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John McGrath
Property Expert
+ About John McGrath
About John McGrath - Founder and Executive Director, McGrath Limited

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.

Changing nature of apartment developments

Tuesday, June 20, 2017

By John McGrath 

For the first time ever on record (since 1984), we’ve seen more new apartments completed than houses in Australia. The latest Building Activity report from the Australian Bureau of Statistics shows 28,102 new houses and 28,527 new apartments and townhouses were completed in the December 2016 quarter.  

We’ve had a major construction boom on the East Coast of Australia in recent years. Construction activity is still very strong in NSW, where new starts and the number of apartments under construction continues to trend higher. However in Victoria and Queensland it is starting to decline, according to CoreLogic.

The construction boom was brought on largely by strong market conditions in Sydney and Melbourne, a national undersupply of housing, population growth and the rising popularity of apartment living, among other factors. 

The rise of apartment living has been one of the most important trends I have seen over my 30+ years in real estate. While in many cases their simple affordability compared to houses is a factor, many people today would tell you they’d rather live in an apartment for the security and low-maintenance lifestyle.  

One of the interesting things about apartment development these days is the changing nature of projects.

The apartment blocks of old were concrete towers with either no residents’ facilities or perhaps a small gym room and a kidney-shaped fibreglass pool out the back. Things have changed.

Apartments are no longer the cheaper stepping stone to houses. They’re long-term homes for many buyers who expect great design, comfort and amenities. As modern life gets busier, buyers also want convenience and recreation where they live and apartments often fit the bill.

In recognition of this, developers are being far more imaginative in creating products that sell a lifestyle, not just a place to live.

Take the increasing number of master-planned communities, for example. These are large estates usually with several apartment buildings and a mixture of communal facilities including gardens, barbecue areas, cafes, gymnasiums and aquatic centres. Everything you need is on site, meaning great convenience but also a real sense of community, with residents able to socialise together in communal spaces.

Another strong trend is the development of apartments directly above shopping centres. This is a very New York-style of residential living. Apartments above centres usually have great views and a two-minute trip down the elevator delivers you to an array of shops, restaurants and transport.

Cushman & Wakefield, one of the world’s biggest commercial real estate services firms, discusses the rise of residential/retail development in its Australian Retail Property Outlook 2017 report. It describes mixed-use retail as “emerging as a major category in Australia’s retail landscape”.

The popularity of apartment living is providing a win-win opportunity for developers, retailers and buyers. Many time-poor city dwellers love having supermarkets, shops, cafes and cinemas at their doorstep and retailers love the sizeable guaranteed patronage that ‘shop top’ housing provides.

Here are some examples of the main trends in the mixed retail/residential space. 

1. Developers increasingly incorporating retail precincts into new developments 

Meriton’s largest retail development to date is Mascot Central in Sydney, which combines 17 eateries, shops and a major Woolworths beneath four towers of around 800 residential apartments. They’ve also recently launched the Sundale development on the Gold Coast, which is Southport’s tallest residential tower at 55 levels with 13 new shops beneath, including a Woolworths.

2. Re-development of existing shopping centres to include new residential apartments above

A great example is Top Ryde City Shopping Centre in Sydney’s northern districts. Top Ryde was once a modest two-level suburban shopping centre. It was demolished in 2007 and a new centre was built with hundreds of shops and 653 apartments on top, many with views to the city or Blue Mountains.

Completed by Crown in 2014, the Top Ryde City Living development is now home to more than 600 residents. Not only do they have access to fantastic common facilities including a music room, library, theatre, 25m infinity pool and a children’s playground, they also have direct access to a huge shopping centre with hundreds of retailers, an Event cinema and plenty of eateries just downstairs.

3. Shopping centre owners selling air space above existing shops to developers

Just recently, the owners of The Glen shopping centre in Melbourne’s Glen Waverley announced they had sold the residential air rights above the centre to a developer who will build 539 apartments as part of the centre’s redevelopment. The new centre will have 240 shops and eateries.

4. Shopping centre owners developing apartments on top of existing shops

In Sydney’s Winston Hills, the owners of Winston Hills Mall are developing 86 apartments above their existing mall. Called The Langdon, it is the first apartment complex ever for the suburb. Residents will have about 70 shops on their doorstep including Aldi, Big W, Coles and Woolworths.

I think we’ll see more mixed retail/residential development in the future. We’ve got more people wanting to live in apartments, a greater desire for convenience and lifestyle, a lack of land and potentially, a growing interest among retail centre owners in diversifying into residential property.

With the shopfront retail industry battling online competition, it wouldn’t be surprising to see more centre owners converting commercial assets into mixed use developments. Alternatively, they can sell the air space to developers who are desperate for opportunities given lack of land supply. 

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NSW affordability package: Stamp duty savings

Tuesday, June 13, 2017

By John McGrath

The third instalment of Government measures to address the affordability struggle in Sydney and Melbourne has been delivered, with the NSW Government announcing a package of reforms commencing July 1. 

This follows announcements by the Federal and Victorian Governments in recent months. 

The primary goal of these measures is to help first home buyers. All three governments are using a variety of avenues to achieve this, including reducing stamp duty, helping young buyers save their deposit and raising housing supply across the board. I’m all for addressing the affordability issue but I’m concerned by how they’re funding this good initiative – largely by disincentivising investor activity and foreign ownership. 

