+ About John McGrath
John McGrath is considered one of the most influential figures in the Australian property industry. As Founder and Executive Director of McGrath Limited, , he took McGrath Estate Agents from a lounge room start-up in 1988 to one of Australia's most successful residential real estate groups, listing McGrath Limited on the Australian Stock Exchange in November 2015.
An integrated real estate services business, McGrath today is one of the fastest growing real estate companies in Australia with a strong market presence in NSW, the ACT & Queensland, and a growing presence in Victoria.
In October 2008, John was honoured by the Real Estate Institute of NSW with the Woodrow Weight OBE Award, a lifetime achievement award for his outstanding contribution to the real estate industry.
John himself has become a spokesperson for the industry both in Australia and internationally. John has five books that have reached bestseller status including “You Don’t Have To Be Born Brilliant” and “You Inc.”. In “The Ultimate Guide to Real Estate”, John shares with the reader his invaluable knowledge on the Australian property market.
John is a Director of REA Group and also the South Sydney “Rabbitohs,” which is one of his great passions.
Tuesday, January 17, 2017
By John McGrath
Australian home owners are staying put longer, with the average number of years that capital city residents hold their homes trending up since 2005 from 6.7 years to 10.7 years for houses and 5.9 years to 9 years for apartments. The number of sales transactions has also declined in line with this trend, according to CoreLogic*.
So why are we staying put longer?
Essentially, it boils down to financial reasons and changes in the way we live today.
As discussed in our 2017 McGrath Report, affordability and the costs of buying and selling are major factors. Stamp duty and agents’ fees alone currently run to about $55,000 on a median priced house in Sydney today.
Renovating is also on the rise, which tends to happen at the end of a boom when affordability falls. Instead of trading up, owners draw on new equity to renovate and extend rather than move house. It’s therefore not surprising that Melbourne and Sydney are our renovating hot spots right now, as the following list shows.
1. Melbourne: $1.882 billion
2. Sydney: $1.684 billion
3. Brisbane: $766 million
4. Perth: $500 million
5. Adelaide: $299 million
6. Canberra: $111 million
7. Darwin: $57 million
8. Hobart: $57 million
Source: Australian Bureau of Statistics data modelled by Domain Group Chief Economist Andrew Wilson, domain.com.au, published February 27, 2016
A strong economy is also encouraging people to stay put. Despite the GFC, it’s been 25 years since our last recession, so the biggest economic factors that prompt people to sell – unemployment and financial stress, are less at play. People in secure jobs can stay put until personal circumstances demand a change of address.
Which brings us to the second major element affecting hold periods – changes in the way we live.
There has always been a strong correlation between people’s life stages and their housing needs. However, in today’s modern world, traditional trends in the way we live are shifting and this is reducing the necessity to move.
Couple-only households and people who live alone are the fastest growing types of households in Australia today, and they don’t need to move as much as growing families.
Recent Australian Bureau of Statistics (ABS) figures^ show 46% of couple-only and lone person households have lived in their current home for 10 or more years, compared to 28% of families with kids.
Young people are staying home longer, prompting many parents to delay downsizing or a seachange. When they buy their first home or rent with friends or a partner, they can stay there longer because they are delaying marriage and kids until much later in life.
Traditionally, as people’s incomes grew, they would look to upgrade to a better property. Today, wage growth is not nearly keeping pace with property prices, so there are plenty of couples staying put in apartments or small houses until their first or second child comes along.
The average family size is also getting smaller, with a steady decline from 3-4 kids in the 1960s to 1-2 kids today#. This means many families can stay put longer in properties with fewer bedrooms.
We’re also seeing a rise in multi-generational households with couples and in-laws pooling funds to buy a large home that will suit them for the long term. ABS data^ shows the majority of multi-family households stay put for 10-20 years or more.
Our ageing population is also contributing to longer hold periods. Mortgage-free home ownership is highest among older Australians and they prefer to stay put long term if they can, with 47% of owners^ without a mortgage living in their homes for more than 20 years.
Staying put means avoiding moving costs and preserving pension arrangements, which can change after selling.
The GFC also prompted many empty-nesters to delay retirement and stay put while they continued working to replenish lost superannuation.
Buying and holding is the key to success in Australian real estate. Although owner-occupiers are primarily motivated by lifestyle factors, it’s important to remember that your home is your greatest financial asset and the best capital growth always occurs over the long term.
* Property Pulse, CoreLogic, published March 30, 2015
^ Housing Mobility and Conditions 2013–14, Australian Bureau of Statistics, published December 10, 2015
# Births, Australia 2014, Australian Bureau of Statistics, published October 29, 2015
East Coast Capitals with the Longest Hold Periods
Dawes Point: 29.7 years
Regentville: 22.6 years
Ellis Lane: 22.2 years
Vineyard: 22.0 years
Maraylya: 20.9 years
Pinjarra Hills: 16.4 years
Rochedale: 15.7 years
Macgregor: 15.3 years
St Lucia: 14.6 years
Nathan: 14.5 years
Cranbourne South: 22.2 years
Belgrave South: 18.2 years
Vermont South: 18.2 years
Noble Park North: 17.7 years
Warrandyte: 17.4 years
Bonython: 14.7 years
Gowrie: 14.4 years
Hawker: 13.2 years
Chapman: 13.2 years
Palmerston: 13.1 years
Bella Vista: 14.9 years
Haberfield: 14.1 years
Russell Lea: 13.1 years
Drummoyne: 13.1 years
Schofields: 13.0 years
Grange: 11.8 years
Kenmore: 11.3 years
Sunnybank: 11.3 years
St Lucia: 11.2 years
Macgregor: 11.2 years
Braeside: 17.5 years
Wheelers Hill: 15.9 years
Ivanhoe East: 15.7 years
Hadfield: 15.3 years
Viewbank: 14.9 years
Reid: 14.3 years
Monash: 14.2 years
Holt: 13.9 years
Higgins: 13.5 years
Greenway: 12.9 years
Source: CoreLogic; 12 months to June 30, 2016
Tuesday, December 20, 2016
By John McGrath
At the end of 2015, it looked like the Sydney market was finally slowing down. Clearance rates had slipped back into the 50% range and investor activity had declined due to tighter lending criteria. After three-and-a-half years of spectacular price growth, it looked like we were in for cooler market conditions in 2016. But it simply didn’t eventuate.
