+ 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, February 21, 2017
By John McGrath
In recent times, most lenders have moved independently of the Reserve Bank and raised their fixed rates. Some have raised variable rates, too. There’s also a difference in the rates offered to investors versus owner occupiers, with owner occupiers tending to receive more favourable treatment.
All of this prompts the question, particularly for investors: is it time to fix your loan?
I had a chat with Alan Hemmings, General Manager of McGrath’s mortgage broking division, Oxygen Home Loans, and asked him whether borrowers should consider fixing now. Here’s what he had to say:
“The average three-year fixed rate over the past three years has been 4.69%, so with fixed rates available today below this figure it is still an opportune time to fix now. There are still fixed rates available below 4%, too.
“Lenders have been increasing their fixed rates mainly due to the increasing cost of funding these particular loans. Fixed rates are funded from several sources including other banks, customers’ deposit funds and overseas markets. Recently, we have seen the cost of funds from overseas markets increase, therefore the banks are passing this on to the customer.
“At present, there is very little difference between fixed and variable rates, particularly when comparing some of the specials being offered by lenders across both variable and fixed loans of up to three years.
“If you’re considering fixing, you need to have a clear understanding of your circumstances over the next period of time. For example, do you want certainty with your repayments? Are you planning on adding to your family? Would you possibly want to sell in the near future?
“Working with a broker will assist in making the best decision to suit your needs. That might be fixing your entire loan, or perhaps only a portion of it to give you flexibility.”
I also asked Alan what he expects in terms of Reserve Bank decisions on official rates this year.
“Given the moves by banks to increase fixed rate loans, this probably means the next official interest rate movement will be an increase. Most economists are now predicting this, the debate is about when.
“Irrespective of what the RBA does, we continue to see banks move on interest rates and not just in the fixed rate area. Recently, we have seen some lenders increase variable rates for investors.”
Personally, when I’ve borrowed money to buy property I’ve consistently used variable interest rate finance. But if I did sense that an upswing in interest rates was likely, or that I might have some issues with my cash flow in the medium term, I’d be locking in a fixed rate straight away.
Determining what is best for you comes down to your individual goals and circumstances but to help you make the decision, Alan has provided his top pros and cons to fixing your loan.
Advantages of fixing your home loan
- Knowing what your home loan repayments will be for the term of the fixed period
- If the Reserve Bank or your lender increases interest rates you are protected for the term of the fixed loan
- Some lenders will allow you to make extra repayments without incurring extra costs. Your broker can tell you which lenders are doing this and how much extra you can repay per year
Disadvantages of fixing your home loan
- Break costs might be payable if you repay your loan before the end of the fixed term
- If the RBA or your lender decides to reduce rates, your rate will not decrease
Home lending finance has become more complicated in recent years. The smart move is to consult an experienced mortgage broker to help you decide what is best for you. Talking to a broker is an important investment in your financial future because home loans are usually the greatest expense in life. Why not find out how to reduce that expense and better manage it over the long term?
Tuesday, February 14, 2017
By John McGrath
This Saturday (February 18) and next Saturday (February 25) are shaping up to be very big auction days in Sydney. Given the shortage of stock throughout 2016, competition among bidders was particularly fierce across the city and many buyers missed out.
If you’re among them, you’re probably feeling a bit anxious about trying again this year. But you have to get back out there, particularly now when we tend to see a surge in new listings before the Easter break. You’ll find you have more choice now, but competition will still be strong.
Confidence is a key component of buying at auction and knowledge helps build confidence. So this week, I’m going to give you some of my best bidding strategies to help you get over the line this auction season.
1. Start low
One of my tactics is to make a low bid to start the auction. At the outset, you don’t know how many interested parties there are and how much they’re prepared to bid. So there’s no need to put in a high bid in the early stages. Just place a low bid and see where the auction goes from there.
The other advantage to bidding first is the auctioneer will note your interest and keep an eye on you, so you’re less likely to be missed when the bidding heats up. Once the bidding starts, just sit tight, size up the other bidders and watch how the auction unfolds.
I wait until near the end of the auction, when the bidding has slowed down and the other bidders are starting to lose steam, to place my next bid. The auctioneer will start the ‘going once, going twice… ’ routine, and then I’ll come in with a clear and confident bid. If the other buyers make further bids, I will immediately respond with a higher bid.
2. Project confidence
The one auction strategy that I have observed working consistently is creating the impression that you will continue to bid until you own the home, no matter what. It’s about projecting confidence and psyching out the other bidders. More timid bidders are often put off by an aura of unstoppable self-assurance and they’ll stop bidding.
3. Assertive bidding
My bids are fast and assertive. Agonising over every bid is a definite sign of weakness. If a buyer is looking worried and having hushed conversations with their partner every time they make a bid, that’s a clear signal they’re near (or over) their limit. So keep your cool, even if you’re only a few thousand from your limit.