Here’s a rundown of the NSW Government’s affordability package:

  • Stamp duty abolished on first home purchases up to $650,000 (new and existing property);
  • Stamp duty concessions on first home purchases up to $800,000 (new and existing property);
  • Stamp duty on lenders’ mortgage insurance abolished for all buyers. This is usually 9% of the premium, so it’s a pretty hefty impost. This will benefit young buyers because LMI is only charged when a client’s deposit is smaller than usual;
  • First home buyers who are building their first home will receive a $10,000 grant for properties worth up to $750,000;
  • First home buyers purchasing a new property, such as an apartment off the plan or newly completed, will also receive a $10,000 grant for properties worth up to $600,000;
  • The 12-month deferral of stamp duty for residential off-the-plan purchases by investors will be scrapped. The $5,000 New Home Grant Scheme will cease;
  • The stamp duty surcharge paid by foreigners will double from 4% to 8%. Land tax charges to foreigners will increase from 0.75% to 2%. Foreign developers will be exempt;
  • Housing supply will be increased through a variety of measures, including making development approvals simpler and council re-zonings faster. Plus, $3 billion will be spent on new roads, schools and other facilities surrounding new developments; and
  • The Government will focus on raising supply in key urban hubs, including Belmore/Lakemba, Burwood/Strathfield/Homebush, Campsie/Canterbury, Cherrybrook, Frenchs Forest, Glenfield, Leppington town centre, Anzac Parade corridor, Riverwood, Schofields town centre, Seven Hills/Wentworthville, St Leonards/Crows Nest, Telopea, Turrella/Bardwell Park and Westmead.

The stamp duty savings are big news for young buyers. Putting the transfer duty and LMI duty savings together, on a $650,000 purchase with a $50,000 deposit, a young first home buyer stands to save $26,857. On a $700,000 purchase, the saving is $18,786. And so on.

Getting the deposit together is often the hardest step, rather than affording the repayments. So removing (or reducing) stamp duty from that equation is a big boost. CoreLogic’s recent Perceptions of Housing Affordability report found 48% of NSW respondents felt stamp duty was the most significant obstacle to affordability and 74% felt removing or reducing it would help. 

It could be argued that stamp duty cuts and grants for young buyers will ultimately raise property prices due to higher competition. However, with Sydney and Melbourne now at their peak, I think softening market conditions might balance out any price effect from greater first home buying activity, especially if there are fewer investors in the market due to tighter lending restrictions.   

First home buying has been low in Sydney for many years. CoreLogic quotes recent ABS statistics showing that first home buyer activity in NSW hit a record low of 7.5% of new owner occupier mortgages last September and has increased only marginally since then to 8% in March this year. The long term average is 17%, so we’re a long way off that. But things should change now. 

CoreLogic reports that 20% of houses and 33.5% of apartments sold in Sydney over the past 12 months were priced at $650,000 or less. Across regional NSW, these figures jump to 73.3% of houses and 74% of apartments. 

About 34% of houses and 51% of apartments in Sydney sold for $800,000 or less. Regionally, 82.5% of houses and 78.4% of apartments sold for up to that amount.

So that’s a lot of sales that now qualify for stamp duty discounts. The great thing for regional first home buyers is that they’re benefitting from affordability measures aimed at city buyers contending with much higher home values. 

There’s no end date for the stamp duty changes, but don’t be complacent. Jumping in quickly is the best way to take advantage of them and beat any rush. There’s often a lag period between the introduction of such measures and peak take-up, so get organised to buy after July 1 now! 

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South East QLD: The value lifestyle choice

Tuesday, June 06, 2017

By John McGrath

South East Queensland remains a very compelling market for an investment or lifestyle change for young families, now that Sydney has become difficult to afford following five years of exceptional growth.

Last week, we hosted the 20th annual Australasian Real Estate Conference (AREC17) on the Gold Coast, with a record attendance of 4,500 real estate professionals. While I was there, I was reminded of how great the weather is and how much development is going on, particularly in terms of new infrastructure in the lead up to the 2018 Commonwealth Games.

The latest venue to open is the brand new Gold Coast Sports and Leisure Centre in Carrara. Construction of the athletes’ village within the redeveloped Parklands site is on track for completion in October. After the Games, the village will be transformed into a new residential precinct within the broader Gold Coast Health and Knowledge Precinct surrounding it.

All of these new sporting venues are in addition to other major new facilities recently completed, such as the Gold Coast University Hospital, expansion of the light rail and a continuation of cranes dominating the skyline, with construction of many large residential high-rise towers underway.

This is a city transforming on the fast track and it’s great news for local property values. I’ve been recommending the Gold Coast to my investor clients for some time now. This market really suffered during the GFC but its recovery has been fantastic. Those that got in right at the bottom of the cycle have reaped a lot of rewards already, with more growth to come.

South East Queensland is a market that really excites me. There’s great opportunity for investors and young families in Brisbane, the Sunshine Coast, Toowoomba and lots of other places in between that all offer great value.

Sydney and Melbourne are like New York and London, prices have reached a certain level and have simply become unaffordable for some buyers. This has led to greater demand in South East Queensland from southern-based investors in recent years. 

Average rental yields in Brisbane/Gold Coast are currently 4.1% for houses and 5.3% for apartments, according to CoreLogic. This is well above average, with yields in Sydney at 2.8% for houses and 3.9% for apartments and Melbourne at 2.7% and 4.2% respectively.

