+ About John McGrath
John McGrath is considered one of the most influential figures in the Australian property industry. As Founder and Executive Director of McGrath Limited, , he took McGrath Estate Agents from a lounge room start-up in 1988 to one of Australia's most successful residential real estate groups, listing McGrath Limited on the Australian Stock Exchange in November 2015.
An integrated real estate services business, McGrath today is one of the fastest growing real estate companies in Australia with a strong market presence in NSW, the ACT & Queensland, and a growing presence in Victoria.
In October 2008, John was honoured by the Real Estate Institute of NSW with the Woodrow Weight OBE Award, a lifetime achievement award for his outstanding contribution to the real estate industry.
John himself has become a spokesperson for the industry both in Australia and internationally. John has five books that have reached bestseller status including “You Don’t Have To Be Born Brilliant” and “You Inc.”. In “The Ultimate Guide to Real Estate”, John shares with the reader his invaluable knowledge on the Australian property market.
John is a Director of REA Group and also the South Sydney “Rabbitohs,” which is one of his great passions.
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
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%
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%
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%
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%
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%
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%
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%
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%
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%
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%
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%
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%
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%
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
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.”
Tuesday, April 11, 2017
By John McGrath
So, the first quarter results are in and guess what? Sydney is not – that’s right, not at the top of the leader board for price growth among our capital cities. It’s exciting to see some other cities moving forward after such an extended period of Sydney and Melbourne dominance.
Over the March quarter, CoreLogic reports dwelling values (houses and apartments combined) grew by 5.6% in Hobart, 5.1% in Canberra and 5% in Sydney. Melbourne wasn’t far behind at 4.2%. Adelaide grew by 1.6%, Brisbane had no movement, and median prices fell in Darwin by -3.1% and Perth by -1.3%.
Sydney and Melbourne continue to grow strongly
Clearly, Sydney and Melbourne are both still growing strongly. Growth of 4-5% per quarter is very fast, and at that rate we’re on track for 15-20% growth over the year if things don’t slow down.
Right now, after a five-year boom, I would love to see some heat taken out of these two markets. It’s important for the long term that prices have a chance to slow down and consolidate at their new levels. However, with interest rates so low and a severe lack of stock intensifying buyer competition, it’s hard to see this happening any time soon.
The hand of APRA
APRA’s announcement that banks will have to limit interest only loans to 30% of all new residential lending might help reduce investor demand, as it is investors who typically want interest-only terms. This measure, combined with government intervention on affordability, might help Sydney and Melbourne get back to normal market conditions.
We’re yet to find out what the NSW and Federal Governments have in mind to deal with affordability, but VIC has already announced a range of measures – among them the removal of incentives for investors to try and dampen demand from that particular group.
Looking at the other cities, Canberra’s market turned in 2016 and continues to do well. Prices were up 9.3% in CY2016 and now they’re up a further 5.1% in the first quarter of 2017 alone. Hobart is also on the rebound. Prices went up by 11.2% in FY2016 and now they’re up a further 5.6%.
Conversely, Perth and Darwin have been doing it tough since the mining boom ended. Median prices fell by -4.3% in Perth in FY2016 and Darwin prices rose by just 0.9%. So far this year, prices have fallen slightly in both capitals.
Now, for Sydneysiders who have been keeping track of sales stories in the media, you would have seen many articles with screaming headlines about homes selling for up to a million dollars over reserve.
Every week, there are properties selling for astounding amounts – I’m talking $400,000, $500,000, $700,000 above reserve. Obviously, this is fantastic for sellers but quite disheartening for buyers.
I would advise buyers in Sydney to be very wary right now. If you’re going to compete in this market, you need to understand that you’ll probably have to pay a premium.
If you’re buying for the long term, this might be less of a concern, but I do advise you to be very careful. Figure out your budget and stick to it. Better to be disappointed and walk away on auction day than endure the sleepless nights that come with a mortgage you can’t afford.
Tuesday, April 04, 2017
By John McGrath
Last week I talked about the rising issue of affordability, which is particularly acute in Sydney but also a concern for Melbourne as both cities are leading the way in residential price growth.
This boom is now almost five years old, which is a very long run for strong price growth and we are yet to see signs of a slowdown, mainly due to low interest rates, demand from investors and a lack of stock driving prices further north.
