February 2010: Property Predictions for 2010

Welcome to your February edition of propertybuyer’s market update.

In this edition we will look at…

1. Predictions for 2010
2. Australian property growth - decade in review
3. Client Stories
4. Seminar program
5. Inspiration Corner - Thoughts of the Month

1. PROPERTY PREDICTIONS FOR 2010 – By Rich Harvey

With the New Year and holiday season behind us, kids back to school and the traffic back to full congestion mode, my thoughts turn to how the property market will perform in the year ahead.

It is amazing to see how the media headlines have changed in the last 12 months. This time last year, the GFC was really starting to bite and we saw headlines like “Property in for a rough ride”, “Crash imminent” and “Turbulent times ahead!” According to RP Data, over the first 11 months of 2009, Australian home values rose by 11.3 per cent following on from their modest 3.8 per cent peak-to-trough falls in 2008.

In reality the median price of houses in Sydney actually rose a remarkable 11.6% and Melbourne 17%. While the market took a backward step during the GFC to the tune of around 5% to 10% in most areas it has now taken a giant step forward to more than surpass its previous highs.

Here’s a summary of what I see happening in the property market in the year ahead and how you can prepare to take advantage of the current conditions:

• Australia will continue to have a critical undersupply situation for housing. ANZ economics predict that we are currently running a deficit of around 200,000 dwellings and this is rising at 40,000-50,000 dwellings pa. The ongoing drivers of property demand, namely population growth, migration and employment will continue to create strong pressure on prices.
• The pace of interest rate rises will have a significant effect on consumer confidence which will affect the level of activity in the market. I believe we will see the RBA cash rate rise to 4.75% by the end of the year - so borrowers need to factor in around a 1% interest rate increase this year.
• Bank credit will continue to remain tight. Lending policies are still very strict. The Government guarantee on bank deposits has just been removed, leaving banks to fend for themselves as before. The limited availability of bank credit will temper demand and restrict loans to only those that can afford repayments (this will also avoid any sub-prime style issues as occurred in the US).
• For investors and home buyers this will mean you should get pre-approvals in place early, look to revalue your property to maximise your equity and ensure your credit rating continues to remain clean.
• First home buyer activity will decrease as the grant has been wound back to its original $7000. (Over 190,000 buyers have so far taken up the grant!)
  Investor demand will increase as investors realise that the market is moving from stabilisation phase to growth phase.
• Capital growth - I believe we will see growth in the Sydney market of between 8% to 10% this calendar year (BIS Shrapnel predicting around 7% increase this year). Melbourne should move forward around 6% to 8% (it had a sizable increase in 2009), Brisbane 5% to 7% and Perth 3% to 6% (depending on what happens with commodity demand from China).
• Home buyers will also be out in force this year seeking to upgrade or looking to move closer to work, good schools or areas with lifestyle appeal. During times of market uncertainty, vendors tend to sit and wait for the market to settle down to a point where they believe they can achieve a price they want. During a rising market, buyers that wait too long may find they are priced out of an area as the market is moving too quickly. Beware the cost of procrastination!
• Rents will continue to rise this year between 5% and 9%. With interest rates on the rise, the pool of renters will increase relative to those seeking to buy a first home. The undersupply situation will also put upward pressure on rents.
  The fundamental criteria of where to invest in property will not change in 2010. The best investment areas for growth properties will continue to be in the inner and middle rings of capital cities, large regional / coastal centres or medium size towns with a diversity of employment drivers.
• Commercial office markets bottomed out toward the end of last year and we are likely to see a slow recovery this year as vacancy rates fall from around 10% to 7%.
  Retail property will show increasing signs of life as the economy picks up speed this year and provide commercial investors with selected opportunities in key shopping precincts.
• Prestige markets – We are likely to see a resurgence in demand in the prestige property markets in 2010. Vendors that were not forced to sell in the last 18 months should be rewarded for their patience and achieve better prices. The volume of stock available to prestige buyers has been very light, but given the level of new listings just hitting the market in early February, I believe we are in for a good year of activity. Buyers seeking to secure a luxury property would do well to commence their search process early in the year.
• The Economy – The RBA are predicting a growth rate of just over 3% pa for Australia the next two years. Inflation is now under control at around 2% pa and unemployment hovering around 5.8%. I expect that we will see a stable recovery from the effects of the GFC over the next 12 months with rising consumer and producer confidence.

 

Are you thinking of moving house this year? Starting an investment property portfolio or expanding your existing investments? Seeking a prestige property or commercial investment? Our team of 10 now has highly skilled specialists to undertake your property search, appraisal and negotiation to help you locate the best possible property at the lowest price. Whether you are a home buyer or investor, it is critical you select the right property asset that will grow in value. Talk to my team today to see how you can save time, money and stress on your next property purchase. Call +61 2 9975 3311 or email us for an obligation free chat.

 

2. THE AUSTRALIAN PROPERTY MARKET’S LAST DECADE IN REVIEW

Over the last ten years the Australian property market has recorded an annualised rate of growth just below 10% each year, however the results vary greatly between each city.
Across the capital city residential property market, the last 10 years has seen home values almost double with an annual rate of growth of 9.4%. Today the capital city median dwelling price across the country sits at $451,000 with houses recording a median of $485,000 and units at $400,000. If you bought a home 10 years ago, you were probably looking at a median price of less than $200,000 for either property type.