But South East Queensland is not just great for investors. Young families struggling with their mortgage in Sydney and Melbourne could completely transform their financial situation, not to mention their lifestyle, with a move north.

People can sell an ordinary $2 million house in Sydney and buy a luxurious lifestyle in Queensland.

High-quality properties on the Gold Coast are often a third or even a quarter of the price of Sydney, so the value for money is exceptional. Our Sydney agents are selling one bedroom apartments for $800,000-$900,000, whereas on the Gold Coast, you can buy a house on a canal for similar money.

Sydney home owners have an opportunity right now to take the 75% growth that their properties have had and buy into a much cheaper but equally appealing market in South East Queensland, and in many cases, be mortgage-free! 

But don’t wait too long to make the move. While the Gold Coast market does provide great value in comparison to Sydney, prices are definitely on the move, particularly over the past 18 months. 

Confidence has increased, locals are seeing that the worst of the GFC impact is over and prices have been firming and/or rising in many areas. Developers (particularly Chinese) are investing millions and the Commonwealth Games is creating excitement, optimism and anticipation among locals.

Valuations firm Herron Todd White describes typical three- to four-bedroom homes on 500-900 sqm blocks along the northern coastal areas of the Gold Coast rising in value by 20-25% over the past 18 months. Yes, this is part of the GFC recovery, but prices are now well exceeding the last peak of 2007.

Prestige canal properties are in high demand and property values are growing as a result. In Hope Island, homes that were worth $1.3 million just 18 months ago are now in the $1.6-$1.7 million range.

The southern Gold Coast market is also very strong, particularly in beachside suburbs where locals are upgrading. Property prices in the central Gold Coast districts are also moving past their 2007 peak. 

Our Queensland agents are reporting a lot of new enquiries from Sydney and Melbourne buyers and this trend is set to continue. If you’re struggling to afford your mortgage in the southern capitals or looking for a more affordable investment opportunity, South East Queensland is the place to be.

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Don’t panic! The property bubble isn’t about to burst!

Tuesday, May 30, 2017

By John McGrath

Have you noticed that the speculation has started? The property market is “grinding to a halt”. The boom is over. The banks have lent too much. The bubble is going to burst.

This sort of chatter happens at the end of every boom. I have seen it time and time again over 30 years and the ‘doom and gloom’ predictions simply haven’t eventuated. The moment we see even the slightest change in boom market conditions, the headlines begin. The end is called. The umpire blows his whistle. Yesterday we were in a boom, today we’re on a slippery slope.

A gradual process

In reality, booms don’t end this way. It’s an extremely gradual process. Yes, we might be at the start of a slowdown in Sydney and Melbourne today. Or we might not be – no one knows. But there’s a few small signs that the market is slowing and that’s why we’re seeing these headlines and predictions of price falls. The key is not to panic.

I’d actually encourage you to welcome a slowdown in growth. After a long period of price rises – about 75% in Sydney alone, we need a period of consolidation that will put a floor under these new price levels and provide stable ground for home values to rise strongly again in the next boom. 

Of course, no home owner likes to see prices go down. But it’s important to remember that if we do see some price reductions, they’ll be small and short term. History tells us that good quality properties double in value every decade but growth is never in a straight line. More often than not, we have a few years of strong growth, a few years of little growth and round in circles we go.

I’d advise you to ignore all suggestions of a market crash. It’s not going to happen. Yes, we’ve had phenomenal growth over the past five years. That doesn’t mean we’re due to have phenomenal declines.

Property is now analysed, or should I say over-analysed, as closely as the stock market but property is not an asset class that changes overnight. We have too much population growth fuelling demand and too much of an undersupply to experience a crash.

Overseas commentators, in particular, do not understand this. They also don’t appreciate how ingrained it is in our culture to pursue property ownership. We have entirely different dynamics to overseas markets that will continue to keep our property values strong well into the future.

Sydney and Melbourne

Now, the question on everyone’s lips is whether the Sydney and Melbourne markets are turning. Firstly, no one can ever identify the exact time of a turn – it will only become clear to us several months after it has happened because once again, the property market changes at a very slow pace.

As discussed in my column last week, new CoreLogic figures tell us that the supply of established housing stock available for sale in Sydney and Melbourne is at its highest level for this time of year since 2012. Does this indicate slowing demand? Yes. Is it a sign that the market is actually slowing or just a blip? We don’t know yet.

Saturday auction clearance rates remain very high. About 60% represents a normal market. About 80% represents a boom. For the past couple of months, Sydney has been in the 70% - 75% range. Does this indicate a slight drop in demand? Yes. Is demand still strong? Absolutely.

Again, when the property market slows down after a boom, it does so very, very gradually. In my opinion, I do think the Sydney and Melbourne markets are at, or near, their peak for this growth cycle. What’s going to happen next? The two most likely eventualities are as follows:

1. The pace of growth in property prices will slow down but not stop. Property prices will keep growing but at a lesser rate per year.

2. We have a minor correction, where the market will do as it has done before and give back about half of the prior year’s growth, so that would be around 5%.

Neither scenario is cause for panic. If the boom is indeed over, then here’s my advice to people in the market.