There has been much discussion around what Federal and state governments in NSW and Victoria should do to address the issue. Plenty of ideas have been put forward but the first government to actually do something is the Victorian government, with a series of measures recently announced to make home ownership easier for young people. Most of these measures are still subject to approval by parliament, but here’s a rundown of what they’ve proposed.
- Abolishing stamp duty for first home buyers on properties worth $600,000 or less, with a sliding scale of concessions on properties worth between $600,001 and $750,000. All properties are eligible – both new and existing. These stamp duty changes will take effect from July 1 this year
- The existing First Home Owner Grant (FHOG), which is available to all first home buyers who are either building or buying a brand new home valued up to $750,000, will be doubled from $10,000 to $20,000 for regional buyers. It will apply to contracts signed from July 1 this year through to June 30, 2020. Regional areas include the cities of Geelong and Ballarat. Eligible first home buyers of new properties in Melbourne will continue to receive the $10,000 FHOG
- Introducing a co-ownership pilot scheme, whereby eligible first home buyers will be able to co-purchase a new or existing property with the Victorian Government. Called HomesVic, the scheme allows the government to purchase up to 400 homes with an equity share of no greater than 25% in each. The idea is to help young buyers who are capable of meeting loan repayments but simply can’t save the full deposit they need to buy on their own due to the cost of renting. With HomesVic, buyers will need a 5% deposit and income thresholds will also apply – couples $95,000 and singles $75,000. When the properties are sold, HomesVic will receive its equity share back. The scheme will commence in January 2018
- At least 10% of all properties in government-led urban renewal developments will be allocated to first-time buyers. This measure will be implemented for the first time at the Arden development in Melbourne’s north, which will mean about 1,500 homes will be reserved for first home buyers
- Increasing land supply by re-zoning 100,000 lots across Melbourne to create 17 new suburbs
- Introducing a Vacant Residential Property Tax to encourage owners in Melbourne’s inner and middle rings to make properties available for purchase or rent. The Tax will be 1%, so on a $700,000 home the tax would be $7,000. There will be exemptions, for example, it won’t apply to holiday homes, deceased estates, city ‘bolt holes’ used for work purposes and homes owned by Victorians temporarily living overseas. The tax will be implemented from January 1, 2018 for homes vacant for more than six months in a calendar year
In addition to the above measures, the Victorian government will also remove incentives for investors in a bid to slow demand in that particular sector. First home buyers typically end up bidding against investors for lower priced stock, so this should reduce competition at auction for young buyers.
Melbourne is a fantastic prospect for property investors with plenty of upside over the long term. Despite large-scale price growth over the past five years, Melbourne continues to offer much better value to investors than Sydney. For example, the median apartment price in Melbourne is $480,000 with an average 4% rental yield while in Sydney it is $685,000 and 3.7%, according to CoreLogic.
Investors need to move quickly if they want to beat the deadline for changes such as the end of the off-the-plan stamp duty concession (this will remain for owner occupiers), which will see duty on a $800,000 investment apartment go from a few thousand now to more than $40,000 after July 1.
For first home buyers in Victoria, it’s time to start your research. Pick a location and the type of property you want and attend some inspections to gain market knowledge. Get yourself ready to buy after July 1.
Most importantly, don’t overextend yourself just because your stamp duty will be less. You need to be able to afford your repayments over the long term when interest rates are back at their long-term averages of 7-7.5%, so do your calculations based on this, not on today’s record low rates!
Affordability measures are expected to be announced in NSW soon, with the NSW government recently setting up a cross-government working group to brainstorm ideas for review by former Reserve Bank Governor, Glenn Stevens, before a formal plan is announced to the public.
On May 9, the Federal Government is expected to include an ‘affordability package’ in the Budget to address the affordability problem on a national scale. Let’s hope they get it right.
Wednesday, March 29, 2017
By John McGrath
Affordability has become a very serious issue in Sydney following a five-year boom during which time Sydney home prices have risen by 74.9%, according to the latest CoreLogic statistics.
We are hearing more stories about the affordability struggle, not just for first home buyers, but also for more established family buyers trying to upsize their homes as their families grow or downsize to smaller lower maintenance homes after their kids have left.
Affordability also presents a very real social issue, as it is becoming increasingly difficult for essential service workers like teachers, nurses and police to afford to live in the areas where they work.
