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John McGrath
Property Expert
+ About John McGrath
About John McGrath - Founder & 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 most successful real estate companies in Australia with an established and respected market presence in NSW, the ACT, Queensland, and more recently 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 was founding director of the REA Group and served on its board from 1999 to January 2018, serving as chairman from 2003-2007. 

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.

Will Spring bring a bounce to property prices?

Tuesday, August 13, 2019

More new listings are starting to hit the market as the Winter season comes to a close and sellers and agents get ready for the first round of Spring auctions on September 7.

This Spring will be an important test for capital cities and regional markets across Australia.

Firstly, how will recent changes making lending easier impact demand and sale prices?  

APRA has provided some sensible relief to banking guidelines, which had been strangling borrowers and relegating them to the sidelines because they either couldn’t get finance at all or they couldn’t get enough finance to fund their next move.

Will all those buyers held back in 2018 and 2019 try again, leading to more competition? It looks like it, with data from the Australian Bureau of Statistics for June showing a rise in new lending for owner occupied and investment properties for the first time in more than a year. 

Secondly, will the two rate cuts (so far) motivate people to re-engage this Spring, when more homes are available to choose from?

In Sydney and Melbourne, there’s a third test. In June and July, both cities recorded minor price growth for the first time since their peaks in mid-late 2017. Either the tide has turned or we are seeing the impact of a severe lack of stock, with sales volumes about 30% down.

I think the market has settled at its new level and buyers are happily back in buying mode.

The unexpected result in the Federal election sounded the bell for market stabilisation. Buyers feel the bottom has been reached and they aren’t at risk of prices going down further after they buy. 

Equally, sellers can enter the market with greater confidence that there will be genuine interest, if not competition for their property.

Auction clearance rates in Sydney and Melbourne are a great barometer for market health. These declined to around 45% but have now recovered to 70% to 75%.

As we head towards Spring, we are seeing higher buyer interest, but available listings remain low for now. As we see some of that volume return going forward, it appears likely that buyer levels are sufficiently deep to cover any reasonable increase in listings.

With a low interest rate environment remaining indefinitely, I believe that many first home buyers and upgraders will be keen to transact across all city and regional markets.

The highest demand will be for the highest quality. Areas, suburbs, streets and properties that represent the better offerings of a neighbourhood will be in greatest demand this Spring.

Securing these types of homes will cost a bit more but longer-term growth suggests that a higher initial investment will be well and truly rewarded with stronger capital appreciation.

Most people own their property for around 10 years. If you compare the difference between a 5% capital growth rate each year and 8% over the life of a property, you’ll discover that the gap between different properties is likely to widen, not contract.

So, buy quality and focus on location and aspect this Spring.

In major cities, in particular, if you want to maximise your capital growth, look into some of the new infrastructure projects and identify areas that are beneficiaries of road and rail enhancements. Some areas have or will soon become 20-30 minutes closer to the CBD so that will spike values in the next sales cycle.

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Life on the coast

Tuesday, August 06, 2019

The Central Coast has always been a popular commuter hub for Sydneysiders seeking better affordability and a beachy lifestyle, with good transport links by road and rail back to the city. 

Now the region is being revitalised under a 20-year government plan that commenced in 2016 and includes a complete overhaul of Gosford CBD, the coast’s designated ‘capital city’.

In Gosford, thousands of new jobs are being created locally, providing more scope for Sydney professionals to relocate and find a new job closer to home instead of commuting.

The ATO and NSW Finance Departments have opened offices in Gosford, there’s the $350 million Gosford Hospital redevelopment and the upcoming $200 million upgrade to Wyong Hospital. Even more jobs are on the way, with a proposed $350 million private hospital and $280 million redevelopment of the Kibbleplex site, including new shops, cafes, entertainment and residential apartments.

For those who want to live on the coast but retain their city jobs, the commute will soon be easier.

Fifty-five brand new trains on the Sydney to Central Coast and Newcastle line will make the trip much more comfortable, with all the mod cons that commuters need, including roomier seats with high back chairs and armrests, tray tables so you can work, mobile phone charging ports and wi-fi.

Next year, when NorthConnex opens, commuters from as far as Newcastle will be able to drive all the way through to Sydney and even Melbourne, with no traffic lights.

Large developers are looking to the coast for new opportunities and are creating buildings of a quality, far superior to anything ever built there before. Designed for owner-occupiers, these apartments have the stylish living spaces and designer fittings that city professionals want.  

Our Central Coast offices have seen a wave of first home buyers from Sydney drawn by these new, high quality apartments that are well under the stamp duty concession threshold of $650,000.

“That price point rules out a large section of Sydney,” says McGrath Central Coast Group Principal, Jaimie Woodcock. “Up here, young buyers can get a brand new apartment, very high quality with views, near the rail line back to Sydney for well under $650,000.