  • If you are a recent buyer, don’t panic. Yes, you’ve purchased at what is probably the peak of the cycle but if you plan to hold long term (which is what you should always do) then it won’t matter if we experience a small correction. You’ve purchased a sound investment during a time of record low interest rates. Think about what your property will be worth in 10 years’ time – probably double! 
  • If you are in the market to buy, don’t put it off because you think prices will plunge – it never happens that way. Take a sensible measured approach, set a budget and buy the right property for you.
  • If you are thinking of selling, now’s the time. It feels to me like we’re at, or close, to the peak of this cycle, so if you want to fully capitalise on this boom, now is the time to sell.

Property is a fantastic vehicle for wealth creation if you can hold it long term. That means riding out market slowdowns without panicking and staying focused on the goal of debt-free ownership down the road.

Have you read Peter Switzer's property article today? Read it here

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Are Sydney and Melbourne at their peak?

Tuesday, May 23, 2017

By John McGrath 

A lack of stock for sale in both Sydney and Melbourne has substantially contributed to a prolonging of the current boom. Over the past 12 months, there’s been plenty of buyers in the market but not nearly enough homes for sale to meet that demand. When this happens, prices inevitably increase.

The current boom is in its fifth year and that is an unusually long period for high-price growth. What needs to change is a reduction in demand or an increase in supply – or both – to bring these markets back to normal selling conditions and normal patterns of annual capital gains.

So, it’s interesting to see some new figures from CoreLogic, which show that supply of established housing stock available for sale in Sydney and Melbourne is at its highest level for this time of year since 2012. We’re not seeing a flood of new listings coming onto the market, but rather the increase in supply is due to a slower rate of sales. Or in other words, a slight softening in demand.

This is often the first sign that a booming market has turned. Demand softens because prices get to such a high point after a long period of growth that buyers start giving up and exiting the market.

It’s not uncommon now to hear about would-be upgrader buyers choosing to stay put and renovate or extend their current homes because they feel that trading up is just too difficult. First home buyer activity remains very low and we might see some evidence of a reduction in investor activity soon due to further lending restrictions imposed by APRA recently. All of this adds up to lower demand.

Whether this new data from CoreLogic indicates a turn of the cycle or a blip, we don’t yet know. My feeling is that both Sydney and Melbourne are at, or around, their peak for this cycle and we’re certainly overdue for a period of price consolidation, which I continue to believe is a healthy sign for the market.

Vendors are still in the driver’s seat but this won’t last forever, especially if demand is on the way down. If you’ve held your property for a long time and would like to fully capitalise on this boom, I’d say now is the time to sell. A change in conditions is just around the corner. Don’t fall for the myth that Winter is a bad time to sell. Talk to your local agent and consider your options now.   

As we all know, properties typically sell faster and for higher prices when demand outweighs supply. CoreLogic released another report recently that lists the fastest selling suburbs in every state for the 12 months to January. Of course, NSW and VIC have the most impressive results, but it is interesting to note how quickly properties are selling in some areas that are not in booming capital cities.

Fastest selling suburbs in each state

NSW – Houses

1. Lapstone: 9 days

2. Mayfield East: 10 days

3. North Gosford: 10 days

4. Valley Heights: 11 days

5. Glossodia: 12 days

NSW – Apartments

1. South Penrith: 7 days

2. Wyoming: 7 days

3. Lisarow: 10 days

4. Camden: 12 days

5. West Gosford: 13 days

VIC – Houses

1. Tooradin: 8 days

2. Wandin North: 9 days

3. Diggers Rest: 10 days

4. Carrum Downs: 10 days

5. Frankston North: 10 days

VIC – Apartments

1. Endeavour Hills: 9 days

2. Mooroolbark: 13 days

3. Bayswater: 14 days

4. Lilydale: 15 days

5. Bayswater: North 16 days 

QLD – Houses

1. Keperra: 10 days

2. Algester: 13 days

3. Willowbank: 13 days

4. Middle Park: 14 days

5. Ferny Grove: 15 days

QLD – Apartments

1. Oxley: 15 days

2. Elanora: 20 days

3. Reedy Creek: 21 days

4. Hendra: 22 days

5. Carina Heights: 22 days

SA – Houses

1. Melrose Park: 25 days

2. Rosewater: 25 days

3. Edwardstown: 28 days

4. Tranmere: 28 days

5. Surrey Downs: 29 days

SA – Apartments

1. Firle: 14 days

2. Rose Park: 20 days

3. Greenwich: 23 days

4. Frewville: 25 days

5. Collinswood: 28 days

WA – Houses

1. Daglish: 14 days

2. Menora: 18 days

3. Subiaco: 19 days

4. Floreat: 22 days

5. Shenton Park: 23 days

WA – Apartments

1. North Beach: 29 days

2. Mount Pleasant: 32 days

3. Palmyra: 33 days

4. Shenton Park: 33 days

5. Queens Park: 36 days

TAS – Houses

1. Montagu Bay: 5 days

2. Mount Stuart: 6 days

3. Moonah: 8 days

4. Warrane: 8 days

5. South Hobart: 9 days

TAS – Apartments

1. South Hobart: 10 days

2. West Hobart: 11 days

3. Battery Point: 12 days

4. Youngtown: 12 days

5. Dynnyrne: 13 days

NT – Houses

1. The Gap: 41 days

2. Tiwi: 49 days

3. Desert Springs: 49 days

4. Girraween: 56 days

5. Braitling: 58 days

NT – Apartments

1. Leanyer: 58 days

2. The Gap: 64 days

3. Woolner: 66 days

4. Fannie Bay: 80 days

5. Rapid Creek: 83 days

ACT – Houses

1. Ainslie: 16 days

2. Dickson: 21 days

3. Higgins: 23 days

4. Downer: 25 days

5. Hackett: 25 days

ACT – Apartments

1. Theodore: 29 days

2. Calwell: 30 days

3. Isabella Plains: 37 days

4. Page: 37 days

5. Garran: 37 days

Source: CoreLogic, ‘Top 10 Fastest Selling Suburbs in Each State’, published 1/5/17. Above figures show the shortest median selling time for houses and apartments over the 12 months to January 2017

