January 2013 - Property Directions for 2013
By Rich Harvey, Managing Director propertybuyer
Welcome to your January propertybuyer market update.
In this edition we will look at;
- Property Directions for 2013
- Client Stories
- Meet the team
Property Directions for 2013
Another year dawns and the real estate market will soon awake from its holiday slumber. I'd like to share my reflections on the year ahead and comments from other experts I've interviewed for our first update in 2013, including Angie Zigomanis, Senior Manager - Residential Researcher from BIS Shrapnel and Dr Andrew Wilson, Senior Economist from Australian Property Monitors.
What will each sector of market be looking for? Will confidence return? When will interest rate cuts begin to take effect? What will drive the market or slow it down?
1. Will confidence return to the residential property market in 2013?
BIS Shrapnel: We expect confidence to increasingly return to the residential property market in 2013. A number of residential markets began to show positive signs in terms of residential lending towards the end of 2012 and are expected to begin to show modest growth through the 2013. With evidence that prices have bottomed out and are picking up, purchasers are expected to enter the market in greater numbers. However, the improvement will not be uniform across the capital cities, with Perth, Darwin, Sydney and Brisbane expected to show rises in purchaser numbers and prices, while the other capital cities will at best remain flat.
APM: Confidence returned to the Sydney housing market in 2012 with solid overall price growth recorded over the year. The market performance was however mixed with the prestige market ($2 million plus) remaining relatively subdued. The market is set to build through 2013 on the re-emergence of confidence in 2012 with genuine prospects of increased buyer activity in the prestige market.
2. What will be the key drivers?
BIS Shrapnel: The main impetus will come from the improved affordability coming from lower interest rates. At current interest rates, affordability in most capital cities is now back to where it was in the early 2000s. However, the main driver in those cities expected to show growth will be a rising deficiency of dwellings after recent years of low new dwelling construction. In the other capital cities, prices and activity will be stymied by an excess dwelling supply and weaker state economic prospects.
APM: The main drivers of the market will be improved economic performance both locally and nationally, growth in the stockmarket, low interest rates, higher rents, value perceptions in key higher-prices suburbs, improved confidence and low new supply - particularly apartments.
3. What negative factors might hold the market back?
BIS Shrapnel: The key negative factor will be uncertainty - both within the domestic economy and perceptions of the impact that events overseas will have on the Australian economy. At this stage, the overseas outlook appears to be a little more positive than it was a few months ago, however, negative news could hold prospective purchasers back.
APM: Federal election campaign.
4. Which price segments of the property market are likely to do best?
BIS Shrapnel: We expect the lower to middle end of the markets to do best over the next twelve months. These are the segments that will most benefit from the lower interest rates and increased affordability. They are also the segments of the market that offer the best yields that will increasingly entice investors back into the market.
APM: $500k - $1m and $2m - $3m
5. What will happen at the top end of the market?
BIS Shrapnel: The top end of the market is expected to continue to remain weak, although should show signs of improving. The income from purchasers at the top end of the market is often supplemented by commissions, incentives, bonuses, etc, while some will also have their own businesses. Income from these sources has been significantly weaker, and are not expected to significantly improve in the next twelve months.
APM: Improved performance gradually consolidating through the year driven by increased confidence, re-emergence of prosperity effect and growing perceptions of value in key prestige suburbs - particularly Northern Beaches - driving buyer momentum.
6. Which capital cities hold the best potential for growth?
BIS Shrapnel: We expected the strongest cities in the next twelve months to be Perth, Darwin, Sydney and Brisbane. These cities have a rising under supply of dwellings and also more positive economic prospects than the south eastern states that will support price growth. The pick up could slightly lag in Brisbane depending on the impact of recent public sector redundancies in Queensland.
• Perth 5%+
• Darwin 5%+
• Sydney 3-5%
• Canberra 3-5%
• Brisbane 3-5%
• Melbourne 0-2%
• Adelaide 0-2%
• Hobart 0-2%
7. What suburbs/ regions would you pick for investors chasing capital growth in Sydney?
BIS Shrapnel: The preference for yield is likely to likely to be the driver of capital growth in 2013. With low interest rates, the gap between rental income and mortgage repayments has narrowed, with some properties also being cash flow positive. This will attract investors into these properties, as well as owner occupiers, given that owner occupation for some will become more attractive.
APM: Northern Beaches, Blacktown, Macquarie Fields.
