propertybuyer Market Update, October 2011
September 30, 2011 / Written by Thirst Creative
By Rich Harvey, Managing Director propertybuyer
Welcome to your October propertybuyer market update.
In this edition we will look at;
- Rich's Market Wrap & Putting a Dent in Harry
- Bag a Bargain Before Christmas
- Client Stories
- Hot Deals
1. Rich's Market Wrap & Putting a Dent in Harry
We are likely to see some interest rate reductions in the coming months which will then stimulate confidence in the property market. With China’s economic growth creating huge demand for Australian minerals and resources, it is highly unlikely we will see a rise in unemployment. The property market responds positively to rate reductions and confidence.
Our team has had excellent success at auctions recently as there is less competition out there.
However, we are also seeing an increasing enquiry from investor clients that believe we are close or at the bottom of the property cycle. We’ve got a wide range of clients on the books at present with budgets ranging from $200k to $12 million plus.
We’re helping several first home buyers take advantage of the stamp duty exemption that will finish in NSW on Dec 31. At $500k the savings are $19,000 on stamp duty + an additional $7,000 first home buyers grant. We guide them through the mine field of buying their first home i.e. locating the suburb and dwelling type that has the highest growth for their set budget, finding the most suitable stock in a proficient and timely manner, and negotiating the best possible price and terms.
Do you really believe that all the economic forecasters out there can accurately read the tea leaves on the property market? Take Harry Dent for example, visiting Australia last month to spruik his new book suggesting our market may take a nose dive of 40% or more because the baby boomers are running out of spending power. Watching several of his interview and blogs, Dent suggests that “demographics dictate direction” and that there is a highly predictable nature of consumer spending based on family patterns. Dent says that Australia has some of the most expensive real estate in the world and challenges those optimists that say real estate never goes down citing the example of the Japanese property crash.
At present the only thing taking a nose dive is the price of his book, which you can get a more than 50% discount at Amazon books for just $10.88 (compared to $29.95 at Angus and Robertson). When he was asked questions about the dynamics of the local market he was unable to comment as he obviously didn’t know the data specific to our capital city markets. He makes claims that our debt levels are too high compared to income and that we are over-leveraged.
What Dent fails to examine is that we only have an unemployment rate at 5.2% which is the envy of the developed world (essentially full employment), our inflation rate is well under control (less than 3%) and we have a highly educated and motivated workforce. Our income to mortgage debt ratio is approximately 4.5 times the average house price and our undersupply situation of around 220,000 dwellings is putting a solid floor under house prices and pushing up rents.
I do believe that demographics plays a major role in determining the supply and demand for property. With large numbers of baby boomers moving to retirement, this will make it critical for investors to choose properties that fit the requirements of their local markets. Empty nesters wont necessarily want the large home on a quarter acre block - they may prefer a townhouse or villa closer to the shops and cafes and parks to walk the dog.
ANZ Economic Research released an interesting report this month (Asset Returns: Past, Present and Future) comparing the returns from the major asset classes of residential property, shares, commercial property, bonds and term deposits over a 24 year period. The graph below shows that residential property was the highest returning asset over the past 24 years even when factoring in the after tax and after cost returns from each type of investment. The second thing the report showed was that residential property had a far lower variation in value (“Value at Risk”) index.
The other major report worth mentioning this month is the QBE report by BIS Shrapnel “Australian Housing Outlook 2011-2014.”
The key take home from the report is that BIS Shrapnel has forecast low price growth in Melbourne of 6%; moderate price growth of between 6% and 8% in Adelaide, Hobart and Canberra; solid price growth of 16% in Brisbane and 17% in Darwin; and strong price growth of around 19%-20% in Perth and Sydney. The momentum in prices is forecast to pick up in 2012/13, underpinned by stronger economic conditions that will be primarily attributed to accelerating investment in the mining and resource sector. Strong demand for minerals from China and other Asian countries, who have mostly escaped the debt issues and weak sentiment plaguing America and Europe, has continued to support high commodity prices and the expansion of mining projects.