“First home buyers these days see themselves as investors too, they want something that is going to hold its value and gain equity over the long term, so they are responding very enthusiastically to this new level of apartment design and quality on the coast.”

Developers are also targeting downsizers, who are coming to the coast not only for affordability, lifestyle and proximity to the grandkids in Sydney but also vastly improved local health services.

The coast’s liveability is being enhanced by many new small businesses including cafes, bars, micro-breweries and yoga studios to serve a growing population that values lifestyle.

An effective ‘greenifying’ of the entire coast is also underway to make it more visually beautiful, with contemporary streetscaping and lots of new recreational spaces for people to enjoy.

Among the biggest plans is the proposed $10 million transformation of the Leagues Club Field at Gosford. The plans show lots of green open spaces, walkways, splash and play areas for the kids and picnic zones all within a bushland setting on the city fringe.

I asked McGrath Central Coast Group Principal, Jaimie Woodcock, for his top two suburb picks and no surprise, he believes Gosford is a great pick for apartment buyers. For house buyers, he recommends Long Jetty.

“Prices have been moving up dramatically along the coastal strip in areas like Avoca, Wamberal and Terrigal and that price wave is starting to move into the older suburbs,” he explains.

“Long Jetty has an emerging retail and café strip, it’s close to the beach and has a very Newtown Sydney vibe. There are many old homes waiting to be renovated and they’re perfect for young people on a budget who want to put their own stamp on a property.”

With so much new public and private investment turbocharging the Central Coast’s economy, along with new infrastructure, enhanced services, especially in health and education; and a complete makeover planned for many areas, there are excellent prospects for capital growth in property.

Latest figures from CoreLogic/Moody’s predicts fantastic price growth on the Coast in 2020 and 2021. Apartments prices will grow faster than any area of Sydney, with predictions of a 13.1% price bump in 2020 followed by another 13.8% increase in 2021. 

They also predict respectable house price growth of 4.1% and 5.5% in 2020 and 2021 respectively.

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What Aussie suburbs are performing well?

Tuesday, July 30, 2019

Property delivered a collective $14.3 billion in gross profits to sellers over the March quarter alone. That is an incredible amount of wealth generated by plenty of mum and dad property owners across Australia, according to the latest Pain and Gain Report from CoreLogic.

Capital growth is the biggest benefit of property ownership and in many cases, the average income earner will earn more from their properties over the long term than they do working in their jobs (if they buy a good property in a good location and hold it for the long term).

The report shows 87.9% of all sales in March were profitable (ie the selling price was higher than the purchase price). It’s that high because property is a very reliable and safe asset class and most people come out of it well.

However, sales at a loss do happen and of course, they happen more frequently after a boom because people can pay too much, then panic as prices fall; and they sell sooner than they should.

So, although 87.9% is impressive, it’s actually the lowest proportion of profit-making sales since March 2013. This reflects the fluctuating market we’ve seen over the past two years across the country, with prices either falling or price growth softening pretty much everywhere due to this.

When the going gets tough, owners have to hold on. There is a big difference between buying a dud property and having to cut your losses due to bad judgement – which can sometimes be the best call; and buying a good property but selling too soon because the market slows and nerves set in.  

This is a key message for investors, as they’re the ones more likely to sell at a loss, according to the report. This happens because investors have no emotional connection to the property, so it’s easier to panic when the market fluctuates. Plus, they can claim capital losses against other capital gains.

It’s different for home owners. They’ve made the property their own and they’re typically planning to be there for the long haul, so a few bad years at the bottom of the cycle is no big deal because they know the market will come back again, like always.

In March, just 10.5% of owner-occupied properties nationwide re-sold at a loss compared to 16.7% of investment properties.

Houses that re-sold at a loss were held for a median 6.1 years, compared to houses that sold for a profit which were held for a median 9.8 years. Apartments re-sold at a loss were typically held for 6.3 years and those that sold for a profit were held for 8.7 years.

Holding your property for the long term is the key to capital gains.

With apartments, there is an additional factor that creates greater risk of a re-sale at a loss and that’s oversupply. Now and then, markets get oversupplied for a variety of reasons, such as re-zoning or a building boom that typically always runs a year or two behind a general market boom.

The gap between profitable re-sales of houses and apartments is wide. Nationally, 90.5% of houses re-sold for a profit in March compared to 79.5% of apartments – down from 85.4% a year ago and the lowest share of profitable apartment re-sales in 20 years.

Contributing to this – no doubt, are investors who bought close to the peak in oversupplied markets and are now struggling to secure a tenant while watching the price of their investment fall.

In March, the greatest proportion of all re-sales at a loss were in areas with a lot of new apartment stock. On the East Coast, those areas included Strathfield, Parramatta, Ryde and Lane Cove in Sydney; and central Melbourne CBD and Brisbane CBD where there has been a lot of development.