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How the Federal Budget will impact property

Thursday, May 11, 2017

By John McGrath

In this week’s Federal Budget, a range of measures were announced that should have a positive impact on the market in terms of increasing supply and helping young buyers purchase their first home. 

There has been a lot of pressure on both state and federal governments to ‘fix’ the affordability issue, so long as they don’t do anything to decrease property values as this would be to the detriment of the 67% of Australians who currently own their own homes. Not an easy task. 

But the Federal Government has had some good ideas and the measures in the Budget should be useful. Among the most impressive measures is incentives for downsizers to sell. 

From July 1, 2018, individual downsizers aged 65 and over who have lived in their home for at least a decade will be able to make a non-concessional contribution of up to $300,000 into their super from the proceeds of their sale. Couples will be able to contribute $600,000. 

This is a win for retirees as it removes a significant disincentive for older Australians to downsize and will result in greater supply of family homes to young family buyers. This is especially important in markets like Sydney, where lack of supply has been a significant factor in pushing up prices and making it very hard for young families to secure appropriate accommodation. 

Additional money in super will also help older Australians fund their retirement long term as their superannuation investments are taxed at a lower rate of 15%. The contributions that can be made from the sale of their homes will be exempt from the usual voluntary contribution rules. 

First home buyers are also getting some help through the First Home Super Saver Scheme. 

From July 1 this year, first home buyers will be able to make voluntary contributions of up to $15,000 per year into their super ($30,000 total) for the purposes of saving for their first home. 

These contributions will be taxed at the usual super rate of just 15%. These funds, along with earnings, can then be withdrawn for a first home purchase from July 1, 2018, minus a small withdrawal tax (the buyer’s marginal rate less a 30% offset).

We see this measure as beneficial to all buyers, however, the reality is that buyers in Sydney and Melbourne will benefit less given median home values are so much higher. Currently, a 20% deposit on a median priced Sydney apartment is close to $150,000, so the $30,000 cap on savings through super means this particular measure is a long way off meaningful assistance.

However, we can’t hand first home buyers a blank cheque either, so this measure appears to be a sensible way for the Federal Government to contribute to affordability. For today’s younger buyers, saving the deposit is a far bigger hurdle than managing repayments given mortgage rates are so low. 

Don’t forget that federal assistance to first home buyers will be in combination with state government measures as well. The Victorian Government plans to abolish stamp duty on properties worth $600,000 or less and double the First Home Owner Grant for regional buyers. We’re yet to find out what the New South Wales Government intends to do but a taskforce has been set up.

All in all, first home buyers in Victoria and New South Wales are about to receive a lot of new assistance and young people should start planning how to take full advantage of it now. 

There is also a focus on developing urban areas of cities which will take pressure off the inner ring suburbs. Western Sydney was a key focus of the Budget, with reform of planning and zoning laws and a reduction in development approval timeframes to enable more new housing and better infrastructure connecting the west to the rest of Sydney. This is really important for the future, with population growth in eight key council areas expected to be close to 500,000 over the next 20 years. 

There has been much debate about negative gearing and capital gains in the lead-up to the Budget but no major changes have been made, just a few tweaks around the edges. 

From July 1 this year, landlords will no longer be able to claim travel expenses when visiting their properties; nor depreciation on items purchased by previous owners on future investments.  

A vacancy tax will be levied on foreigners who leave their investment properties vacant. This should add to the supply of rental homes for Australians by encouraging foreigners to lease their properties. 

From now on, the proportion of new developments that can be sold to foreign investors will be capped at 50%. Currently there is no limit.

The Government also plans to stop foreign and temporary tax residents from claiming the main residence capital gains tax exemption when they sell their Australian homes. This feels like a disincentive especially for skilled professionals to come to Australia with their families. 

I think we should be welcoming foreign investment into our country, as there is a lot of new wealth in Asia that could be headed for our shores if we put out the welcome sign. Right now, I think both federal and state governments are sending unhelpful messages to foreign investors with a range of new fees and rules that limit or discourage their participation in our real estate market.  

Overall, this Budget is aimed at building confidence in our economy and the measures above will no doubt assist in this process. A strong economy benefits every buyer, seller, investor and renter. 

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Australia's most affordable suburbs

Tuesday, May 09, 2017

By John McGrath

This week the Federal Government delivers its much-anticipated Budget, which is expected to include an affordability package aimed at helping young people into the housing market. 

Affordability has been a hot topic, particularly in Sydney and Melbourne over recent years and both state and Federal governments are moving on the issue due to significant public concern.

Parents are worried their kids will never be able to afford their own homes, so much so that many of them are in the market today buying property for their children – some of whom are still in primary school – to ensure they will have a first home close by in the future. 