A severe lack of homes for sale has characterised the Sydney market all year and when supply and demand is this tight, above average price growth is inevitable due to intensified competition.
Let’s take a look at the latest numbers from CoreLogic, released on December 1.
Over the calendar year 2016, Sydney house prices are up 15.3% and apartment prices are up 10.6%. That’s excellent growth. Maybe things will change in 2017, but we’d need to see a significant boost to stock levels before prices really begin to settle. For now, they’re still rising and pretty strongly, too.
Looking at the rest of the country, house prices over 2016 are up 11.4% in Melbourne, 9.9% in Canberra, 7.9% in Hobart, 6.6% in Adelaide, 4.1% in Brisbane/Gold Coast and 0.1% in Darwin. House prices declined in Perth by -5.9%.
Apartment price growth was pretty subdued everywhere except Sydney, mainly due to the growing oversupply in East Coast markets. Prices are up 5.5% in Hobart, 5.2% in Canberra, 5% in Darwin, 3.2% in Adelaide, 0.9% in Brisbane/Gold Coast and 0.6% in Melbourne. Apartment prices declined in Perth by -2.2%.
In our latest McGrath Report, we looked at what was pushing price growth in the best performing East Coast capital city suburbs. The key factors were lifestyle options, strong or improving infrastructure, good schools, local jobs or proximity to employment hubs, public transport and a vibrant ‘village’ atmosphere.
Newly released figures compiled by CoreLogic reveal the suburbs with the greatest house and apartment price growth over the 12 months to September 30, 2016. They are below.
Top 10 Suburbs for Price Growth by Capital City
Source: CoreLogic; 12 months to September 2016; suburbs with a minimum of 40 sales during the year
Also in our McGrath Report, we discussed the key signs for identifying the next hot spots for growth.
Here are my tips to help you when looking for your next investment location.
- Strong population growth
- Good local employment or access to job hubs
- Gentrification of housing stock
- Growing household incomes
- Lifestyle amenities – cafes, shops, entertainment and recreation
- Schools and catchment zones
- Presence of big retail brands
- Public transport and walkability
- Rising tenant and buyer demand
- Low or falling days on market
- Low or falling vacancy rates
- More auctions and rising clearance rates
- Reduced vendor discounting
- Limited supply of future housing
This will be my final column for the year. I wish you and your friends and family a wonderful Christmas and a relaxing holiday break.
Tuesday, December 13, 2016
By John McGrath
A significant off-market sales trend has emerged in Australian prestige property due to an undersupplied market, better use of database marketing, the rise of the buyers’ agent and increased opportunity for wealthy clients to maintain total privacy.
Most popular in East Coast capital city markets, off-market selling is where a property is sold without any public advertising. Instead, owners quietly list with a trusted professional who then introduces their home to pre-selected clients without ads or open homes.
In our recently released McGrath Report 2017, we discussed how off-market selling is happening across all price brackets but particularly the prestige sector, where privacy is a priority for high profile clientele.
Impressive record prices have been set off-market, none more so than the $70 million Australian record for a single residence set in 2015 when Chinese-Australian developer, Dr Chau Chak Wing purchased James and Erica Packer’s former home in Vaucluse, Sydney.
This year, suburban records have also been set off-market in Sydney’s Longueville ($11.88 million) and Rozelle ($4 million); in Melbourne’s Northcote ($4.3 million); and in Brisbane’s New Farm ($10.5 million) – the city’s highest sale in 2016.
Lack of stock has been a major contributor to stronger off-market selling in 2016. Frustrated buyers are asking agents for early notice of new listings and making premium offers to snap them up and avoid open market competition.
Agents are approaching home owners directly off the back of clients’ requests for a particular street or a home with very specific criteria. This proactivity has given many owners the chance to sell for a premium, avoid marketing costs and remain off the radar.
In Brisbane, off-market selling is occurring more so because vendors are worried they won’t achieve their price in this current market. They don’t want to pay for marketing then potentially face the risk of not selling. So agents are orchestrating deals using their databases to match listings to buyers in a far more discreet and personalised way.
Database marketing has also facilitated the rise in off-market selling. In terms of sales strategy, database marketing is nothing new, but today’s technology is enabling agents to do it better.
The size of agents’ databases, built up over many years as our industry has shifted to a more personalised style of marketing as part of the mix, means agents can create real competition and achieve solid prices while also meeting their vendors’ desire for privacy.
Agents are dedicating more time to developing personal relationships with buyers, especially in the high-end market, as our industry evolves from a largely transactional to relationships-based business.
Some agencies in Sydney and Melbourne have introduced password-protected online platforms that allow pre-qualified buyers to log in and view properties not advertised on the major portals.
The proliferation of buyers’ agents has also led to more off-market selling. Clients of buyers’ agents are time-poor and looking for a more efficient way of finding a new home. Selling agents often introduce new listings to buyers’ agents first and quick sales can ensue.