If you can find a way to hang on, you’ll most likely come out of an oversupply just fine in the long run. Population growth will carry your property’s value forward but you need to wait it out. Given the high entry and exit costs of property, you’re usually better off just hanging in there.

The following list shows which suburbs had the highest percentage of re-sales at a profit in each capital city and the median profit those owners achieved.

Top selling suburbs (Highest percentage of profitable re-sales)  

Sydney

Woollahra (96.3% profitable re-sales; median profit $640,000)

Blue Mountains (96.3% profitable re-sales; median profit $283,000)

Hawkesbury (95.7% profitable re-sales; median profit $328,000)

Melbourne

Macedon Ranges (100% profitable re-sales; median profit $430,000)

Banyule (99.5% profitable re-sales; median profit $360,000)

Casey (99.2% profitable re-sales; median profit $300,100) 

Brisbane

Scenic Rim (95% profitable re-sales; median profit of $148,100)

Ipswich (92.2% profitable re-sales; median profit $122,000)

Redland (91.9% profitable re-sales; median profit $130,000)

Canberra

Unincorporated ACT (54.4% profitable re-sales; median profit $176,750)

Adelaide

Tea Tree Gully (97.3% profitable re-sales; median profit $99,750)

Unley (95.9% profitable re-sales; median profit $229,250)

Mallala (95.8% profitable re-sales; median profit $153,500)

Perth

Peppermint Grove (100% profitable re-sales; median profit $776,250)

Nedlands (85% profitable re-sales; median profit $508,500)

Murray (81.3% profitable re-sales; median profit $149,000)

Darwin

Litchfield (64% profitable re-sales; median profit $361,375)

Darwin (54.4% profitable re-sales; median profit $115,500)

Palmerston (51.6% profitable re-sales; median profit $220,750)

Hobart

Brighton (100% profitable re-sales; median profit $126,500)

Derwent Valley (100% profitable re-sales; median profit of $74,000)

Glenorchy (98.9% profitable re-sales; median profit $159,250)

Source: Pain and Gain, March Quarter 2019, CoreLogic, published July 2019

Regional Markets:

The regional markets that had the highest percentage of profitable re-sales were:

Geelong in VIC (98.9%),

Newcastle/Lake Macquarie in NSW (97.1%),

NSW Mid-North Coast (96.3%),

Sunshine Coast in QLD (95.4%),

Richmond-Tweed in NSW (94.6%) and

The Illawarra (93.3%).

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The myth of winter selling

Tuesday, July 23, 2019

It’s the biggest myth in property and home owners currently waiting for Spring should really heed this message. Winter is NOT a bad time to sell! In fact, winter is usually an excellent time to sell because the number of competing homes for sale goes down (because people believe the myth!)

When you have fewer homes competing with yours for buyers, you’re far more likely to get a strong sale price. It’s the law of supply/demand and I believe winter is the best season to tip the balance in your favour.

Spring and autumn are the busiest times of the year – that’s when most people sell. I’m not saying you can’t sell well in these seasons but when the market is soft and buyer demand is lower, like it is now in Sydney and Melbourne, it’s best to sell when competition is lower, too.

In the first month of winter, we saw a bounce in auction clearance rates. Both Sydney and Melbourne began trending above 60%. This reflected not only a change in market mood following the election but also a change in supply/demand, with fewer homes going under the hammer.

If you believe the myth, buyers hibernate in winter. That’s simply not true. Sellers hibernate – and for no good reason!

Right now, a lack of stock in some of the most desirable suburbs is resulting in concentrated competition on only a few homes. Look around in your area – check out the number of homes for sale online. You’ll likely find a stock shortage, particularly in blue chip suburbs.

Buyers who need a new home are not going to be demotivated by a bit of rain and wind. That theory doesn’t make sense. The only people put off by poor weather are those not committed to buying, so think of it this way. On a cold, blustery day, the buyers attending your opens are more likely to be genuine. On lovely, warm summer days, you’re more likely to get a mix of real buyers and window shoppers attending opens for fun.

The other part of the myth is that homes don’t present well in winter. I’d argue that plenty of homes actually present better in winter. Federation homes with open wood fireplaces, period charm and a cosy ambience look fantastic in winter.

People want comfort in their homes and stepping inside a lovely, warm, beautiful family home on a rainy, cold Winter’s day is going to stir up plenty of emotional appeal.

Then, there’s the garden. Don’t believe it can’t look good in winter? These days, most city dwellers create minimalist, low maintenance gardens so they can spend more time enjoying them than working on them. If your backyard is full of manicured evergreens, selling in winter isn’t a problem.

Here’s the other big advantage to selling in winter. It puts you in the driver’s seat to buy in spring. That’s when you want to be buying, when stock levels are up and there’s more choice!