Given affordability will no doubt be a talking point this week, let’s take a look at the most affordable suburbs within 10km of the CBD in every capital city across Australia. These figures come from CoreLogic’s Best of the Best Report, which was released in December last year and is based on September 2016 quarter data. 

Top 10 Most Affordable Suburbs Within 10km of CBD 

Sydney Houses 

1. Tempe $1,128,920 (median price) 

2. Turrella $1,132,949 

3. Waterloo $1,166,732

4. Canterbury $1,172,435

5. Beaconsfield $1,175,493 

6. Arncliffe $1,194,713 

7. St Peters $1,200,056 

8. Erskineville $1,231,695 

9. Pyrmont $1,248,579 

10. Lewisham $1,275,278 

Melbourne Houses  

1. Maidstone $692,131 

2. Melbourne $704,962

3. Bellfield $706,398

4. Coburg North $740,195

5. West Footscray $755,147 

6. Footscray $760,058 

7. Pascoe Vale $764,581

8. Pascoe Vale South $829,280 

9. Preston $832,583

10. South Kingsville $840,161 

Hobart Houses  

1. Clarendon Vale $155,655

2. Risdon Vale $179,115 

3. Rokeby $193,291 

4. Goodwood $223,651

5. Warrane $242,673

6. Glenorchy $255,600

7. Derwent Park $255,781

8. Mornington $283,721

9. Montrose $286,673

10. Lutana $287,769 

Adelaide Houses  

1. Wingfield $276,624

2. Pennington $360,942 

3. Royal Park $375,794

4. Woodville Gardens $376,661 

5. Athol Park $380,693

6. Saint Marys $385,990 

7. Mansfield Park $386,437 

8. Woodville North $388,455

9. Enfield $390,009 

10. Clearview $393,519 

Perth Houses  

1. Westminster $404,236 

2. Nollamara $420,959 

3. Redcliffe $437,733

4. Cloverdale $458,694

5. Queens Park $467,793

6. Kewdale $477,558

7. Bentley $481,866

8. Osborne Park $489,075

9. Belmont $490,137

10. Ashfield $496,441 

Darwin Houses  

1. Anula $497,824

2. Darwin City $504,150

3. Wagaman $533,175

4. Jingili $546,736 

5. Moil $554,600

6. Alawa $555,149 

7. Millner $563,439 

8. Ludmilla $634,463 

9. Coconut Grove $647,960

10. Rapid Creek $673,361 

Brisbane Houses 

1. Rocklea $390,241 

2. Keperra $484,314 

3. Nathan $526,393 

4. Stafford Heights $550,274 

5. Salisbury $550,365 

6. Stafford $556,039 

7. Everton Park $556,534 

8. Chermside West $563,317 

9. Mount Gravatt East $564,864 

10. Chermside $565,140 

Source: Best of the Best 2016, article by Tim Lawless, published by CoreLogic 19/12/16

Lists like these can be very helpful, however you need to tread carefully when looking for affordable options.

Suburbs can be affordable for a number of reasons. The best scenario for young buyers is purchasing in an affordable suburb that is on the cusp of urban renewal. One of those suburbs that has gone under the radar for a long time but due to new infrastructure or some sort of change in local demographics, it is about to become a hot spot. Those areas are always a great buy. 

Other suburbs are affordable simply because, at least for now, they’re undesirable. Perhaps they have little infrastructure such as few transport options or shops. Maybe they’re a long way from jobs. Perhaps there’s a crime issue. It’s therefore especially important to do your research when buying in an ‘affordable’ suburb.

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Sydney and Melbourne decouple

Tuesday, May 02, 2017

By John McGrath

Sydney and Melbourne continue to lead the way for residential price growth and have certainly decoupled from the rest of the country in recent years. 

This is a phenomenon seen all over the world, where the largest city or cities within many countries 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 people want to live as close to the CBD as possible, making desirable inner-ring suburbs very expensive places to live. 

This decoupling effect isn’t just happening because of the latest boom. Sydney and Melbourne are now major international cities and an ideal alternate address for those living or doing business in Asia. 

There are several billion people on Australia’s doorstep with a huge appetite to enjoy the lifestyle that we have. Compared to property values in other great cities of the world, many overseas buyers and expats still see Sydney and Melbourne as good value globally and a very safe place to invest. 

To demonstrate this decoupling, let’s look at the history of price growth in Sydney and Melbourne compared to other capitals since 2010, which was recently documented in a report from independent property data analysts, CoreLogic. 

Firstly, looking across all capital cities, property prices increased by a collective 44.9% from January 2010 to February 2017. During this time, Sydney and Melbourne were the only two cities with growth of more than 25%. Here are the stats for each city. 

Comparing growth across capital cities 2010-2017 

  • Sydney dwelling values have increased by 78.3% 
  • Melbourne property values have increased by 55.1% 
  • Canberra property prices have increased by 23.8% 
  • Adelaide dwelling values have increased by 11% 
  • Brisbane home values have risen by 6.6% 
  • Hobart dwelling values have increased by 3.4% 
  • Perth dwelling values have declined by -3.3% 
  • Darwin property values have fallen by -5% 

The data clearly shows that Sydney and Melbourne are currently growing at a rate that is well apart from the rest of the country. This hasn’t always been the case but it’s certainly the trend this decade. 