Chinese social media, particularly the Facebook-equivalent WeChat is also enabling effective international marketing to buyers willing to move quickly to secure the best homes on offer.
We believe prestige property will be the next growth story in Australian real estate. This sector did not move as much during the boom and price growth is overdue.
Demand for prestige property improved this year, with Chinese buyers continuing to move here for lifestyle and expats purchasing future homes in suburbs delivering solid rental yields until they relocate back home.
Growing demand from foreign buyers, expats and local upgraders should move prestige prices forward, as long as the global economy remains stable.
Volatility in the share market, which is directly and immediately hit by events such as Brexit and acts of terrorism, might also attract more investment into Australian real estate over coming years.
It also wouldn’t be surprising to see more people investing greater capital into their homes due to changes to superannuation and the opportunity for tax-free capital gains.
Tuesday, December 06, 2016
By John McGrath
Foreign investment has been a significant driver of Australia’s property market, and in many ways, a contributing factor to our strong economy, particularly over the past decade as China has boomed and its rising middle and upper classes have looked for new ways to invest in a volatile international economy.
Australia’s attractive lifestyle, clean air and food supply, political and economic stability, high-quality education and health facilities, safe cities, a similar time zone and attractive property market has proven an irresistible combination for our northern neighbours.
According to the latest Foreign Investment Review Board (FIRB) data*, $60.75 billion was invested in Australian residential real estate by foreign buyers in FY2015, up 75% on FY2014^.
The favoured destinations
By far, NSW and Victoria were the favoured destinations, and for the third consecutive year, the lion’s share of investment came from China – and at record levels, too.
Chinese buyers invested $24.35 billion in residential and commercial real estate last year*, almost double that of FY2014^ and more than four times the investment of FY2013#.
In our recently released McGrath Report 2017, we discussed how Chinese appetite for Australian property is clearly increasing, so what happens when governments – Australian and Chinese – tighten controls on foreign investment?
The new taxes
One of the most short-sighted initiatives I’ve seen in my 35 years in real estate is governments imposing hefty taxes on overseas buyers over the past 12 months. I believe this sends a message that they are not welcome here and that’s not a good image for us on the global stage.
Here’s a rundown of these new taxes:
· In December 2015, the Australian Government introduced fees for foreign real estate acquisitions, starting at $5,000 for purchases below $1 million – which represents the majority of foreign real estate purchases
· In June 2016, the New South Wales Government introduced a 4% stamp duty surcharge for foreign buyers and a 0.75% land tax surcharge from 2017
· In July 2016, the Victorian Government raised their stamp duty surcharge for foreign purchasers from 3% to 7% and announced an increase in the absentee owner land tax surcharge from 0.5% to 1.5% from 2017
· In October 2016, the Queensland Government also introduced a 3% stamp duty surcharge on foreign purchases
And there’s even more hurdles for foreign buyers now, with Australian banks tightening their lending criteria and the Chinese Government limiting the amount of capital exiting the country.
While it’s too early for official numbers, anecdotal evidence from our agents suggests mainland Chinese investors have pulled back, while Chinese clients already here continue to upgrade to new homes and purchase for investment.
The effect of the new fees won’t be fully realised for another 12-18 months, but we think it will be largely limited to the new apartment market. FIRB figures* show about 80% of all foreign purchases are under $1 million – indicating that reduced Chinese demand and settlement defaults will hit the apartment sector most, with some impact also felt in the mid-priced house market too.
As Chinese investment slows down – at least in the short term, FIRB figures show increasing interest from other parts of Asia, primarily Singapore, Malaysia, Hong Kong and Thailand.*^# We are also seeing an increase in investment from emerging economies such as India, Vietnam and Indonesia.
In our McGrath Report, we also discussed the potential impact of Brexit on our market.
Overall, the Brexit decision should work in our favour. Australia attracts a lot of capital for commercial property and other investments from around the world and we are often competing with Europe for these dollars.
Our residential property market, particularly Sydney, Melbourne and the Gold Coast could benefit as overseas buyers turn away from London, which has been popular with foreign buyers in the past. However, with Brexit expected to take at least two years, it is hard to predict the ultimate impact.
* Annual Report 2014-15, Foreign Investment Review Board, published April 8, 2016
^ Annual Report 2013-14, Foreign Investment Review Board, published April 27, 2015
# Annual Report 2012-13, Foreign Investment Review Board, published February 28, 2014
Tuesday, November 29, 2016
By John McGrath
The market has improved significantly in Canberra this year, with house prices rising by almost 10% over the first 10 months of 2016 alone*. This time last year, Canberra was a market still in decline, so the turnaround this year has been quite remarkable.
Underpinning this growth is an undersupply of houses for sale, greater stability in Federal Government following many years of unrest, and a very low unemployment rate of just 3.6%^, boosted by the lifting of a two-year hiring freeze in the public service in mid-2015.
The Federal Election
In our recently released 2017 McGrath Report, we revealed a distinct new confidence in Canberra’s marketplace following the Federal Election.
Canberra is always directly affected by elections because one in three workers are employed in the public service. Unlike the last Federal Election, there was no threat of mass job cuts on either side of politics, so the market maintained its momentum during the long campaign.
The Coalition’s return meant continuing stability for government employees, no changes to negative gearing or capital gains, and a tax cut that would benefit a large proportion of residents who are among the highest paid workers in the country.
Opens have been well-attended all year and auction clearance rates for houses remained just shy of 70% for the 12 months to June 2016, according to Domain research#.
Interest rate cuts are no longer having a stimulatory effect, with buyers now used to record lows. However, young couples and families are leveraging rates to stretch their budgets further and buy in premium locations close to the best schools.