As the capital city market pricing graph shows there has been distinctive periods of growth during the last decade. Between 2000 and 2003 there was a strong growth period which was following a long period of negligible value growth. Following this boom, values nationally showed little growth again until 2007. In fact, the majority of value growth recorded between 2004 and 2007 was due to the Perth market which was undergoing a significant surge in values due to unprecedented strength in the mining and resources sector. Conversely, in parts of Western Sydney in particular, some areas recorded significant falls in property values over this period. During 2007 there was another strong growth period which occurred in all cities except Perth and Sydney. During 2008, the global economy stalled as a result of the Global Financial Crisis (GFC) and values slumped 3.8% nationally from their peak during February 2008 to the trough in December 2008. Larger falls were recorded in Perth and Brisbane. In 2009 property values jumped again, this time in all cities as a result of the lowest interest rates in 49 years which has lured buyers back into the market, the Boost to the First Home Buyers Grant and a dramatic housing undersupply.

 

 

 

 

 

 

 

 

 

 

 

 

Over the decade, sales volumes were strongest between 2001 and early 2004 which was the time that nationally, property values were undergoing significant growth. Once the slowdown hit in mid 2004 volumes dropped by around 10,000 sales each month as the market cooled. During 2007 when markets such as Melbourne, Brisbane, Adelaide, Hobart and Darwin were performing particularly well, volumes again picked up but never reached those heights witnessed between 2001 and 2004. Once the GFC hit, sales volumes slumped to the lowest levels seen at any time over the last ten years. It’s not surprising as many with non-core assets such as holiday homes were forced to sell, as did some of those who lost their jobs or ran into financial difficulty. At this time there was plenty of willing sellers, however the problem was a significant lack of willing buyers at that time. Finally in 2009 as values rebounded and recorded growth only slightly below that recorded during 2007 sales volumes rebounded although not to the same levels as those recorded during 2007.

 

 

 

 

 

 

 

 

 

 

 

On a city-by-city basis Hobart has actually seen the greatest value growth over the last ten years with dwelling values increasing on average by 12.8% annually (to November 2009). It’s no real coincidence given that Hobart prices came from a very low base. Despite this, Hobart still provides the most affordable capital city housing. What is probably most interesting is the performance of the three largest cities (population wise). Sydney prices have dramatically underperformed the national average with average annual growth in dwelling values of just 6.3%. Melbourne has only just outperformed the national average seeing average annual growth of 9.7% whilst Brisbane has recorded growth of 11.0% p.a. The national figure is weighted by population and property type so given this it is clearly influenced by the larger population centre's such as Sydney and Melbourne.

 

 

 

 

 

 

 

 

 

 

It’s also imperative to remember that Sydney and Melbourne have had higher property prices and because of this fact growth rates tend to be lower as they are coming from a higher base.

Looking specifically at the last five years values have grown at an average annual rate of 6.5% which is much lower than the ten year growth rate showing just how significant the boom was in the early part of the decade. Over the last five years the standout performers have been: Darwin (17.2% p.a), Perth (13.6% p.a) and Adelaide (8.4% p.a). Sydney has by far and away been the worst performer during the last five years recording average annual growth of 2.3% p.a. The other poorer performing markets have been Hobart (6.8%) and Brisbane (7.5%).

Given what has occurred over the last ten years it will be very interesting to see what the next ten years holds. Undoubtedly property prices are expensive in most capital cities and the provision of affordable housing must be imperative. However, it appears that to-date Governments are unwilling or unable to provide affordable land supply with the necessary infrastructure. As population growth looks set to remain at high levels and we continue to fail to build enough dwellings to cater for demand, upward price pressures on property is likely to persist. (Article supplied by RP Data)

Editors Note:
Looking at the above table and “picking future winners” as the basis for where to invest can be dangerous! Note that Sydney (and Melbourne) are coming off a high base price, therefore the percentages are lower. In fact, we believe Sydney will hold the greatest promise of strong capital returns over the next 18 months.

 

3. CLIENT STORIES

(a) Moving fast before auction pays off

Buyer type: Inter-state investor / future home owner
The brief: Seeking house in Sydney’s upper north shore to immediately rent then renovate in the future.
Budget: up to $1,500,000
Asking Price: auction, agent expecting $950,000
Purchase price: $900,000 prior to auction

Buyers’ agent comment: (Matt Corbett)
Julia and John were looking to purchase a house on the upper north shore of Sydney with the aim to rent it for a few years, until they moved to Sydney. They were looking for either an established 4 bedroom home with a swimming pool or an older home on a large block, allowing them to renovate or rebuild in the future, with room to introduce a pool. Consequently, they decided on the latter and immediately leased the home and began the exciting process of thinking about plans for their future home.