You’re less likely to go over budget bidding at auction if there are several properties you like for your next home. Spring is the ideal time to buy and if you do it early enough, you’ll have Christmas Day in your new home and the holiday season to settle in before the start of the 2020 school year.

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East coast suburbs are hip

Tuesday, July 16, 2019

A new report from CoreLogic and Moody’s Analytics paints a picture of recovery and modest growth for the East Coast capitals in 2020.

The report predicts that the Australian property market will trough this quarter following two years of decline, with greater falls in house prices (-11% down from the mid-2017 peak) compared to apartment prices (almost -7% down from the peak).

The CoreLogic-Moody’s Analytics Australia Home Value Index Forecast, released in late June, expects a return to gradual growth in 2020, powered by interest rate cuts and some relaxation in lending rules recently announced by APRA. 

Moody’s Analytics has developed an econometric model that enables price predictions for individual regions within a city. So, let’s take a look at what they predict for the three East Coast capitals overall and within their main precincts.

1. Sydney

Moody’s says Sydney’s correction is on track to be the longest and steepest on record but at the end of the day, house prices are still around +60% higher than they were in 2012.

Sydney’s house values declined -5.5% in 2018 and are forecast to fall a further -9.6% in 2019, before a +3.1% bounceback in 2020 and +4.8% in 2021.

Apartment values dropped -3.1% in 2018 and are set to decline by -7.3% for 2019, before a +4% rise in 2020 and +6% in 2021.

House prices

-        Baulkham Hills/Hawkesbury +6.6% in 2020, +8.7% in 2021

-        Blacktown +6.2% in 2020, +7.3% in 2021

-        City & Inner South +7.8% in 2020, +2.2% in 2021

-        Eastern Suburbs -2.1% in 2020, +0.5% in 2021

-        Inner South West +0.9% in 2020, +5.7% in 2021

-        Inner West +3.8% in 2020, -0.2% in 2021

-        North Sydney-Hornsby -0.4% in 2020, +1.6% in 2021

-        Northern Beaches +2.6% in 2020, +8.2% in 2021

-        Outer South West +2.3% in 2020, +5.8% in 2021

-        Parramatta +3.2% in 2020, +5% in 2021

-        Ryde +1.1% in 2020, +7% in 2021

-        South-West +3.7% in 2020, +4.7% in 2021

-        Sutherland +6.5% in 2020, +9.4% in 2021

-        Outer West/Blue Mountains +1.7% in 2020, +3.7% in 2021

-        Central Coast +4.1% in 2020, +5.5% in 2021

Apartment prices

-        Baulkham Hills/Hawkesbury +3.5% in 2020, +6% in 2021

-        Blacktown +3.6% in 2020, +5.8% in 2021

-        City & Inner South +3. % in 2020, +3% in 2021

-        Eastern Suburbs -2.7% in 2020, -3.5% in 2021

-        Inner South West +2.4% in 2020, +5.6% in 2021

-        Inner West +5.9% in 2020, +7.7% in 2021

-        North Sydney-Hornsby -1.1% in 2020, +0.9% in 2021

-        Northern Beaches +6.6% in 2020, +4.2% in 2021

-        Outer South West +5% in 2020, +9% in 2021

-        Parramatta +6.6% in 2020, +7.9% in 2021

-        Ryde +2.2% in 2020, +5.1% in 2021

-        South-West +5.5% in 2020, +7.7% in 2021

-        Sutherland +2.1% in 2020, +4% in 2021

-        Outer West/Blue Mountains +1.9% in 2020, +7.1% in 2021

-        Central Coast +13.1% in 2020, +13.8% in 2021

2. Melbourne

Melbourne house values are -14% below their peak after an 18-month decline. The fall in values has been most pronounced in the inner suburbs but the worst appears to be over already with a modest recovery expected in 2020.

Melbourne’s house values declined -0.3% in 2018 followed by a sharp fall this year projected to total -10.8%. The recovery will begin very slowly in 2020 with just a +1.3% increase followed by a better result in 2021 at +6%.

The decline in apartment values has been less pronounced with a +1.8% gain in 2018 and a decline this year projected at -3.9%. There will be a further decline in 2020 at -0.3% followed by a +1% improvement in 2021.   