Now, let’s look at median house prices across our capital city markets. Once again, Sydney is the stand-out with Melbourne (and Canberra) a distant second but still well ahead of all other capitals. Strong population growth and migration in Sydney and Melbourne, coupled with an ongoing undersupply of housing, will continue to power high buyer demand over the long term in both of these cities.  

Median house prices across capital cities

  • Sydney $860,000
  • Canberra $605,000 
  • Melbourne $650,000 
  • Brisbane $481,000 
  • Darwin $467,000 
  • Perth $472,000 
  • Adelaide $430,000 
  • Hobart $363,000 

Source: CoreLogic Hedonic Home Value Index April 2017, median prices based on settled sales over past three months  

So, after five years of phenomenal growth, what’s next for Sydney and Melbourne? Right now, it feels to me that these markets are at, or around, their peak for this cycle. We've seen strong double digit growth for five years and I can't see any material uplift from here. 

Historically, if and when there is a correction, the market gives back about half of the prior year’s growth which would suggest that when prices stop rising, we are likely to see either a stabilisation at that point or perhaps a 5% correction. Either way, you can never pick the top or bottom of the market until it has passed.  

Buyers taking a medium-term view will be well rewarded for buying into high quality Australian property now. If you’re considering buying a home or investment in Sydney and Melbourne, do so with confidence but a little caution as well. If you have the long term in mind, then there’s every reason to feel confident. But be aware that we’ll shortly be coming to the end of the boom, so it’s vitally important that you don’t get carried away and buy above your budget. 

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Capital city hot spots of the past 5 years

Wednesday, April 26, 2017

By John McGrath

The past five years have been an amazing time in Australian residential property, particularly in Sydney and Melbourne. We’ve seen a number of important trends emerge and/or get stronger, including rising demand from foreign buyers, increased apartment living, ‘rentvesting’ and the bank of mum and dad.

Within every capital city market, there are hundreds of micro markets where growth is not only affected by big macro trends, but also local factors that have caused higher price growth for those particular suburbs. These are the hot spots of our capital city markets.

So this week, we’re taking a look at the top 10 performing suburbs in every capital city for both houses and apartments. These figures come from CoreLogic’s Best of the Best Report, which was released in December last year and is based on September quarter data.