Don’t hesitate on your bids. If other buyers are dithering over their bids, you can knock the wind out of their sails by immediately responding with a higher bid. Be prepared to bid confidently up to your limit and then walk away.
I also recommend calling out the amount of your bid in full, rather than just raising your paddle. This allows you to project confidence and determination with your tone of voice. It also reinforces the full price being bid, rather than the increment, which might only be $5,000, $1,000 or even $500.
When the bidding is down to small increments, it’s easy for buyers to lose sight of the amount of money being bid. Calling out the full amount of your bid is a reality check for other buyers.
4. Stick to your walk-away price
The rapid pace of auctions leaves you with little time to make decisions on the fly. Rather than putting yourself in this position, it’s advisable to think through all the angles before auction day. You have to go into an auction knowing at what figure you absolutely will not make another bid.
5. The hand of fate
On the day, the person who wants the property the most and has the biggest chequebook will buy the home. You need to be mentally prepared to miss out, particularly in hot markets, so having a slightly fatalistic approach can help.
Go hard for what you’re after, but in the back of your mind accept that if circumstances prevent you from owning the home, there’s probably a message in that. Experience has told me that fate plays a hand in finding the right home and you should go with it.
Tuesday, February 07, 2017
By John McGrath
The first auction season of 2017 is underway and February 25 is shaping up to be our biggest selling day of the month. Many of you will be entering or re-entering the market now following the long break. Whether buying or selling, I wish you all the best with your endeavours.
So, what should we expect in the marketplace this year? Obviously, the big question is whether Sydney and Melbourne will finally slow down and I’d say yes, that’s likely.
The boom has delivered spectacular growth to home owners in both cities but I’m personally hoping for a period of price consolidation this year. I don’t expect any major correction to prices but we should expect the pace of price growth to slow down.
Demand is still strong, with the first significant round of Saturday auctions in late January producing clearance rates of 80% in Sydney and 86% in Melbourne, according to CoreLogic. Just this past weekend, McGrath had a 91% clearance rate in Sydney from 23 auctions.
We are yet to see what will happen with stock levels this year. A lack of stock was a big issue in 2016 and a key reason why prices continued to rise. This was problematic for everyone. As the year went on, buyers found it increasingly difficult to secure a home and the stock shortage was worsened by sellers holding off because they feared not being able to buy back in.
While overall listing activity remains lower across the industry, our auction activity has continued to increase year on year. We have 542 auctions booked for February across the network (NSW, QLD, VIC and ACT) compared to 517 in February 2016. In Sydney, 349 auctions are slated for February compared to 344 last year.
Eventually, stock levels will rise again. It’s an inevitable part of the market cycle following a boom. There will come a time when sellers can’t hold off any longer and they’ll come to market, which will reduce the tension between supply and demand and cool things down.
Stock will probably rise in the apartment sector first, with thousands of new apartments coming online over the next two years following a construction boom along the East Coast.
A report from CoreLogic released in May last year predicted 34,300 new apartments would be completed within 12 months in Sydney. By comparison, about 43,500 apartments are sold per year but this includes both new and established apartments.
In Melbourne, the prediction was 29,500 new apartments within 12 months. By comparison, 31,000 apartments – new and established – would usually be sold over this timeframe.
In Brisbane, they projected 16,500 new apartments within 12 months when ordinarily about 15,000 new and old apartments in total would be sold over the same period.
Clearly, there will be more choice for buyers and this will bring welcome relief, especially for younger buyers who have been struggling to get a foothold in property. They’ll finally have a bit of negotiating power as supply continues to rise, as well as the benefit of government grants and/or stamp duty relief for first home buyers.
However, if you’re looking to purchase a new apartment you need to think long term. As supply continues to rise, prices might soften for a period and you need to be able to wait that out. So make sure you have the financial capacity to buy and hold comfortably.
You should also be very discerning in the property you buy. Look for apartments with something unique and inherently more valuable than typical models – things like an unusually large floor plan or outdoor area, a perfect north aspect and as always, a great location. If your apartment is unique it will hold its value better.
I wish you every success with your real estate goals this year and I look forward to keeping you updated on the latest market trends.
Tuesday, January 31, 2017
There’s been a significant increase in the number of Australians renting their homes over the past two decades. As discussed in our latest McGrath Report, data from the Bureau of Statistics* shows 26% of Australians are currently renting their homes, up from 18% in 1994-95.
In line with this trend, the percentage of householders who own their home – either with or without a mortgage, has decreased from 71% in 1994-95 to 67% .
So what’s going on? Is the Great Australian Dream of home ownership dying?
The short answer is no. This ingrained cultural value has been passed down the generations and most people would tell you they’d love to own their own home. But it’s certainly fair to say it’s become harder to achieve in markets like Sydney and as a result, more people – especially the younger ones, are coming up with ways to achieve the dream but in a slightly different format.
