to property ownership and is an insidious, transaction-killing tax that should be reformed. Stamp duty significantly reduces household mobility with its removal freeing up more suitable housing for more Australians that would improve economic efficiency. that hideous unfair tax... A buyer keen to relocate their family to places where there are better work opportunities are punished by stamp duty costs each time they move. A household that bought a median priced house four times over the past twenty years will have paid 10 times the amount of stamp duty compared to a household making only one purchase at the start of this period. As an example, Victorians nowadays pay $45,000 in stamp duty on a median house purchase compared to $12,000 in 2002. Thanks to bracket creep, all households across Australia are paying substantially more stamp duty now compared to twenty years ago which is hindering the efficient use of and suitability of housing across the nation. Stamp duty is often borrowed adding years and additional expense to home mortgages. A senior-citizen owner of a large family home on a low income is reticent to move home and down-size, largely because of the stamp duty cost payable on the transaction. NHFIC CEO, Nathan Dal Bon has advocated the benefits of a broad-based land tax as an alternate to stamp duty, stating that a typical household would be better off paying land tax on a median priced property than transfer duty. As an example, a household in NSW would have to pay a broad-based land tax for more than fourteen years to be worse off which is greater than the 12.4 year average holding period of a property. State governments are awash with stamp duty revenue, some $60b last year. This reliance on property transfer related revenue makes it difficult to reform as this tax base needs to come from somewhere. A broad-based land tax on all homes (including the family home) is a popular alternative but the roll out of this program in ACT has had disastrous consequences for the market there due to massive increases in land tax for investment properties leading to a savage shortage of rental stock with soaring rents as an immediate result. Certainly, a broad-based land tax would make state treasurers’ jobs easier. Estimating forward revenues based on property market predictions are difficult. No one would have predicted transactions in 2018 & 2019 in WA (and therefore stamp duty revenues) would be at thirty-year lows. Stamp duty revenues in WA are rising once again thanks to a resurgent property market but the tax remains a significant barrier to many buyers keen to enter the established market. The discriminatory stamp duty assessment of new versus established dwellings for first home buyers would be a good place to start reform. Fremantle Port and Marina
Jul 31, 2022
Avoid the Middle Man
By Hayden Groves When the time comes to sell or lease your property, property owners often look to the internet to help shortlist agents that might meet their needs. Well established methods of choosing your agent such as re-employing an agent previously used, adverts in the Herald, recommendations from friends and relatives or visiting Home Opens to meet agents are other effective methods of finding your preferred agent. In the on-line space, there’s Google reviews, Rate My Agent and reiwa.com’s Agent Finder; a free, industry owned, credible source of finding professional agents that specialise in your area. Also occupying the portal space are commercial operators that purport to “find the best agent near you”. Run a Google search of ‘Real Estate Agents Fremantle’ for example, you will find at the top of the page paid adverts for localagentfinder.com.au, openagent.com.au and agentselect.com.au These so-called “intermediaries” claim they can find you the best agent. Sadly, this is not usually the case. The truth is these operators run a portal and a call centre whereby they contact local agents offering them a lead for a property listing in exchange for about 20 per cent of their sales commission. Typically, participating agents competing for the listing seek to cover the cost of the referral by demanding a higher commission – hardly a consumer benefit – and sellers using these intermediaries are astonished to learn their agent is paying a referral at all. ... you’re not getting access to the best agents A major problem with these intermediaries is that successful, leading agents (the best ones) don’t use them to get business because they don’t need to. The best agents get business on their merit with no need to pay a referral to an intermediary for running a portal and buying Google ads. Consumers should know that in using these sites, you’re not getting access to the best agents, just the desperate and least experienced. These intermediaries are not the vendor advocates they purport to be. They don’t interview or thoroughly research all agents and they only put forward those who’ll pay them a referral. Don’t be fooled by these ‘middle-men’. They are a lead generation tool for lazy agents and will only recommend agents that will pay them a fee. Aerial View from Tuckfield Street, Freo Arts Centre, Quarry Street to Fremantle Harbour and the Indian Ocean.
Jul 21, 2022
Private Investor Heroes
by Hayden Groves New federal Minister for Housing and Homelessness, Hon. Julie Collins, met with state Housing Ministers last week to discuss, amongst other things, housing affordability in Australia. The Covid-19 pandemic induced economic crisis dropped interest rates to ‘emergency’ levels and, with that, due to surging demand, came significant nation-wide gains in property values. As the market moved, so too did investors, many of whom made the decision to sell, cashing in their capital gains. Many of these buyers sold their investments in favour of pooling funds towards an aspirational upgrade of the family home. Others sold, consolidated their capital and moved to regional lifestyle areas, a collective ‘flight from the cities’ as working from home became a genuine alternate career choice. In some central NSW coastal areas, property values surged as much as 65 percent in two years. In Western Australia, where property value gains have been relatively modest, long suffering property investors made their ‘cash-out and sell’ decision based upon their asset acquired in 2010 finally returning to what they had paid for it. ...a regime of high taxes and punitive tenancy laws. In some states such as Victoria, property investors sold due to the introduction of tenancy laws that removed their fundamental property rights or because of massive hikes in land taxes such as that experienced in the ACT. In other states, like Hobart for example, lifestyle-seeking buyers from mainland east coast cities have flocked there, snapping up homes that would otherwise be rented. Otherwise long-term rental properties have been moved into the short-stay holiday market. The result of these trends is a massive under-supply of rental stock across Australia. Core Logic stats show national vacancy rates are at 1.2 percent, down from 2.2 percent a year ago and well below a balanced market of around 3.5 percent. Total listings of rental stock advertised for rent across Australia is down by a huge 24.1 percent compared to twelve months ago. Over the past year, ‘for rent’ stock in Melbourne has fallen by almost a third, in Brisbane its down 28.3 percent, in Adelaide it’s dropped by 28.9 percent. Perth, where there are now 14,000 fewer tenancy bonds being held, has lost 14.9 percent in rental listings in a year. Unsurprisingly, rents are up nationally by 9.5 percent and will continue to rise as international borders open and the migration push for more workers to combat labour shortages kicks in. And with interest rates rising, there will be fewer first home buyers who typically rent before they buy. Despite these somewhat alarming figures and expected trends, governments continue on a path of disincentivising private investment in property viaa regime of high taxes and punitive tenancy laws. Instead, there is much attention being paid to building more affordable social housing dwellings which represents only 3 percent of the entire housing spectrum in Australia. Whereas 27 percent of housing stock in Australia is owned by mostly (80 percent of them) mum and dad investors who are leaving the market in droves, a trend likely to continue unless the government starts to pay them the respect they deserve. It is private investors that are the unsung heroes of affordable housing in Australia and remain the key to unlocking supply and keeping rents affordable. Market Street Fremantle WA
Jul 2, 2022
Blockchain Technology in Real Estate
by Hayden Groves 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. ..blockchain is a new layer of the internet.. One way to gain understanding is to describe blockchain as a new layer of the internet building on Web 1 and Web 2. 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.Web 3 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. Public or Private 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 (Property Exchange Australia), 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). These are, in short, aspects of blockchain technology that can apply toreal estate transactionsin 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. Blockchain technology used in online digital real estate transactions
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
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.