If you would like to find out how we can help locate a top performing property please call us today on 1300 655 615 for a friendly chat with my team or send an info@propertybuyer.com.au?subject=enquiry%20about%20propertybuyer%20services">email enquiry to Jason Low our Client Relations Manager.
I thought I’d also mentioned that on a personal front I will be travelling to Manado in Indonesia next month to visit the work of Bridge of Hope. This is a micro-enterprise development organisation that provides small finance loans and leadership training to micro-enterprise businesses to assist them to grow their business, to develop their communities and to get out of the poverty cycle. We will be visiting these groups, some local orphanages and the learning centre located near the rubbish dump where many kids sort rubbish for their survival.
2. BAG A BARGAIN BEFORE CHRISTMAS - THE IMPORTANCE OF TIMING
Below is the recent transcript of an interview I did about timing your purchase.
Is the Christmas selling season traditionally slower than other times of the year?
The weeks and months before Christmas are often quite busy as vendors and buyers are motivated by the end of year deadline. It’s a time when great deals can be done and we do lots of business in December. We are often exchanging contracts for clients right up to Christmas Eve.
If so, why do you think this is?
Buyers and vendors want a resolution. Home buyers want to know where they will be living next year, and not still be sitting on the searching merry-go-round. They imagine themselves sitting around the Christmas lunch table feeling satisfied that they have purchased a new home and will be moving there in the New Year.
What factors contribute to the Christmas slowdown?
Solicitors, real estate agents and inspectors all close down for around two to three weeks. So even if you get offer and acceptance on price, you may not be able to exchange unconditionally. Getting finance approved and getting the valuation done before cool off periods finish can also be a challenge.
When does demand drop off and when does it pick up again (what is the crucial buying window for investors)?
Buyers are in a retail spending mode around Christmas so their focus in not always about buying the biggest ticket item called property. Demand tends to drop off about mid-December. People have different priorities at this time of year – they are gearing up for annual holidays, attending Christmas parties, and finishing work projects. Because property searching is so time intensive, it can get put to the back-burner.
Is it a good time for investors to be entering the market?
Absolutely. But just because it is a good time of year to buy, does not mean there are shortcuts with due diligence. You still need to do all your research and look at a minimum of 50 properties in the area to get across the market. The other thing to consider is that there are fewer buyers around, but this corresponds with less stock on market.
How realistic is the possibility of bagging a bargain?
It is possible, but it’s more about buying a quality property in a great location that will deliver the right cashflow (yield) and capital growth for the long term. Sometimes a “bargain” property will always remain a “bargain” property because it may located on a main road, under the flight path or adjacent to a sewerage plant! There are no short-cuts to success. Keep a level head and research thoroughly.
Are vendors more willing to drop their prices? Why is this?
Vendors are often more motivated to sell this time of year as they want closure. They may have had their property exposed to the market for some time and had a few offers, but realized that in order to sell, they have to “meet the market”. Some investors may wish to sell their property before December 31 as this is the date that land tax is calculated (this would actually mean you need to settle the property prior to years end).
What has been your experience buying during the Christmas months?
I have personally found it a great time to buy for myself and my clients. Before Christmas one year I was negotiating on a nice 3 bed, 2 bath 1 car townhouse in the Inner-west of Sydney for a client. The vendor would not accept our offer prior to Christmas….so I said that’s it and walked away. On the 5th January I got a call from the agent saying “is your buyer still there?” I then secured offer and acceptance that day and exchanged a few days later.
Is there a tactic to negotiating?
Yes – negotiate well so it’s a win-win for both parties. And use a buyers’ agent to do both the appraisal and the negotiation process. Having an independent third party can make all the difference to a negotiation. We are not emotionally involved so we end securing the property at the best possible price. We are able to pinpoint the suburbs and streets that will achieve superior capital growth and also identify the best property types and configuration to maximise rent.