The biggest hurdle for young buyers is saving the deposit. Typically, a 20% deposit is required for a new home loan. In Sydney, the median price for an apartment is currently $685,000, which means a young person needs $137,000 for a 20% deposit.
CoreLogic’s Housing Affordability Report, released last December, found Sydney home prices are now 8.3 times higher than gross household incomes. The percentage of household income required to fund a 20% deposit in Sydney is 167.7%, up from 116.8% in 2001.
These circumstances make it very hard for young people earning a career entry level income to save what they need to get a foot in the door. They might be able to afford the mortgage repayments, especially today with interest rates so low, but saving the deposit is very tough.
This dilemma has spawned a few rising trends:
- Rentvesting, where young people are buying cheaper properties for investment because they can’t afford a more expensive first home close to the city where they want to live
- The bank of mum and dad, where parents are increasingly chipping in for the deposit or going guarantor on the loan
- Large numbers of young people remaining in the family home well into their 20s because they can’t save a deposit and rent their own place at the same time
In regards to Sydney upsizers and downsizers, the biggest impediments to affordability are not just rising property prices. Stamp duty plays a significant role and has a direct impact on affordability.
NSW stamp duty thresholds have not changed in 30 years, but property prices have soared. Stamp duty on the average Sydney house used to be about 1.3% of the purchase price, now it’s over 4%.
Today’s significant lack of stock is another impediment to affordability. While it’s a great time to sell, home owners understand that buying back in could be very difficult, especially in sought-after markets. Some would-be sellers are choosing to stay put and renovate instead.
The Federal and NSW Governments are both actively considering various strategies right now to tackle the affordability challenge.
Federal Treasurer Scott Morrison has promised an affordability package in the May budget. Among the measures they are reportedly considering are incentives for pensioners to sell to free up more family homes for younger generations.
Meantime in NSW, Premier Gladys Berejiklian has set up a cross-government working group to come up with ideas which will then be reviewed by former Reserve Bank Governor, Glenn Stevens.
Everyone has an opinion on housing affordability and how to fix it. It’s a topic dominating dinner table discussions across Australia but particularly in Sydney.
However, it’s worth noting that any attempt to make property more affordable must be balanced against preserving the value of current home owners’ properties. Seven out of 10 Australians own their own home and it’s usually their largest asset and the cornerstone to their financial security.
Tuesday, March 21, 2017
By John McGrath
Demand from investors in Sydney and Melbourne is particularly high today following significant property price rises over the past five years in both cities.
Investor appetite for bricks and mortar is reflected in the latest finance figures which show that NSW and VIC together accounted for 76.3% of all new investor borrowings nationwide in December 2016, the largest share of the market on record, according to CoreLogic and the Australian Bureau of Statistics.
Separately, NSW represented 49.6% of national investor finance and VIC 26.7%. By comparison, at the start of the boom in mid-2012, investor lending in NSW was 37.3% and 25.1% in VIC.
Clearly, investor interest is highest in Sydney and that’s because of its outstanding recent capital growth. But it’s crucial that investors do not forget the importance of rental yields. Right now, the two cities with the greatest investment activity are also the cities with the lowest rental yields.
Drilling down and using Sydney as an example, weekly rents have actually been rising while yields have been falling. The latest Rent and Sales Report from the NSW Government shows the median Sydney rent has risen from $450 per week in the September 2012 quarter to $520 in September 2016. That’s good news for investors who already own property. But, for new investors, the yields they are receiving are lower overall because the pace of capital growth has been much faster than rents.
In Sydney, average yields are 2.8% for houses and 3.7% for apartments, according to CoreLogic. In Melbourne, they’re 2.7% for houses and 4% for apartments. In Brisbane/Gold Coast, it’s 4.1% for houses and 5.3% for apartments. The cities with the highest rental yields are Darwin at 5.1% for houses and Hobart at 6% for apartments.
I suspect the low yields in Sydney and Melbourne aren’t concerning today’s investor buyers because interest rates are so low. Mortgage repayments of 4-4.5% are relatively easy to manage on properties yielding 2.5-4%. But what happens when interest rates return to their long-term average of 7-7.5% and the rate of capital growth inevitably slows as the market returns to normal conditions?