What our clients say:
“Jon and I engaged Matt Corbett from Propertybuyer to evaluate and negotiate a couple of properties we were interested in, in Sydney. As we reside in the remote Northwest of Western Australia, his services were imperative in us clinching a property at a reasonable price, in which there was some competition. He was extremely helpful, honest and reliable and provided us with excellent service. Using Propertybuyer streamlined the process, especially as we were unfamiliar with how property exchanges in NSW operated. Matt inspired co-operation form the real estate agents and thus the vendors which I don’t believe we would have received without his representation. Thank you very much”. Julia and John (Pharmacists)

 

(b) Strong negotiation pays dividends

Buyer type: Investor
The brief: Investment property in Sydney
Budget: up to $750,000
Appraisal: $750,000
Purchase price: $723,500

Buyers’ agent comment: (David McElveney)
Had offer and acceptance at $723,500 for a townhouse at the same price it was originally sold for 7 years ago. They are living in Abu Dhabi and managed to purchase sight unseen and receive a rent back at a 5% nett yield from the owner enabling zero vacancy factor for their new investment property. Previously had a 10% smaller property under offer and acceptance at a similar price, so this property represents outstanding value.

 

HOT PROPERTY

We have a great selection of hot properties for both home buyer and investor clients to choose from at present. We have a wide range of house and land packages in Queensland growth corridors with purchase price under $450k showing rental return of $500 pw (ie 5.8%), NRAS properties showing a small positve cashflow return and a host of established properties in high growth areas of Sydney. For the prestige buyer we have a large waterfront 5 bed home in an inner harbour suburb asking $8.5m but we can secure for $7.0m. And for downsizers we have some brand new 2 and 3 units at Lindfield at a 16% discount.

If you are considering buying and would like to get the upper hand with a professional buyers’ advocate representing just you (not the vendor/seller), sourcing and negotiating the best opportunities throughout Sydney and Australia, then please call our team on +61 2 9975 3311 or email us for an obligation free chat.
Click here to send us your Wishlist…

 

4. SEMINAR PROGRAM 2010

This year we will be running a series of informative seminars to provide investors and home buyers with insights into the property market. Our workshops will cover a diverse range of topics that give smart property buyers the edge and give fresh new content.

Our next exciting seminar will be held on Wednesday 10th March at NSW Masonic Club 169-171 Castlereagh St, Sydney.
Book now using this link: http://www.stickytickets.com.au/2900

Topic: Property Directions for 2010 and Top Tax Advice

• How to make the most of a moving market
• Investing in recession proof style property investments
• How to minimise your risk
• Selecting the best investment strategy for your personal situation
• Sample of our hot property deals
• Stories from successful investors
• Tax considerations - before you invest
• When is the appropriate time to use a ‘trust’
• What type of ‘trust’ is appropriate
• Tax management strategies – after you invest
• When should you get advice
• What matters are being pursued by ATO in relation to property investors

There will also be plenty of time during the evening for questions and answers and networking with like minded investors, so bring your questions and bring a friend.

Time: 6.30pm – 8.45pm (please arrive from 6.00pm for registration, drinks and nice nibbles)
Date: Wednesday 10th March
Venue: The Adam Room, (level 4), Castlereagh Boutique Hotel/NSW Masonic Club 196-171 Castlereagh St, Sydney (closest street Park Street).

Investment: Early bird discount: (book before Feb 28) $39.50 Single, $58.50 Double
Standard price: $47.50 single, $68.50 Double ticket (includes sticky ticket booking fee).

To book your seat now, click on this link: http://www.stickytickets.com.au/2900

Speakers: Rich Harvey and Shukri Barbara

Rich Harvey, Managing Director and founder of propertybuyer will present many tips that could propel your knowledge to the next level. Rich Harvey is a professional economist, licensed real estate agent and experienced property investor. Rich and the propertybuyer team have won numerous awards, including the NSW Real Estate Institute (REINSW) "Award for Excellence" in Buyers Agency 4 years in a row. In 2007 propertybuyer was awarded the prestigious National and NSW Telstra Business Awards (Australian Government Mico-Business Award) and in 2009 was named the winner "Best Buyers Agent in Australia" by the Real Estate Institute of Australia (REIA).

Shukri Barbara is a CPA with over 20 years experience in public practice and professional associations support service. He combines his skills, not only to benefit clients but in his own practice and other business operations. Property Tax Specialists take a holistic approach, developing long term strategies, which encompass clients’ property, investment, income, business, family and lifestyle goals as well as asset protection needs. He is a great asset for your team of property experts.
http://www.stickytickets.com.au/2900

5. INSPIRATION CORNER

"Don't count the days, make the days count." Muhammad Ali

"Opportunity dances with those who are already on the dance floor" H. Jackson Brown Jr.

"Life challenges are not supposed to paralyse you, they're supposed to help you discover who you are." Bernice Johnson Reagon

"Being on par in terms of price and quality only gets you into the game. Service wins the game."
Tony Alessandra

I hope you enjoyed your February update. If you would like to buy a property and have a professional buyers advocate on your side sourcing and negotiating the best opportunities throughout Sydney and Australia then please call +61 2 9975 3311 or email us to find the easier way to buy property.

Warm regards

 

Rich Harvey
Managing Director
Tel: +61 2 9975 3311
www.propertybuyer.com.au

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Many thanks, Rich