Mr Fluffy buyback
The $1 billion ‘Mr Fluffy’ buyback and demolition of 1,022 homes across 56 suburbs by 2018 continues, and is having a big impact on the market. Approximately 260 homes have been demolished, with 176 scheduled for demolition between July and December 2016 **.
The scheme has displaced hundreds of families who all need to buy or rent. They have been paid well for their homes and the stamp duty concession on their next purchase is giving them extra buying power and the ability to buy quickly and compete strongly at auction.
Some are staying in their area, others are upgrading elsewhere. For example, many ‘Mr Fluffy’ sellers in Belconnen are heading to nearby Gungahlin where they can purchase bigger, newer homes.
Meanwhile, the incredibly rare opportunity to buy vacant land in premium established suburbs following the demolition of ‘Mr Fluffy’ homes is exciting buyers.
The first 10 blocks were taken to auction in April. Among the sales was a block in Pearce for $605,000 and one in Chapman for $610,000 – both close to the city’s median house price. This signalled to other home owners just how valuable their land has become due to limited release of new supply in recent years.
Original housing stock in Canberra’s prized inner north and south is more than 60 years old and due for an overhaul. Owners are realising the best way to capitalise on their land value is to re-build and families are out in force looking for knockdown opportunities in prime locations.
Downsizers are among these buyers, with many not ready for apartment living. Townhouses are hard to find, so many downsizers are looking to build dual occupancies instead – sometimes in joint venture deals with friends.
The Over 60s Home Bonus Scheme provides downsizers with a market advantage due to a substantial discount on stamp duty. On a $660,000 purchase, just $20 is payable. We are finding that many people are still unaware of this opportunity but once informed they feel incentivised to sell.
Canberra’s apartment oversupply continues, comprising 51.2% of all homes for sale, according to CoreLogic^^. However, property values and rental yields are holding up well.
The median apartment price has risen 4.4% in calendar year 2016 and rental yields are among the highest in the country at 5.1%*.
The rental market is being supported by extra demand from ‘Mr Fluffy’ sellers as well as usual strong demand from young workers, students at two universities and public service contractors who do not want to settle in Canberra permanently.
* Hedonic Home Value Index, CoreLogic, published November 1, 2016
^ Labour Force Australia, August 2016, Australian Bureau of Statistics, published September 15, 2016
# Property Research Report for ACT, Domain, 12 months to June 2016
** Houses to be demolished by district and year, Asbestos Response Taskforce, published July 29, 2016
^^ Units are increasingly making up a higher proportion of overall stock available for sale, largely driven by the nation’s two largest capital cities, CoreLogic, published August 2, 2016
## CoreLogic; 12 months to June 30, 2016; suburbs with a minimum of 40 sales in the year
Tuesday, November 22, 2016
By John McGrath
South-East Queensland continues to offer outstanding opportunity for growth. However, a sluggish economy, political upheaval, low population growth and an impending apartment oversupply is delaying the significant price growth that’s overdue in Brisbane today.
In our recently released 2017 McGrath Report, we discussed how the end of the mining boom has hit Queensland and its capital city hard. Brisbane is no longer experiencing the strong flow of money that came from regional areas where mining workers earning big salaries were investing in Brisbane real estate, or buying family homes in Brisbane for a fly-in fly-out lifestyle.
Latest statistics from the ABS and CoreLogic show Brisbane’s population growth is at its lowest point since 2001*. Continuously strong economic conditions in New South Wales and Victoria and uninspired state management following the Liberal National Party’s removal after one term (and now a minority Labor Government) provides no incentive for big business to set up and expand into Brisbane.
Brisbane shows resilience
But through all this, the property market is showing resilience. According to CoreLogic, median property values (for houses and apartments) along the Brisbane to Gold Coast corridor rose by 5.7% to $482,000 in FY2016^, compared to 3.5% growth in FY2015 and 6.7% in FY2014.
Despite all the big picture challenges, the market is currently seen as affordable, safe, steady, reliable and doing well in tough economic conditions.
As always, some suburbs have exhibited exceptional results. Those with more than 15% house price growth in FY2016 include Robertson (25.6%), Darra (23.9%), Wilston (20.3%), Chelmer (19%), Banyo (17.2%), New Farm (16.8%), Sandgate (16.8%) and Carina Heights (16.2%)#.
In the apartment market, Brisbane is facing an oversupply with a two-year pipeline of 44,511 dwellings to be completed, according to CoreLogic**. This is significant when, ordinarily, about 30,000 apartments would be sold in this timeframe and that includes a combination of old and new.
The oversupply will be primarily around the city and inner ring areas. Investors are increasingly wary of this and some developers have delayed their projects. However, it does present an opportunity for owner-occupiers with a long term view. The newly boosted First Home Owners’ Grant, up from $15,000 to $20,000 until June 30, 2017 should help young buyers in this market.
On the Gold Coast, plenty is happening and it’s all positive. Locals who bought highly discounted properties in prime areas post-GFC have now renovated or re-built and are selling with a view to buying again in a better location. They are making money and moving up the ladder through a buy, renovate, sell and repeat strategy.
In the more affordable suburbs, a huge range of buyers including local upgraders, downsizers, renovators, first home buyers and some Sydney and Melbourne lifestyle buyers are targeting up-and-coming areas, particularly on the southern Gold Coast.
Buyers are especially drawn to areas such as Miami, Palm Beach and Tugun where good quality houses that are walking distance to the beach are selling for well below $1 million.