House prices

-        Inner Melbourne +1.3% in 2020, +3.4% in 2021

-        Inner East +5.5% in 2020, +7.7% in 2021

-        Inner South -0.8% in 2020, +6.7% in 2021

-        North East +6.2% in 2020, +11.8% in 2021

-        North West 0% in 2020, +4.3% in 2021

-        Outer East -1.9% in 2020, +8.1% in 2021

-        South East +0.8% in 2020, +5.5% in 2021

-        West -0.6% in 2020, +2.8% in 2021

-        Mornington Peninsula +2.5% in 2020, +5.2% in 2021

Apartment prices

-        Inner Melbourne +4.2% in 2020, +3.8% in 2021

-        Inner East  +6.8% in 2020, +9.8% in 2021

-        Inner South -0.1% in 2020, +0.2% in 2021

-        North East +1.4% in 2020, +3.7% in 2021

-        North West +5.2% in 2020, +4.3% in 2021

-        Outer East +0.3% in 2020, +3.8% in 2021

-        South East -6.1% in 2020, -2.5% in 2021

-        West -6% in 2020, -7.1% in 2021

-        Mornington Peninsula -0.5% in 2020, +3.1% in 2021

3. Brisbane

Brisbane experienced strong growth between 2012-2018 and corrected this year. House prices went up +1.5% in 2018 but lost those gains and will lose a bit more this year for a total projected decline of -1.8%. The years ahead look a bit better with +1.4% growth in 2020 and +2.9% in 2021.

Apartment values dipped -1% in 2018 and will finish 2019 down about -0.7%. The future looks much brighter with predictions of +5.6% growth in 2020 and +5.8% in 2021.

House prices

-        Brisbane East +1% in 2020, +1.2% in 2021

-        Brisbane North +1.4% in 2020, +0.4% in 2021

-        Brisbane South -0.8% in 2020, +2% in 2021

-        Brisbane West +1.5% in 2020, +4.2% in 2021

-        Brisbane Inner City +2% in 2020, +1.9% in 2021

Apartment prices

-        Brisbane East +3.3% in 2020, +3.7% in 2021

-        Brisbane North +5.3% in 2020, +5% in 2021

-        Brisbane South +4.1% in 2020, +5% in 2021

-        Brisbane West +4.6% in 2020, +3.6% in 2021

-        Brisbane Inner City +3.9% in 2020, +5.4% in 2021 

Source: CoreLogic-Moody’s Analytics Australia Home Value Index Forecast, Second-Quarter 2019 Housing Forecast Report, published June 25, 2019

If you’re a buyer hoping to take advantage of the bottom and buy as low as possible, now is the time in most city markets. Start preparing for Spring now when we should see a seasonal pick-up in stock for sale. 

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The worst is behind us

Tuesday, July 09, 2019

We’re ending the 2019 financial year on a positive note, with the first month of price growth in both Sydney and Melbourne since their respective peaks in July and November 2017.

CoreLogic’s June report indicates a turnaround in Sydney and Melbourne, with home values up +0.1% in Sydney and +0.2% in Melbourne for the month of June.

Although these movements are very small, they indicate a real change in sentiment following the federal election and the first interest rate cut in 30 months in June.

Recently, auction clearances have bounced above 60%, which is the benchmark for normal market conditions. Extra reductions in fixed home loan rates by the banks, coupled with APRA’s decision to ease credit criteria, are also factors waking buyers up to the opportunities of FY2020.  

For the financial year 2019, the CoreLogic report shows Sydney home values fell a total of -9.9% and Melbourne dipped -9.2% over the 12 months to June 30. This is more reflective of losses in 2018, with the pace of price declines slowing every month in 2019, as the market began to regain strength.

Now we’ve got the first positive numbers, which indicates to me that we are through the worst of this downturn, at lease in these two cities. We might get some fluctuations in monthly figures from here, as markets rarely recover in a straight line, but I think the bottom is either here or might have even already passed.

The results for FY2019 broken down between houses and apartments are as follows:

Sydney FY2019 

Median house price: $866,524

House price change: -10.8%

Median apartment price: $682,374

Apartment price change: -8.0% 

Melbourne FY2019 

Median house price: $709,092

House price change: -11.8%

Median apartment price: $527,748

Apartment price change: -3.3% 

Source: CoreLogic Hedonic Home Value Index, June 30, 2019 results

With change in the air, what opportunities does the market floor present for you?

Opportunities in Sydney and Melbourne in FY2020

·       Should you upgrade? You might sell for less while prices are soft but you’ll also be buying up the ladder for less, too

·       Should you buy an investment? Prices have fallen significantly and rental yields are stabilising or growing

·       Should you buy your first home? From January 1, you can access the First Home Loan Deposit Scheme and buy with just a 5% deposit; you also have the Super Saver Scheme where you can make deposits into super and use the tax benefit and investment yields to fast track your savings; plus there are various stamp duty concessions and first home buyer grants available in many states. All of this on top of fallen property values…

People often say to me, “John, when is the best time to buy?” The common response to this question amongst agents is “20 years ago” but today I’ll give you a different one – I believe it is NOW. 

I’ve been in real estate for 35 years and if there’s one thing that concerns me and that is people missing obvious opportunities.  Property is an incredible effective wealth creation vehicle and even more so if you can buy at the bottom and sell at the top!