Have you found agents are open to the fact that prices are more flexible, or do they drive a hard bargain?
Agents are often more driven to close a deal before the end of the year. They may be a bit tired of the listing and want a result or be thinking about the commission which would arrive 6 weeks later in their account. The agents would have quarterly or yearly targets to reach and would therefore be motivated to close a deal.
Do you advise your clients to buy during this period?
Yes. Also we get quite a few expats returning from overseas during this time wanting to look at property while home for holidays with family. It can be quite a challenge to get agents and vendors to agree to inspections when they are also on holidays.
Are vendors more willing to drop their prices? Why is this?
Vendors are often more motivated to sell this time of year as
Are vendors more willing to drop their prices? Why is this?
Vendors are often more motivated to sell this time of year as
2. Client Stories
Here is a selection of feedback from some of our happy clients last month:
Buyer type: Homebuyer
Buyer's brief: Family home in the Cheltenham Girls School catchment area
Purchase: $938,000
Auction Reserve: $950,000
Saving: $12,000
Buyers' Agent Comment
Kirsty and Craig had been looking for a family home in good condition in the Beecroft area for some time and become frustrated with the market. Reluctantly, they were starting to consider the neighbouring suburbs when I came across this house in a lovely street in Beecroft. The house 2 doors up had recently sold prior to auction for $1.03m, despite having an estimated bidding guide of $950,000, so they felt that this property would also sell for $100,000 over its estimate. The vendor was committed to go to auction with 3-4 interested parties, so we had no choice than to front up on the day. After successfully securing the property under the hammer and signing contracts, the under-bidder was still out the front of the property some 30 minutes later, pondering their decision not to increase their bid and not knowing we were within $3,000 of our bidding limit. It was wonderful to see Kirsty and Craig so happy and quite emotional, a real bonus to the job.
What our clients say
Having never attended an auction before it was a little daunting being corralled into the back garden of our prospective dream home. The auctioneer began talking at a thousand miles an hour, while several real estate agents circled amongst bidders and onlookers. The words of wisdom from Michael Caton gleaned from a couple of episodes of Hot Property they weren’t going to help us much now. Fortunately we had Matt Corbett from propertybuyer bidding for us. Matt had spent considerable time leading into the auction discussing the value of the property and also our bid limit. Matt then proceeded to secure our dream home over the most stressful 25 minutes we have ever experienced. His skill, experience and general calmness was a massive advantage for us and we have no doubt proved to be the difference when the auctioneer announced third and final call…SOLD and we realised the dream home was now ours. Having seen first-hand the advantage of having an expert bid for you as well as the preparation required leading into an auction we would have no hesitation in advocating the services of Matt Corbett in particular and a bidding agent in general and wouldn’t consider any other option should we ever be faced with the daunting task of another auction.
3. Hot Deals
We are sourcing some excellent investment properties around Australia for our clients in the current “buyers market”. Many of these are off-market opportunities that will never be found on the internet or the local paper. Contact us on 1300 655 615 to find out more.
High capital growth properties - both established properties or new house and land that are not on open market, Prices $350k to $550k. Yields from 6% to 9% and high growth.
Positive cashflow properties - Would you like to own a positive cashflow property and achieve 10%+ yields and enjoy capital growth with the property located in Sydney?
We specialise in sourcing specific sites which allows for the construction of a 1 or 2 bedroom flat behind existing homes. We project manage a licensed builder and have negotiated a discounted volume rate for our clients starting from just $66,000. Call us today to find out more.
NRAS properties – from $395k returning a yield of 6.8% in a growth area.
Hunter Valley: High growth properties - Brand new 4 bed, 2 bath 2 car brick and tile homes for $390k to $420k in high growth areas. Rental returns between 5.0% to 7.0% with zero vacany rates. $27,500 discounts/ rebates available exclusively to propertybuyer clients, Plus you pay No stamp duty.
Home Buyers: we have an extensive agent database of sales agents to find established property stock that would suit your individual needs.