While capital growth should always be an investor’s number one priority, rental returns are crucial for servicing your debt. The only way for most people to make money in real estate is by holding for the long term. So, Sydney and Melbourne investors out there buying today – at what is likely to be the tail end of this boom – need to make sure their chosen investment will provide enough rental income to help them cover their rising mortgage repayments over the next 10 years and beyond.
Today’s investors also need to be wary that supply of rental properties is rising because so many investors are buying, which means tenants have more choice and this might affect vacancy rates.
I’m not saying that investors shouldn’t buy right now. But it’s important to do your sums and make informed decisions based on a long-term view.
Be careful in your property selection too, particularly with apartments given supply will be increasing in the short term due to the construction boom. Make sure there are some unique features that will differentiate your apartment from the rest. This will help protect your rental return, reduce your vacancy periods and maintain your capital value.
Tuesday, March 14, 2017
By John McGrath
Mums and dads buying property for their children are a growing force in Sydney, particularly in the inner city suburbs where property prices have become out of reach for most young people.
Parental buyers are typically competing against first and second home buyers and investors for apartments in suburbs close to the CBD and near universities such as UTS, the University of NSW and the University of Sydney.
Typical scenarios that our agents encounter include:
1. Parents buying a property as a gift for their adult child to live in immediately
2. Parents buying for investment with the intention of letting their child live there for a period of time, usually during their university years; before resuming leasing to other tenants
3. Parents buying initially for investment while their child is still very young, with a view to gifting the property to their child when they’re old enough to leave home
4. Parents on more limited budgets are joining forces with their adult children and pooling funds to purchase a shared investment, with the child usually becoming the tenant
Parental buyers are typically Baby Boomers or Gen X’s who place a high value on owning their own home and building financial security through property, as they have done themselves. They want the same for their children but as property prices continue to rise during what has become a five-year boom, many parents are worried that their children will never be able to buy in Sydney on their own.
In January, Westpac released its Financial Future Report which surveyed 1,593 Australians with children or grandchildren under the age of 12, as well as 50 prospective parents. About 40% of respondents believed their children or grandchildren would not be able to afford to save the deposit for their first home, according to news reports. Clearly, affordability is on parents’ minds.
Probably the bulk of parental buyers out there today are buying for children in their late teens who are close to finishing school. University or full time work is just around the corner and mum and dad want to give them a place to stay and potentially, a financial headstart by gifting them property.
But other parental buyers are even more forward thinking and are purchasing for children who are still in primary school, or even younger. With interest rates so low, they see an opportunity to buy now and let a tenant pay the mortgage for them until their child is ready to leave the nest.
Among parental buyers are also mums and dads who are going guarantor on their child’s loan rather than buying the property themselves. This usually involves putting their own home up as security.
Other parents are chipping in spare cash to fund the deposit on their child’s first home. Buyers typically need a 20% deposit to avoid mortgage insurance and raising this sort of money can be very tough.
A 20% deposit on a median-priced Sydney apartment is currently $137,000 (based on a $685,000 median as reported in a March report by CoreLogic). That’s a lot of money for a young person on an average wage to save, so parents are increasingly stepping in to finance the deposit.
Sydney’s rising property prices are creating a Manhattan effect, with the inner ring increasingly becoming the exclusive domain of high income earners. The only way for many Gen Y buyers to purchase in this area is with the help of mum and dad.
‘Parental buyers’ is a trend that perfectly demonstrates how the property market will always evolve when challenges arise. Affordability has become a bigger issue than ever before in Sydney and mums and dads are, in many cases, doing something about it.
Tuesday, March 07, 2017
By John McGrath
The Sydney and Melbourne markets are certainly off to a flying start this autumn season. The first two big Saturday auction days of the year – February 18 and 25 – yielded clearance rates around the 80% mark in both cities, despite a very high number of properties going to auction.
According to CoreLogic, Sydney and Melbourne have never had more auctions scheduled for the month of February. Despite this volume, the cities recorded impressive clearance rates which indicates buyer demand is still incredibly strong.
I’ll lay it out for you because these are really remarkable statistics.
Week of February 18
- Sydney – 661 auctions; clearance rate 84%
- Melbourne – 958 auctions; clearance rate 77%
Week of February 25
- Sydney – 729 auctions; clearance rate 82%
- Melbourne – 1,222 auctions; clearance rate 80%
In anyone’s language, these are impressive rates of sale. And there’s much more to come, with March typically the month with the highest number of auctions in the autumn season.