Buying a property is a big financial decision and that’s why most people wait for the comfort of the herd to move first, at which point prices will already be on the rise.

You should always buy with a level head when your financial position is nice and secure. Trying to time the market is usually a bit of a fool’s game but if you’re ready to buy now, then I’d encourage it!

Barring some major international economic event, if you buy now you’ll be purchasing at or very close to the market floor.

It’s worth remembering that in high value markets like Sydney, even a 1% price rise means you’ll be paying $8,700 more for a house and $6,800 more for an apartment based on today’s median prices. So, if you’re ready, why wait? 

Let’s take a look at price changes over FY2019 in other capital cities. Only two cities had positive (but small) gains in home values and this is due to credit curbs affecting buyers in every market.

FY2019 change in home values

Brisbane           -2.6%

Canberra          +1.4%

Adelaide           -0.3%

Perth                -9.1%

Hobart              +2.9%

Darwin             -9.3%

Sydney             -9.9%

Melbourne       -9.2%

Source: CoreLogic Hedonic Home Value Index, June 30, 2019 results, house/apartment prices combined

Credit has remained the No 1 challenge in property in FY2019. Even though APRA is now easing serviceability criteria, tougher lending conditions are the new norm and we have to get used to it.

Buyers need to do more preparation than ever before, including cleaning up their bank statements and reducing discretionary spending, ideally many months before applying for a loan, to get past the high scrutiny of living expenses we’re seeing today.

The No 2 challenge in FY2019 was the possibility of a change in federal government. That created uncertainty in the marketplace and there was concern around Labor’s proposed changes to CGT and negative gearing and how that would impact property prices and future investment activity. 

The Coalition win was a big surprise and the market breathed a sigh of relief. Agents and developers noticed an immediate lift in buyer enquiry and engagement in the week after the election.

Continuity of government and confidence in the Liberals’ economic management will play an ongoing role in property next year. Political certainty and stability will support market momentum.

In terms of predictions for FY2020, I think we’ll see both Sydney and Melbourne continue to turn. There should be a lift in first home buying given so much assistance is now available; and we might see some investors venturing back into property now that tax concessions will remain.

Record low interest rates will help many people make their next move, while also enabling owners to pay down debt. Making extra repayments while you can afford them can reap amazing benefits in terms of years and interest saved later. This is a worthy goal for FY2020.

I’m looking forward to an exciting new financial year in property.

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Has the property market hit the bottom?

Tuesday, July 02, 2019

Believe it or not, this is actually an exciting time in the property market.  There is change in the air and great opportunity is beginning to present itself.  The biggest question buyers have in Sydney and Melbourne today is: “Are we there yet?”. In other words, have we hit the market floor?

After two years of falling property values in Sydney and Melbourne, plus some falls or softening growth in other cities as a result of credit tightening, I think the bottom is very close.  One thing I know for sure after 35 years plus in this industry – you’ll never know the bottom til it’s passed.

There is consensus among several experts that the election result – which meant no changes to property investment tax offsets, plus APRA easing serviceability criteria and interest rate cuts are going to bring the bottom forward.  Previously, most experts were suggesting mid-2020 as the likely floor. 

Cameron Kusher, CoreLogic’s Head of Research for Australia says: “We predict that price falls will settle later this year, followed by modest price growth starting from 2020.”

Louis Christopher, SQM Research’s Managing Director: “The bottom of the housing market is coming really soon. (The Liberal win, APRA changes and interest rate cuts) means demand for housing is likely to rise from owner occupiers and investors, who have been out of the market for some time now. The market shouldn't spike up but we should see price rises starting to occur later this year.”

Here are the factors changing market momentum…

·       APRA-led easing of assessment criteria for new loans, taking effect probably July/August

·       Best affordability nationally since 2016, with property in some cities and regions the most attainable it has been in decades, according to new CoreLogic/ANZ report

·       Official interest rate cuts – one down, one to go probably this month or next

·       Independent home loan rate cuts by the banks, especially on fixed loans, to attract new market share, with mortgage rates now tracking at their lowest levels since the 1960s

·       The election result/no changes to property investment tax offsets

·       First home buyer deposit scheme – no material change to market, just extra confidence (SQM Research predicts the initial $500M investment will translate to 6,000 transactions)

So, what’s going to happen to prices when the market turns? Don’t expect a dramatic change. Credit curbs as a result of the Royal Commission will continue and household debt remains high, plus we have some economic headwinds both in Australia and internationally that could impact confidence.

SQM Research believes price growth of +8-14% in Sydney and Melbourne over 2020-2022 is a reasonable expectation – but this might be conservative given developments in recent weeks. 

SQM Research released their three-year predictions back in March, based on three scenarios that included a potential Labor win, possibilities with interest rates and an unlikely Liberal win.