8. What suburbs/ regions would you pick for investors chasing yield in Sydney?
BIS Shrapnel: The areas offering the best yields are in outer Sydney and particularly middle-outer western Sydney. The areas with the strongest yields are likely to experience the best price growth also.
APM: Blacktown, Waterloo, Zetland, Lidcombe.
During the last quarter of 2012, we noticed a definiite sentiment shift. Less talk of the economic woes of Europe, stronger auction clearance rates and prices stabilising. We've already had strong enquiries for our services in early January, compared to previous years.
• Interest rates declining by up to 0.5% to stimulate the economy back into stronger growth and improving sentiment.
• A greater level of certainty around the property market with increasing volumes of transactions and moderate price rises particularly in Sydney, Brisbane, Darwin and Perth.
• Home Buyers will continue to seek properties close to shops, schools, transport and lifestyle amenities within a safe neighbourhood.
• Investors will continue to seek positive yields and solid capital growth.
• Commercial buyers will continue to seek high yields, long leases, quality tenants with stable history. They prefer well positioned property with abundant light, proximity to public transport or parking and close to other supporting businesses.
• The continuing flow of superannuation funds into both residential and commercial property investment. Investors have been saving cash or paying down home mortgage debt, but now want to see their money work harder for them.
2. Client Stories
Here is a selection of feedback from some of our happy clients last month:
Buyer type: Investor
Buyer's brief: Granny flat, positive cash flow strategy
Location: Tregear, Western Sydney
Rent Return: $550 p.w.
Positive Cash Flow: $9,000 p.a. (after loan repayments), 9.5% yield
Cost of House & Flat: $302,500
Capital Growth: 5-8% p.a.
Our goal & solution
"I am very happy with the result, I didn't even need to go to the auction (I live in WA) and it was more than $20,000 less than our limit! The return is fantastic and we have already increased the homes value by around $20,000 in 6 weeks with smart renovation at great prices...a really easy process and Stewart knows this area better than anyone".
"The return is fantastic and we have already increased the homes value..."
Buyers' Advocate, Stewart Fraser
Our client was looking for a high yielding investment in Western Sydney under $300,000. In November 2012, we secured a 3 bedroom home in Tregear on 600m2 block for $212,500 at a NSW Government auction. After spending $18,000 on replacing the kitchen and totally refreshing the home (coordinated by our builder), it achieves $320 per week in rent. A 1 bedroom granny flat was constructed in the rear yard and separated from the house, this cost $72,000 and achieves $230 per week in rent.
Footnote: A month later at the same Government auctions, more than 8 properties in worse condition than the Tregear home above sold for more than $240,000! This caused an immediate price spike in the area and also means you now need to be very careful about paying too much. It also shows how our client secured a fantastic price and achieved instant capital gain. If you are considering buying, we believe 2013 is the time to do it.
3. Meet the Team
Kevin Mason - Buyers' Advocate, Investment Specialist
Kevin is an award winning Buyers' Advocate in both NSW & QLD encompassing more than 17 years experience, including a background in construction. Being involved in over 1,000 transactions has helped Kevin hone his excellent skills in finding and choosing the most favourable properties for his clients. As a high achieving property investor himself Kevin can best be described as tenacious, hard working, energetic and a great negotiator with a commitment to excellence. With an extensive network Australia wide, Kevin knows where the best opportunities are and will help guide you through the process of building wealth through a property portfolio.
Q & A with Kevin...
Q: What gives you a buzz in helping your clients?
K: I love helping home buyers find their ideal home and love helping investors find properties to add value or develop to reach its full potential. I get a buzz out of educating people, finding deals and helping clients build their portfolio's.
Q: What are you excited about in the current property market?
K: I'm searching the market Australia-wide. Many areas are now showing signs of recovery plus a shortage of rental properties which is pushing yields higher. Along with interest rates suggested to fall even further this year this really is an ideal time to start building your property portfolio.
Q: Why do you like working at propertybuyer?
K: I love Rich's enthusiasm for helping buyers find good deals and his pro activeness, contacts and general knowledge. You can see why our experienced team is Australia's most awarded buyers' advocates from the hard work, honesty and integrity Rich shows. I feel privileged to be working with the propertybuyer team enabling me to utilise my 17 years of experience of diverse skills, knowledge, construction background and widespread contacts to find the best properties for our clients, from novices through to experienced investors.