At McGrath, the best results in Sydney for Super Saturday were seen on the Northern Beaches and in the City/East regions. Demand was strongest in the $750,000 - $1m bracket, as well as the $1.5m -$3m bracket. These are the price brackets with the highest number of homes for sale and the demand for them is certainly there, with recent clearance rates of 79% and 77% respectively.
Clearance rates were similarly high among McGrath’s Victorian offices (79%) and Canberra offices (100%).
As per usual at this time of year, new stock is coming onto the market but generally speaking, there are still not enough homes available for sale to meet demand and that means inevitable price rises.
The latest monthly CoreLogic Hedonic Home Value Index, released on March 1, shows that there was a 2.6% rise in median property prices in Sydney over the month of February, and a 1.5% gain in Melbourne. Canberra took line honours with a 3.2% gain. By contrast, property values fell -4.3% in Darwin and -2.4% in Perth, as those cities continue to grapple with the fallout of the end of the mining boom.
CoreLogic points to a rebound in the pace of capital gains across the capital cities since mid-last year due to two interest rate cuts in May and August 2016 and an ensuing increase in investor activity over that period.
In the first half of 2016, conditions for growth had actually moderated – which you’d expect after a long boom period in Sydney and Melbourne. But the market effectively found a second wind and in Sydney and Melbourne this was further propelled by a severe lack of stock. These conditions are now carrying over into 2017, with Sydney’s annual rate of growth now at its highest point in 15 years.
So, autumn presents a phenomenal time to sell but Sydney and Melbourne vendors continue to find it hard to buy back in. It’s a significant dilemma.
The biggest winners of this current market will be Sydney and Melbourne sellers who are relocating elsewhere, such as coastal and lifestyle areas where market conditions are far more normal.
If you’re considering a sea change or relocation, you couldn’t ask for a better time to make that move and fully capitalise on what is now a five year boom in Sydney and Melbourne real estate.
Tuesday, February 28, 2017
By John McGrath
CoreLogic’s latest Pain and Gain Report shows nine out of 10 homes re-sold during the September 2016 quarter were sold at a higher price than their original purchase price, with an average gross capital gain of $262,672.
The report makes it very clear that the longer you hold a property, the more likely you are to sell for a decent capital gain. Across Australia, homes that re-sold at a loss had an average hold period of 6.1 years for houses and 6.5 years for apartments. Conversely, homes that re-sold for a profit were held for an average of 9.1 years for houses and 7.6 years for apartments.
Buying and holding is the key to wealth creation in real estate, no matter what type of property you own. Historically, houses have typically done better than apartments in terms of average capital gains but it’s interesting to note that in Sydney, a change to this long term trend is afoot.
The CoreLogic report notes that over the past two years, there has actually been more re-sales at a loss among houses than apartments (although the proportion of homes selling at a loss is extremely low in both the houses and apartments categories). For example, in the September quarter, the proportion of Sydney houses re-selling at a loss was 2.5% and the proportion of apartments was 1.9%.
This reflects rising demand for apartments in Australia’s most expensive city. This trend will continue as Sydney property gets more expensive and affordability constraints restrict more people to apartments. But given apartments are less expensive, they have more room for capital growth, too.
Either way, the main point is you should do well with any type of property if you buy in a good location and hold for the long term.
Among those homeowners who sold at a loss, the average loss was $71,529. The end of the mining boom is making a significant contribution here, with the highest proportion of loss-making sales across our capital cities recorded in Darwin and Perth. This is an important lesson, particularly for investors, that it’s never a good idea to buy in a town solely or largely dependent on one industry.
Across the capital cities, the proportion of loss-making re-sales are as follows:
- Sydney: 2.3%
- Melbourne: 4.9%
- Adelaide: 7.2%
- Hobart: 8.4%
- Brisbane: 8.5%
- Canberra: 12.2%
- Perth: 19.6%
- Darwin: 30.7%
So, why would people sell at a loss? There are many typical scenarios with loss-making re-sales, including:
- Selling too soon after purchase for personal reasons, such as a work transfer or expanding your family and needing more space
- Selling at the wrong time in the market cycle, for example buying at the height of a boom and selling too soon when the market is softening (again, this usually happens when the re-sale is prompted by personal reasons)
- Investors who enter the market in good times (i.e. during a boom and/or when interest rates are low) who then sell too soon because they have not sufficiently prepared themselves for rising mortgage rates or ongoing hold costs over the long term
Holding for the long term will definitely determine whether you sell for a loss or gain. The level of loss or gain usually comes down to time in the market and the location of your property.