Based on negative gearing and CGT staying as it is, a stable economy and a collective 50-basis point cut in official interest rates, SQM Research predicted capital growth in every capital city across Australia over 2020-2022.

This is the exact scenario we find ourselves in now – A Coalition victory, a stable economy and a 50-basis point cut is the minimum expected at this point in 2019.  And remember, these predictions were made before APRA told us that loans would be getting easier for some people.  

Predicted price growth 2020-2022

·       Sydney +8-14%

·       Melbourne +8-14%

·       Brisbane +7-13%

·       Canberra +9-14%

·       Perth +9-17%

·       Darwin +0-9%

·       Adelaide +9-16%

·       Hobart +11-19%

Source: SQM Research, Labor’s Negative Gearing Policy – A Market Update, published March 21, 2019  

Over a three-year period, these figures are by no means big price growth expectations. They represent pretty normal growth that you would expect under normal market conditions.

I think buying conditions in Sydney and Melbourne right now are about as good as they’re going to get before the market turns.

The traditionally busy Spring season is just a couple of months away and now is the time to start planning your next move.

Selling in Winter provides a supply/demand advantage to vendors because new stock is always lower. Spring should bring many more listings to the market, providing greater choice for buyers who have already sold and are ready to make their next move.

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Green your home for less

Tuesday, June 25, 2019

Soaring electricity prices and climate change are two hot button topics in Australia right now. Political leaders want to be seen to be doing something on both scores through various programs designed to help us pay our power bills and reduce our carbon footprints.

The latest offering came in the Victorian State Budget – a $1.3 billion upgrade to their existing Solar Rebate Scheme to help Victorians access cheaper energy.

They’re offering up to a $1,000 rebate on the purchase of solar hot water systems; and householders can expect to save up to $400 per year on electricity costs.

There’s also a point of sale discount of up to $2,225 on solar panel systems; and you can take out an interest-free loan to help cover the rest. The approximate saving on electricity bills is $900 per year.

In NSW, there are discounts for home owners replacing halogen downlights with energy efficient LEDs. Both the lights and costs of installation are subsidised through approved suppliers, with ongoing savings of $210 per year on 20 light replacements.

New schemes include the Empowering Homes Program, which provides interest-free loans for NSW home owners who purchase home batteries, with the first lot available for installation in late 2019.

Solar systems will also be installed for free in 3,400 low income pensioner or veteran households as part of a trial commencing later this year in parts of Sydney and along the north and south coasts.

All these offers sound great and help meet some of the financial and environmental concerns of home owners today.  But I see benefits beyond this.

Climate change, other environmental issues and the cost of living will undoubtedly become even more front of mind for buyers in the future. In today’s property market, buyers certainly appreciate green features but they’re not yet willing to pay much more for them. I believe this will change.  

People design their lifestyle around what’s important to them. We’ve seen this in the rise of apartment living – it’s more affordable, there’s plenty available in desirable suburban areas and they provide greater security and peace of mind for the increasing number of Australians who live alone.

The latest Federal Election proved that climate change and cost of living are rising concerns amongst the public and it’s inevitable that this will continue to translate through to how we all live.

In the future, homes with significant eco-features are likely to have high emotional appeal for a growing number of buyers who are increasingly mindful of their own carbon footprints.

Green features like solar hot water, solar panels, batteries, recycled water and fixed appliances with high energy efficiency ratings will become a big point of difference amongst other homes for sale.

Not only will buyers feel good about purchasing greener homes, they’ll also see value in the energy cost savings. Will a home with low running costs justify higher bids at auction? Depends on how emotional people get about saving the environment.    

So, here’s my advice.

Home owners should be taking advantage of today’s political pressure around power and climate to green their homes at a significantly reduced cost. There are many small and large rebates or discounts available, you just have to do a bit of Googling to find them.   

Green your home today and your power bills will be lower, you’ll feel good about contributing to the environment and you’re likely to see a capital growth benefit when you sell. That’s a win-win-win.

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Buying just got easier

Tuesday, June 18, 2019

Buyers in Sydney and Melbourne have enjoyed almost two years of falling prices and many have been waiting until they see a floor in the market.

Over the last two weeks, a strong signal that the market has bottomed has appeared after the election result, which coincided with credit easing and talk of two rate reductions. And buyers have marched straight back into the market as a result.

The latest CoreLogic report reveals a continued easing in the rate of decline in both cities, with the market trough now expected sooner rather than later. Home values fell -0.5% in Sydney and -0.3% in Melbourne in May, which was the smallest decline in both cities since March 2018.

So, one or two rate cuts will provide further incentive for buyers to re-enter the market and give them confidence that the bottom has been reached.

I can’t emphasise enough the phenomenal opportunity today’s record low cash rate presents, not just for buyers but importantly, also for home owners and investors with debt.