The aspiration for home ownership was once all about the house on the quarter-acre block. Now, more people than ever are aspiring to own apartments and not just because they’re more affordable – people also love the secure, low maintenance lifestyle and close proximity to amenities.
Secondly, the dream of home ownership has been replaced by property ownership in the minds of many Gen Ys. They still want to own property – particularly after seeing their parents do well through real estate, but they can’t afford to buy where they want to live. Lifestyle is the priority for these young people, so they rent instead and buy for investment in more affordable markets.
Take a look at the table below provided by CoreLogic RP Data. It shows the five most popular locations for renters in each of the East Coast capital city markets.
With apartment renting, which is the primary domain of young singles and couples (but we are seeing more families in apartments these days), there is a clear preference for inner ring locations.
Among house renters, predominately families, there is a mix of inner ring locations and commuter areas on their city’s outskirts, which are of course much more affordable.
Source: CoreLogic RP Data, FY2016, suburbs with more than 500 properties
There’s no question that affordability is the key reason we’re seeing more people renting.
Currently, with interest rates so low, there are many areas where it is actually cheaper to buy than rent but if you can’t get the 20% deposit together, it’s irrelevant. That’s the part that brings many young people unstuck. In big city markets, a 20% deposit is typically hundreds of thousands of dollars and that’s not easy to save even on a good income. It can take years.
The biggest plus to renting is the ability to live in many different areas so you can try out different types of lifestyles. Try the city life for a while, then move to the beach. Live in a small art deco block with a garden then try high rise living with fantastic residents’ facilities such as a pool and gym.
Renters also have the flexibility of being able to move much more easily than if you owned your home, which would require selling. These days, jobs centres are spread all over our capital cities and people like living close to work, so an inner city renter in Sydney who gets a new job at Parramatta could move there with relative ease.
I’ll always advocate buying over renting because the wealth creation available through property is the best path to long-term financial security for most people. But if you do rent, why not enjoy these benefits while you can (but keep saving for that deposit!)
*Housing Occupancy and Costs 2013-14, Australian Bureau of Statistics, published October 16, 2015
Tuesday, January 24, 2017
By John McGrath
Since the advent of internet marketing and mobile technology in the 1990s, the nature of buying and selling has been turned on its head.
A huge range of digital platforms continue to change the method and pace of real estate transactions, with buyers and sellers more informed and better prepared than ever before and the best agents harnessing innovation to improve their marketing power and service style. Specialised apps, price predictors, social media, free market research and cheap independent property reports available for purchase online have all worked to benefit the consumer.
Email, SMS, database marketing and big data have enabled agents to better engage with buyers, and global property portals have expanded the audience for their listings. A raft of business software and bluetooth gadgetry has increased agents’ efficiency and shortened response times to enquiries.
Real estate technology goes from search to service
As discussed in our 2017 McGrath Report, real estate technology began with search and has now extended to service. Consumers want a less stressful experience and are intolerant of agents who can’t provide it.
For example, the experience of opens is changing, with names and numbers still taken at the door but on an iPad that syncs with the agent’s phone and database for more effective follow-up.
Buyers can use apps to pre-register their attendance and skip the queue, and can request and receive a contract via email before they have even left the property.
Scores of small innovations are often quickly superseded. The evolution of the signboard provides an example – once a simple board, it was then given an overhead light, a QR code, then full background lighting and now a touch screen.
Photos on a webpage are no longer enough, with 360-degree photography and fly-through technology providing a more complete perspective and the opportunity to inspect every part of a room.
Location analytics are helping buyers purchase in unfamiliar locations with greater confidence. Buyers can discover an area’s demographics, traffic data, property developments, points of interest, drive times, walk times and street and aerial views with ease.
And there is so much more to come.
Future tech trends in real estate
According to CoreLogic’s Future of Real Estate Report*, push technology, artificial intelligence, virtual reality and blockchains will be the next big tech trends in real estate.
Push technology will alert home hunters to nearby properties for sale and unlock special content to heighten their engagement. Virtual reality will provide an on-site experience for off-site clientele. VR stations in real estate offices will make open inspections an everyday convenience for buyers.
Artificial intelligence will use algorithms to help buyers search, all the while learning from each interaction to understand what the user really wants in their next home.
Blockchain technology and smart contracts will simplify the transaction process and automate procedures traditionally undertaken by intermediaries like banks and inspectors.
Platforms allowing customers to send a single loan request to a multitude of lenders will result in more competition and a better deal on finance for borrowers.
Technology will undoubtedly continue to raise clients’ expectations and the best agents are meeting this challenge through a more holistic approach, including building long-term relationships with their clients and focusing more on ‘outcomes’ over simple sales transactions.
* Future of Real Estate and Property Finance Industries Report, CoreLogic, published April 13, 2016
^ Google Mobile Forum, 2016
# realestate.com.au Strategy Forum, 2016
** realestate.com.au Momentum, 2016
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