These suburbs offer exceptional value and opportunities for growth. A Palm Beach home worth $600,000 is worth $1 million just 9km up the road in Mermaid Beach. On the beachfront, Palm Beach buyers are paying $2.5-$3 million, compared to $5-5.5 million in Mermaid Beach.
In the prestige market, there have been very few sales above $10 million since 2009, but this year, six were recorded over the first three quarters alone, reflecting rising confidence particularly among locals.
The biggest deal was the $25 million sale of a Mermaid Beach mansion in September. There was also the $15.5 million sale of a riverfront Isle of Capri residence to Chinese buyers and two other sales in Mermaid Beach for $13.25 million and $11.45 million. There was also an $11 million sale on Cronin Island and a $10.9 million sale at Sanctuary Cove.
We remain very optimistic about the Gold Coast. In the lead-up to the 2018 Commonwealth Games, billions will be spent on infrastructure, and the economy is becoming more diversified with health and education jobs supplementing the more volatile retail, tourism and construction industries.
On the Sunshine Coast, there’s a lot of demand at the upper end in Noosa and Sunshine Beach. Local upgraders and lifestyle buyers from Queensland, Sydney and Melbourne are spending up to $5 million for properties to either occupy now, or use as holiday homes ahead of retirement. A new record for beachfront homes on the coast was set in September with a $9.3 million sale at Sunshine Beach.
* Melbourne leads population growth, CoreLogic, published April 11, 2016 and Regional Population Growth, Australia 2014-15, Australian Bureau of Statistics, published March 30, 2016
^ Hedonic Home Value Index, CoreLogic, published July 1, 2016
# CoreLogic; 12 months to June 30, 2016; suburbs with a minimum of 40 sales in the year
** Record high unit construction increases settlement risk, CoreLogic, published May 16, 2016
Tuesday, November 15, 2016
By John McGrath
Melbourne and Sydney have long been the engine rooms of Australia’s property market, with Sydney traditionally leading the way. But the southern capital is looking more appealing than ever before due to its superior value for money and glowing reputation as the world’s most liveable city for the past six years*.
In our recently released 2017 McGrath Report, we discussed Melbourne’s emergence as the No. 1 hot spot for both overseas immigration and Australians moving between states. Of particular importance is the growing number of Sydneysiders relocating and/or investing in Melbourne where property is cheaper, with good employment opportunities and an appealing lifestyle.
Melbourne’s relative affordability is contributing to record high net interstate migration, as well as strong net overseas migration, making it Australia’s fastest growing capital city with an average of 1,760 people moving in per week in FY2015, according to the ABS^.
Although Sydney outshone its southern cousin in the boom, with 64% growth in home values compared to 44% since 2012#, Melbourne arguably offers greater prospects for growth in the future.
Its median house price is $287,000 cheaper##, and a projected population surge from 4.61 million in 2016 to 7.91 million in 2053 will see it overtake Sydney as the most populous city in Australia^^.
Melbourne’s median house price rose by a modest 8.6% in FY2016 to $608,000, with the median apartment price up 2.5% to $485,000##.
However, some areas experienced much stronger price growth due to a lack of supply in 2016. According to CoreLogic, Melbourne’s top 10 suburbs for house price growth in FY2016 all experienced more than 25% gains in value##.
The dominant buyers in Melbourne today are upsizing families, most of whom are targeting the catchment zones of top performing public schools to avoid private school fees. This trend is so strong that new REIV research** shows there is now a significant price difference between homes located within top catchments and those that border them.
In Parkville, homes within the catchment for University High have a median house price of $1,395,000, compared to $799,000 for homes that are 1km outside the zone. Similarly, homes in the catchment for McKinnon Secondary College have a $305,000 premium over those outside the zone**.
With interest rates continuing at record lows, young buyers are stretching their budgets to get into premium areas. They’re targeting small inner-ring cottages with a bit of character, and paying well over the reserve to secure a piece of prime land while they can.
Some vendors are leveraging strong selling conditions to upgrade to larger homes in more affordable areas with change to spare. For example, vendors in Doncaster, Mitcham, Blackburn and Box Hill are selling in the early $1 millions and buying in Croydon for $800,000-$900,000.
Given Melbourne’s tight supply and rising prices, we are seeing the ripple effect in many areas. For example, buyers priced out of the highly desirable Bayside area are purchasing next door in Bentleigh and McKinnon, leading to several sales above $2 million this year – a price level not thought possible just a few years ago.
APRA restrictions have impacted investor demand, but we are still receiving enquiries from Sydney, Perth, Brisbane and ex-Melbourne locals living overseas. Many investors have now put Sydney into the ‘too-hard box’ due to affordability, and have switched their focus to Melbourne.
The southern capital has long been the favoured destination of offshore Chinese buyers, but demand has softened this year following changes to lending criteria for foreigners and forced sales of properties purchased in breach of Foreign Investment Review Board regulations.
Despite this, Melbourne’s prestige market remains strong, with a new house price record for the city set in Toorak at $24.1 million and Victoria’s highest residential sale ever occurring in South Yarra, with the exchange of three homes in one line for $33 million. Both occurred this year.
Sales above $25 million are expected for penthouses in South Yarra’s glamorous Capitol Grand development, which would break the national apartment record.
Melbourne is facing an oversupply of apartments, which currently represent 49% of stock for sale compared to 42% a year ago and 29% in 2011^^^. CoreLogic figures show a pipeline of 80,500 new apartments due for completion over the next two years, when only 61,500 apartments (old and new) are usually sold over this timeframe###.
This presents a great opportunity for owner-occupiers with a long term view, but they need to choose wisely.