Here are the Top 5 council districts in the major East Coast capitals where properties recorded the highest re-sale gains. I’ve included the average hold periods so you can see how much time these sellers needed to hold their properties in these locations to achieve such impressive capital gains.
1. Hunters Hill – Median profit $785,000 (median hold period 8.9 years)
2. Ku-ring-gai – $733,500 (6.3 years)
3. Woollahra – $670,000 (6.6 years)
4. Manly – $636,500 (7.4 years)
5. Willoughby – $625,000 (8.3 years)
1. Boroondara – Median profit $574,750 (median hold period 10.8 years)
2. Bayside – $555,750 (9.4 years)
3. Manningham – $524,000 (9.6 years)
4. Whitehorse – $480,000 (11.3 years)
5. Monash – $415,500 (9.5 years)
1. Brisbane – Median profit $173,250 (median hold period 9.3 years)
2. Gold Coast – $110,000 (8.6 years)
3. Redland – $110,000 (9.2 years)
4. Sunshine Coast – $98,000 (8.9 years)
5. Logan – $94,500 (9.2 years)
Tuesday, February 21, 2017
By John McGrath
In recent times, most lenders have moved independently of the Reserve Bank and raised their fixed rates. Some have raised variable rates, too. There’s also a difference in the rates offered to investors versus owner occupiers, with owner occupiers tending to receive more favourable treatment.
All of this prompts the question, particularly for investors: is it time to fix your loan?
I had a chat with Alan Hemmings, General Manager of McGrath’s mortgage broking division, Oxygen Home Loans, and asked him whether borrowers should consider fixing now. Here’s what he had to say:
“The average three-year fixed rate over the past three years has been 4.69%, so with fixed rates available today below this figure it is still an opportune time to fix now. There are still fixed rates available below 4%, too.
“Lenders have been increasing their fixed rates mainly due to the increasing cost of funding these particular loans. Fixed rates are funded from several sources including other banks, customers’ deposit funds and overseas markets. Recently, we have seen the cost of funds from overseas markets increase, therefore the banks are passing this on to the customer.
“At present, there is very little difference between fixed and variable rates, particularly when comparing some of the specials being offered by lenders across both variable and fixed loans of up to three years.
“If you’re considering fixing, you need to have a clear understanding of your circumstances over the next period of time. For example, do you want certainty with your repayments? Are you planning on adding to your family? Would you possibly want to sell in the near future?
“Working with a broker will assist in making the best decision to suit your needs. That might be fixing your entire loan, or perhaps only a portion of it to give you flexibility.”
I also asked Alan what he expects in terms of Reserve Bank decisions on official rates this year.
“Given the moves by banks to increase fixed rate loans, this probably means the next official interest rate movement will be an increase. Most economists are now predicting this, the debate is about when.
“Irrespective of what the RBA does, we continue to see banks move on interest rates and not just in the fixed rate area. Recently, we have seen some lenders increase variable rates for investors.”
Personally, when I’ve borrowed money to buy property I’ve consistently used variable interest rate finance. But if I did sense that an upswing in interest rates was likely, or that I might have some issues with my cash flow in the medium term, I’d be locking in a fixed rate straight away.
Determining what is best for you comes down to your individual goals and circumstances but to help you make the decision, Alan has provided his top pros and cons to fixing your loan.
Advantages of fixing your home loan
- Knowing what your home loan repayments will be for the term of the fixed period
- If the Reserve Bank or your lender increases interest rates you are protected for the term of the fixed loan
- Some lenders will allow you to make extra repayments without incurring extra costs. Your broker can tell you which lenders are doing this and how much extra you can repay per year
Disadvantages of fixing your home loan
- Break costs might be payable if you repay your loan before the end of the fixed term
- If the RBA or your lender decides to reduce rates, your rate will not decrease
Home lending finance has become more complicated in recent years. The smart move is to consult an experienced mortgage broker to help you decide what is best for you. Talking to a broker is an important investment in your financial future because home loans are usually the greatest expense in life. Why not find out how to reduce that expense and better manage it over the long term?