Top 10 Suburbs for Capital Growth 2011-2016

Sydney Houses

1. Homebush 147.3%

2. Strathfield South 112.7%

3. North Strathfield 103.9%

4. South Hurstville 102.7%

5. East Ryde 100.6%

6. Connells Point 98.8%

7. Chester Hill 97%

8. Villawood 96.8%

9. Epping 95.7%

10. Rydalmere 94.7%

Sydney Apartments  

1. Lilyfield 134.3%

2. Waverley 122.8%

3. Hunters Hill 120.7%

4. Forest Lodge 100.6%

5. Macquarie Fields 87.9%

6. Edgecliff 87%

7. Glenfield 86.9%

8. Minto 84.9%

9. Rushcutters Bay 84.1%

10. Punchbowl 82.9%

Melbourne Houses 

1. Malvern 102.8%

2. Mont Albert North 90.4%

3. McKinnon 81.9%

4. South Yarra 80%

5. Clyde North 77.8%

6. Box Hill 76.7%

7. Burwood 75.5%

8. Glen Iris 74.5%

9. Ashburton 73.1%

10. Wollert 72.2%

Melbourne Apartments  

1. East Melbourne 64.5%

2. Hampton East 61.5%

3. Mount Waverley 49.8%

4. Vermont 48.6%

5. Blackburn South 45.7%

6. Keysborough 43%

7. Burwood 41.5%

8. Forest Hill 39.3%

9. Safety Beach 39%

10. Carlton 38.6%

Perth Houses 

1. Dayton 68.4%

2. Bedfordale 65.3%

3. Wattle Grove 45.7%

4. Brabham 42.7%

5. Beaconsfield 40%

6. Hammond Park 38.2%

7. North Coogee 35.8%

8. Coolbellup 35.8%

9. Woodlands 35.3%

10. Riverton 34.6%

Perth Apartments 

1. Applecross 28.4%

2. Morley 27.2%

3. Bayswater 24.6%

4. Victoria Park 24.2%

5. Scarborough 21.8%

6. Burswood 21.3%

7. Mount Hawthorn 18.9%

8. Yokine 18.4%

9. Tuart Hill 18%

10. Carlisle 17.6%

Brisbane Houses

1. West End 42.6%

2. Seventeen Mile Rocks 37.2%

3. Seven Hills 36.6%

4. Macgregor 36.2%

5. Murarrie 35.7%

6. Highgate Hill 35.1%

7. Kalinga 34.8%

8. Robertson 34.2%

9. Graceville 34%

10. Sunnybank Hills 33.6%

Brisbane Apartments

1. Camp Hill 26%

2. Kedron 25.9%

3. Stafford 24%

4. Paddington 23.9%

5. Capalaba 22.8%

6. Wynnum West 22.5%

7. Mount Gravatt East 21.7%

8. Carina Heights 21.5%

9. South Brisbane 20.7%

10. Wishart 18.9%

Adelaide Houses 

1. Hazelwood Park 37%

2. Torrens Park 33.7%

3. Walkerville 32.2%

4. Hyde Park 30.5%

5. Mile End 30.5%

6. Unley 28.9%

7. Hawthorn 28.2%

8. Daw Park 27.4%

9. Hectorville 27.3%

10. Burnside 26.7%

Adelaide Apartments

1. Unley 20.3%

2. Henley Beach 20.3%

3. Magill 18.8%

4. North Adelaide 15.2%

5. Norwood 13.9%

6. Brooklyn Park 13.9%

7. Parkside 12.9%

8. Glenelg East 12.5%

9. Plympton 11.9%

10. Klemzig 9% 

Hobart Houses 

1. North Hobart 25%

2. Bellerive 17.5%

3. Geilston Bay 12.9%

4. Mornington 11.7%

5. Sandy Bay 11.5%

6. Lenah Valley 11.3%

7. Howrah 10.5%

8. Kingston Beach 10.2%

9. Kingston 9.4%

10. Acton Park 9.2%

Hobart Apartments  

1. Blackmans Bay 9.5%

2. Bellerive 7.6%

3. Howrah 6.3%

4. New Town 4.5%

5. Glenorchy 0.4%

6. Kingston -1.7%

7. Sandy Bay -2.1%

8. Hobart -3.4%

9. Claremont -8.5%

10. Battery Point -9.4%  

Darwin Houses 

1. Bakewell 22.9%

2. Humpty Doo 19.1%

3. Gunn 18.6%

4. Bellamack 17.1%

5. Rapid Creek 15.8%

6. Rosebery 15%

7. Nightcliff 10.4%

8. Howard Springs 9.5%

9. Driver 8.9%

10. Durack 7.7%  

Darwin Apartments  

1. Nightcliff 16.5%

2. Rapid Creek 8.7%

3. Larrakeyah 8.6%

4. Coconut Grove 4%

5. Parap 3.3%

6. Fannie Bay -4.3%

7. Darwin City -4.3%

8. Bakewell -8.3%

9. Stuart Park -8.7%

(Only 9 published)

Source: Best of the Best 2016, article by Tim Lawless, published by CoreLogic 19/12/16

 

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Goal posts move on interest-only loans

Tuesday, April 18, 2017

By John McGrath

The goal posts for residential lending have moved again, with the Australian Prudential Regulation Authority (APRA) now asking the banks to limit the number of new loans issued to both investors and owner occupiers on interest only terms to 30% of all new loans. 

According to APRA, nearly 40% of existing loans held by authorised deposit-taking institutions (ADIs) are on interest-only terms and this is quite high by international and historical standards. 

Coupled with this, APRA states that current “heightened risks” such as high housing prices in our two biggest capital city markets, rising household debt, low wage growth and low interest rates means we need to apply a stronger brake on mortgage lending practices to reduce risk.  

Fair call. While it might be inconvenient to have another hoop to jump through, tighter criteria on loans will protect our banking system as a whole. It’s also creating a natural economic firebreak that will help slow the Sydney and Melbourne markets and put us in good shape in the event that there is a correction in the future. 

The lending landscape has changed a lot in recent years. Higher risk borrowers, both individual purchasers as well as developers have found it much harder, if not impossible, to secure funding. Deposit requirements have often been higher, loan-to-value ratios more conservative and borrowers have had to satisfy stricter criteria to qualify for a loan. 

On top of this, APRA’s limit on new investment lending remains, with banks expected to keep investor lending to less than 10% of credit growth. This measure has been in place since December 2014. 

I had a chat with Alan Hemmings, General Manager of McGrath’s mortgage broking division, Oxygen Home Loans, about how borrowers can best navigate the new rules on interest only loans. Here’s Alan’s point of view. 

“The 30% cap on interest only lending has been brought in to try and slow property price growth and protect customers. The regulators feel with hot property markets in Sydney and Melbourne, which are both still showing strong price growth, customers who are highly leveraged and paying interest only might be hurt should there be a property price correction.

“For example, if a client has borrowed at 90% LVR on interest only, should there be a price correction as we are seeing in WA, they might end up owing more than the property is worth.

“The interest only rule doesn’t only apply to investors, the larger concern for APRA is the level of interest-only loans on owner-occupied properties. Why does a customer need an interest-only loan on their own home? Is it an affordability issue? What happens when the interest-only period expires and the customer has to start repaying the principal component over a shorter timeframe, particularly if interest rates go up?”

I also asked Alan what policy changes the banks might adopt to achieve the new 30% cap. These measures are going to differ from lender to lender and will, therefore, affect buyers differently. Here are Alan’s predictions. 

“In the past, interest only could simply be requested, now a legitimate reason will need to be supplied and this is where a broker can assist in formulating the proposal to the lender.

“I suspect it will be harder to get interest-only terms on higher LVR loans (80% or more) and owner-occupied loans. Some lenders might stop interest only for owner-occupied loans altogether. It’s like the 10% cap on investment lending growth, different lenders are pulling different triggers.

“Once lenders start announcing their policies regarding interest-only lending, the Oxygen team will be able to have a conversation with our clients about their needs and provide feedback on the best structure for them and which lender can assist.”

So, where to from here?  

“I think the 10% cap on investment lending and the 30% cap on interest-only loans is just the start. 

“If we continue to see a strong investment market, the 10% cap might be reduced to 6% or 7%. APRA is also yet to announce new capital requirements for the banks mid-year, which might have a further impact on interest rates. 

“Now, more than ever, clients need a good broker who can work through the minefield of different policies, rates and so on to get their desired outcome.”

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