* Global Liveability Ranking 2016, The Economist Intelligence Unit, published August 18, 2016
^ Regional Population Growth, Australia 2014-15, Australian Bureau of Statistics, published March 30, 2016
# Hedonic Home Value Index, CoreLogic, published September 1, 2016
** Top of the class: School zones boost prices in 2016, Real Estate Institute of Victoria, published June 27, 2016
^^ Population Projections, Australia 2012 to 2101, Australian Bureau of Statistics, published November 26, 2013
## CoreLogic; 12 months to June 30, 2016; suburbs with a minimum of 40 sales in the year
^^^ Units are increasingly making up a higher proportion of overall stock available for sale, largely driven by the nation’s two largest capital cities, CoreLogic, published August 2, 2016
### Record high unit construction increases settlement risk, CoreLogic, published May 16, 2016
Tuesday, November 08, 2016
In our just released 2017 McGrath Report, we take a look at all the major east coast capital city markets and discuss the dominant trends going on in each of them.
The stand-out market – as always, is Sydney. It remains Australia’s strongest and most enduring market powered by long-standing fundamentals of undersupply and population growth; and providing every type of lifestyle possible including beachside, harbourside, CBD living and suburban neighbourhoods for almost 5 million residents.
Sydney real estate is like gold and in my opinion, despite the phenomenal boom of 2012-2016, Sydney property prices will continue to rise.
Figures from CoreLogic RP Data* tell us that Sydney property prices have risen 64% in four years. This is spectacular growth and well ahead of the second best result in Melbourne at 44%.
For many Sydney property owners, the boom has delivered extraordinary gains for those in the market. But how do you best capitalise on this newfound wealth?
Meantime, the market is showing signs of plateauing but price growth has continued due to a significant undersupply of stock and strong demand buoyed by further falls in interest rates.
According to CoreLogic RP Data*, the pace of price growth in Sydney has halved this year but median property values are still up 12.8% to $880,000 for houses and 7.5% to $665,500 for apartments over the first eight months of 2016. Pretty impressive for a slowing market.
Record low listing numbers have contributed to very strong auction clearance rates between 70% to above 80% all year.
Local upgraders have been the greatest buying force, aiming to use new equity to upgrade their homes and potentially refinance while interest rates are so low. However, fear of selling and not being able to buy back in is resulting in a determination to buy first, so stock remains low.
Many would-be upgraders are staying put and renovating instead, with Sydney and Melbourne owners spending more than twice the money of owners in other capital cities, according to the ABS and Domain research.
While investors are still out there, we have definitely noticed a drop-off due to tighter lending criteria. The APRA-led changes introduced in early 2015 aimed to limit growth in the banks’ property investment lending to less than 10% per year and this has now been achieved.
The top end of the market is improving this year. The lower dollar has encouraged expats and foreign buyers; and locals who purchased wisely post-GFC are now looking to cash in and upgrade.
In Sydney, Eastern Suburbs owners who bought in the $2 million-$4 million bracket are now selling for $7 million and upgrading to $10 million. In the Lower North Shore harbour suburbs, young families are selling for $4 million -$5 million and upgrading to $8 million - $10 million.
Affordability remains an issue across Sydney. The traditional migration west for cheaper housing continues, with the greatest population growth over the next 20 years expected in Camden, Parramatta, The Hills and Liverpool regions, according to new figures from the NSW Department of Planning#.
However, limited greenfield development space on Sydney’s western fringe means we need to get creative in housing a predicted 1.7 million new residents over the next two decades.#
Among the options is subdivision of traditional blocks in established suburbs to enable more terraces, townhouses and dual occupancies; and more high rise apartment living around suburban CBDs.
Meantime, a growing cohort of young families are leaving Sydney altogether in favour of affordable lifestyle locations, with ABS figures showing the most popular spots are the Richmond-Tweed region, Mid-North Coast, Central Coast and Hunter Valley**.
Chinese buyers remain a force in Sydney, however new fees levied by both federal and state governments on top of tighter lending criteria for foreigners has resulted in reduced demand and settlement risk on new apartments.
There’s a two-year pipeline of 82,000 new apartments to be completed in Sydney, according to CoreLogic RP Data^^. To put that in perspective, 43,500 apartments are sold in Sydney per year but that includes established apartments, which represent a bigger share of the pie.
This wave of new supply will be concentrated around the inner city and suburban employment and shopping hubs such as Strathfield, Parramatta and Ryde. This is where young people want to live and over the next few years, they will be spoilt for choice and finally have some negotiating power on their side.
We see a bright future for the Sydney property market. There is plenty of long-term price growth ahead even as we approach a major affordability hurdle for younger buyers today.
We believe the burgeoning global audience for Sydney real estate will be a key contributor to future price growth; and the long term stability of the market and opportunity to create significant personal wealth will sustain the aspirations of Sydneysiders to own their own homes for generations to come.
*Hedonic Home Value Index, CoreLogic RP Data, published September 1, 2016
#NSW Population Projections 2016 Update, NSW Department of Planning and Environment, published September 12, 2016
**Is family-led sea and tree change back in vogue? CoreLogic RP Data, published April 18, 2016 and Migration, Australia 2014-15, Australian Bureau of Statistics, published March 30, 2016
^^Record high unit construction increases settlement risk, CoreLogic RP Data, published May 16, 2016
Tuesday, November 01, 2016
By John McGrath
Another compelling year in Australian real estate is behind us, so what do we take out of it?
In our just released 2017 McGrath Report, we look at the movements in the market and pinpoint the trends that seem to be having the greatest impact on us both now and into the future. The last few years have been a fascinating time for Australian residential property, with a number of trends emerging and driving different markets in different ways.