We’ve never seen the cash rate this low. Compare today’s cash rate of 1.25% with that of June 2008 when it was 7.25%!  And remember that was the cash rate, not mortgage rates, which are always higher than the official rate.

Your mortgage will always be your single biggest debt and the lower rates go, the easier it becomes to pay some of it down.

Here’s the other big impact of the recently lowered cash rate (which is expected to go another 25 basis points lower very soon, by the way)…

APRA has recently told the banks that instead of using the 7-7.25% benchmark for serviceability assessments, they can now use a 2.5% buffer on top of their advertised mortgage rates instead. That means every cash rate cut should enable more loan approvals. 

This change hasn’t taken effect yet, with APRA still talking to the banks about how this will work. Probably around late June, APRA will formally announce how these changes will be implemented. So, stand by buyers, financing for your next purchase is about to get a little easier.

Some people might have noticed that many banks cut fixed loan rates in the week or so before the RBA cut.  

Continued speculation of a further RBA cut in August will assist in the Sydney and Melbourne markets re-gaining momentum this Winter.

This is an excellent time for borrowers to do a home loan health check, with the possibility of switching to a better deal after August.

Rates cuts of 0.25% sound small but they equate to thousands of dollars in savings for borrowers, particularly in the more expensive markets of Sydney and Melbourne where loans are higher.

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5 economic elements impacting property

Wednesday, June 12, 2019

The health of our economy has a direct influence on property, with a multitude of elements impacting people’s confidence to buy, sell and invest.

Some elements are always a factor in people’s decision-making – they include interest rates and job security. Other economic issues only arise from time to time, like credit restrictions on loans.

So, let’s take a look at some of the most significant economic factors influencing our market today.

1. Availability of credit

Credit restrictions have strongly contributed to a -7.2% decline in national home values over the past year, according to latest CoreLogic data.

Credit flow is a crucial economic element because not only does it dictate whether people can buy at all, it also dictates what price level they can buy at. If buyers can’t get enough finance to achieve their next goal (usually upgrading), then they can’t make offers at a level acceptable to sellers. This means properties either don’t sell and are withdrawn from the market, or they sell for lower prices.

However, credit conditions are about to change and this will have a beneficial impact on both market activity and property prices.

What’s changed is that APRA has told the banks that instead of using a 7% benchmark interest rate to assess serviceability on all loans, they can now choose their own benchmark or simply add a 2.5% buffer to their advertised mortgage rates.

This means serviceability will be assessed at a more realistic level, enabling more people to get loans, translating to more demand in the market.

The other great aspect of this change is that with every rate cut from the RBA (two expected in total this year), the serviceability test will move lower too. The banks will be adding 2.5% to progressively lower mortgage rates (if the banks pass RBA cuts on), which means more people will qualify for loans.

2. Employment

People aren’t going to make major financial decisions when they’re worried about job security, however Australia is doing well in this regard with an unemployment rate of 5.1%.

The RBA wants to keep the unemployment rate low or even lower and some recent softening in the labour market is why interest rates are on the chopping block in 2019.

The return of the Liberal government is also good for job security because it’s the side of politics generally considered best for business.  When the business world is confident, companies are more likely to invest and employ more people.

3. Interest rates

Falling interest rates indicate a weakening economy – but buyers and sellers don’t care much because the benefit to them is so significant!

Unless jobs are at risk, lower interest rates will always buoy the property market.  Lower rates (now at a record low) mean people can more easily afford their loans and this is a big determining factor in whether to buy or sell.

With weak income growth right now, interest rate cuts provide a boost for owners and buyers.

4. Tax cuts

No matter who won the election, we were going to get tax cuts because the Federal budget is finally back to black. This is great news for our economy. The first round of tax cuts is due this financial year, with people earning up to $126,000 receiving $1,080 for singles and $2,160 for couples.

5. Confidence

We’ve gone from total exuberance between 2012-2017 in Sydney and Melbourne when prices were rapidly rising to a much more subdued attitude following significant falls of 15% plus.

Falling property prices make people feel less wealthy.  They get nervous and stay put. They don’t want to sell at a lower price; and they don’t want to buy if prices are going to fall further. So, they wait; and this means lower listing levels and less homes for sale and less demand in the marketplace.

I think confidence levels are definitely changing.  The return of the Liberals, who are seen as prudent economic managers;  no changes to negative gearing or CGT; APRA’s changes to serviceability criteria; and the likelihood of another rate cut by Christmas should all combine to boost sentiment.

It might even be enough to bring the end of this downturn forward.

If our economy keeps chugging along, then once people realise we have passed the bottom (you never know until it’s passed), owner-occupiers and investors will be looking for opportunity again.

By no means is this an exhaustive list, however these are the headline economic items I see as relevant to property today. By all accounts, things look positive. Sydney and Melbourne need good economic conditions to rebound and I think the stage is set whenever the market is ready.

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