Over the next couple of months, I will discuss these trends in greater depth, including why we’re staying in our homes longer, the rise in off-market prestige sales and how technology will continue to change the way we transact real estate.
Today, I provide a general market overview and my top 5 suburb picks for each east coast capital city. These are the areas we feel have the greatest potential for price growth moving forward.
So, taking a macro view of Australia first of all, it’s clear that Sydney and Melbourne have decoupled from the rest of the country. But this is a phenomenon this neither concerns nor surprises me.
If you follow the trends of most countries around the globe, the largest city or cities often become separated from the rest of the market by the weight of demand. And within these cities, we continue to see an increasing ‘Manhattan Effect’, where lifestyle and locating as close as possible to the proverbial action has become a sub-trend.
As commuting becomes increasingly challenging, the desire to be close to the business and arts districts is a direction that’s here to stay. As a result of this, people ask me if I think Sydney and Melbourne are overvalued off the recent cycle uplift. My honest view is that Sydney and Melbourne are the “New York’s of Australia” and will be in huge demand as far into the distance as I can possibly see.
In fact, with several billion people on the doorstep of this lucky country – many with a huge appetite to enjoy the lifestyle we have – it would be far easier to mount a sensible argument that both of the big cities will look incredibly cheap as we look back in a decade or so. That is assuming we manage our growth well and find a way to sensibly welcome immigrants and overseas investors into the country.
Which brings me to what I believe is one of the most short-sighted initiatives I’ve seen in my 35 years in real estate – the decision by three east coast state governments to impose hefty taxes on overseas buyers.
This tax could only have been imposed for one of several flawed reasons. Was it to allow local buyers to get into the market? Or was it simply to raise more revenue?
Let me emphasise that the overall percentage of property in Australia sold to foreign buyers is minimal. The reason Sydney and Melbourne prices have risen has little, if anything, to do with overseas buyers. It’s a supply issue. And let’s not forget that we all came from somewhere else. Our multi-cultural society is one of our greatest assets. Why send a message to the world that they’re not welcome to invest alongside us in this great country?
Drilling down to street level market trends in the east coast’s major cities, there are several suburbs in each city that I believe offer greater promise for capital growth than their peers. Here are my top 5 suburb picks based on current opportunity and long-term prospects for price growth.
Once an average suburban precinct best known for its equine interests, Canterbury is fast becoming an Inner West bolthole attracting young families and professionals alike. Buy, sit and watch your asset grow in value.
We still can’t work out why property values here are materially below similar suburbs in the East and North. This attractive garden enclave is private and discreet with beautiful homes and perfumed gardens. If you want to see some of the best homes in the country, check out Hunters Hill.
Follow the money. At the minute, it’s all heading to the North West ahead of the soon-to-be-completed new rail line. The surrounding areas are equally as attractive for both lifestyle and capital growth but the Rouse Hill Town Centre is worth seeing for that address alone.
Sans Souci/Dolls Point
Surrounded by water and with all the appeal and benefits of Sydney’s southern suburbs yet only minutes to the Bay, Airport and CBD, this area will continue to be one of the most desirable in Sydney.
This has been a favourite suburb for several years now. If you crossed the leafy North Shore with the vibrant Northern Beaches, Forestville would be the outcome. Relatively easy access to the CBD, just seven minutes to the surf and surrounded by trees, it is ideal for homemakers.
A hidden gem neighbouring Prahran, Windsor was once considered the grungy end of Chapel Street but now the hipster crowd is moving in. We see great potential for this trendy pocket, which has easy access to trains and shops and is conveniently close to the CBD.
Change is on its way with a noticeable uplift in buyer demand over the past 12-18 months. This suburb is full of mid-century homes on big blocks with plenty of potential for knockdown/re-builds and development. Downsizers are capitalising on a 10-15% jump in land values over the past few years and selling to young families and developers.
Just 6km north of the CBD, Northcote has undergone major change and is now a destination suburb for young professionals and families. High Street village offers many restaurants and the tram runs straight through to the city with a train station also close by. Local schools including Northcote High and Santa Maria College are increasingly popular.
Wheelers Hill has a median house price that is $250,000 less than its neighbours of Glen Waverley and Mount Waverley, yet it is only 5-10 minutes away. Buyers are increasingly looking for better value here and we anticipate solid price growth as a result.
This inner city precinct less than 3km from Melbourne’s CBD has been through significant gentrification over the past decade. With an abundance of leisure and lifestyle amenities, it also has cycling and running routes along the Yarra River. Young professionals and families enjoy its walkability and accessibility, while cashed up downsizers are now discovering this gem.
BRISBANE & SURROUNDS
Brisbane’s smallest suburb, Gordon Park offers fantastic value and great infrastructure. Access to the CBD has become much easier with the Clem7 and Inner City Bypass. New cafes are popping up and a ripple effect is occurring from the more established and pricier neighbouring suburbs of Grange and Wilston.
Situated next to St Lucia and Indooroopilly, Taringa has access to all the same amenities as its blue chip neighbours but offers better value for buyers. According to CoreLogic, Taringa house prices rose 10.2% in FY2016 but we think there is more growth to come.
This suburb offers very good value and a mix of waterfront and non-waterfront homes. We are seeing at least 4-5 registered bidders across all auctions in this suburb. This is an ideal location for second home buyers who don’t have the budget for Mermaid Beach. A lot of buyers are renovating so the suburb is undergoing a facelift.
With a median house price of $675,000, it offers better value than neighbouring Sunshine Beach (median $1,015,000) but probably not for long! Just a few minutes outside Noosa, Sunrise Beach has had a noticeable kick in activity and 12.5% house price growth in FY2016.
This is a town on the move with its CBD undergoing a complete makeover. Just 2km from the ocean, there is already a fresh, exciting new vibe on the main street with lots of new roads, retail, commercial spaces and community facilities on the way.
Underrated and primed for growth, Canberra’s largest suburb with 6,140 homes offers better value than Woden and Weston Creek and a diverse range of properties. Centrally located, it is the most northern suburb of Tuggeranong with good access to arterial roads for the CBD commute.
Big money is being spent in Curtin, which has undergone a changing of the guard over the past few years. Ex-Government housing has been sold off, knocked down and re-built and family buyers priced out of Deakin, Hughes and Garran have bought and renovated.
Adjoining Turner where houses are in very short supply, O’Connor offers great value. However strong buyer demand has made it Canberra’s No 1 suburb for growth in FY2016, with house prices rising 21.5% to a median of $960,000 and apartment/townhouse values up 15.3% to $490,000.
Sitting on opposite sides of Flemington Road, the main arterial road leading out of Gungahlin to the city, these two suburbs will directly benefit from the new light rail. Both are family-oriented neighbourhoods with good schools and close proximity to the CBD.
These two suburbs are well positioned to benefit from Belconnen’s gentrification. A lot of new townhouses and apartments are being built in the area, creating residential precincts with great amenities including shops, restaurants and cinemas.
Tuesday, October 25, 2016
By John McGrath
The latest Regional Market Update from CoreLogic shows Wollongong and Shellharbour have recorded impressive price growth of late, largely driven by Sydneysiders relocating to the south coast as the post-boom ripple effect gets underway.
It’s very common in the immediate period after a capital city’s boom to see buyers flocking to nearby regional centres within commuting distance back to the city. In the case of Sydney, it is typically the Blue Mountains, Wollongong, the Central Coast and Newcastle that benefit most from the ripple effect. This week, let’s drill down on the south coast.
Sydney buyers are looking south for affordability, lifestyle and investment opportunities. Among the owner-occupier buyers, some are commuting back to Sydney for work while others are seeking a permanent seachange with the hope of local employment to escape the city hustle and bustle altogether.
We’re also seeing more Sydney retirees heading to both Wollongong and Shellharbour. Now that Sydney’s four-year boom is over, they are selling their family homes for impressive prices and finding great value and lifestyle on the south coast, while still being close enough to drive back to Sydney regularly to see the grandkids.
Here are the stats.
In the Wollongong council area, which includes Port Kembla, Bulli, Thirroul and Helensburgh at the very southern tip of Sydney, median house prices grew by 15.1% to $630,386 and apartment prices grew by 14.4% to $471,037 over the 12 months ending June 2016.
In the Shellharbour council area, which includes Shell Cove, Warilla, Oak Flats, Flinders, Blackbutt and Albion Park, median house prices grew by 13.1% to $532,463 and apartment prices grew up 12.7% to $411,958, according to CoreLogic.
I had a chat this week with one of McGrath’s Principals, Jordan Andonovski, who co-owns three of our south coast offices at Wollongong, Thirroul and a brand new one in Shellharbour. According to Jordan, all three are seeing an influx of Sydney buyers.
Jordan says: “Sydney commuter buyers are primarily coming from the western and southern suburbs and are targeting the northern areas of Wollongong including Thirroul, Bulli, Woonona and Towradgi.
“Those in Sydney’s west, who are already commuting to the CBD, are realising they can buy a home for less in Wollongong and although the commute is a bit longer, they can come home every day to a beachy lifestyle and a good-sized home on a decent block of land.
“Buyers from the Sutherland Shire have always liked Wollongong because it’s not so much of a stretch to go that bit further south for more value. They can buy a house here for the same price as a townhouse in the Shire. So after a long period of price growth in Sydney, they’re seeing an opportunity now to sell high in Sydney and upgrade here while interest rates are still extremely low.
One of the most interesting trends our south coast offices are seeing is more people from Sydney moving to the coast because their work life has changed, with their employers allowing them to work part-time from home. This means they only have to commute a few days per week, which makes a coastal lifestyle outside the city much more appealing and manageable.
We’ve been seeing this with semi-retired senior executives in many regional areas close to Sydney for several years, but it’s now becoming more common among young families too. Technology is enabling somewhat of a decentralisation of the workforce and regional areas close to major cities are really primed to benefit from this trend.
The $600,000 to $700,000 price range appears to be the most popular in Wollongong, according to PriceFinder data cited in the October market report of independent property valuation firm, Herron Todd White. This bracket had the highest volume of house sales in the 2016 financial year at 420 sales, according to the report.
Jordan concurs with this, with his personal team selling about 40 homes over the past three months at an average sale price of $650,000.
This sort of budget buys good quality apartments in the Wollongong CBD and older houses in areas like Figtree, which is about 4km south-west of the Wollongong CBD. Figtree has been a hot spot this year as it provides better value for buyers on tighter budgets, has some of the best schools in the Illawarra and is easily accessible to the M1 for the Sydney commute.
Our Wollongong office is also selling a lot of apartments to investors who are finding Sydney too expensive to buy in now, with yields too low following the boom.
Jordan says: “Most apartments will deliver investors a strong rental yield, that in most cases, makes the investment very close to neutrally geared. This is very appealing to Sydney investors, who are primarily targeting older-style apartments in the late $400,000s to early $500,000s.
“We’re also seeing a lot of Sydney parents buying apartments in suburbs close to Wollongong University such as North Wollongong, Gwynneville and Keiraville. They’re buying with the intention of giving their kids somewhere to live while studying, with a view to holding the apartment as a long-term investment after their child moves on.”