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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.

What the Royal Commission report means for buyers

Thursday, February 14, 2019

Buyers in the property market have been feeling the effects of the Banking Royal Commission well before the final report was released last week.

Greater scrutiny of borrowers’ spending and stricter serviceability and income tests have resulted in in many buyers not being able to borrow as much as they thought, thereby reducing their budgets.  

Loans are also taking longer to approve, often longer than the typical campaign timeframe of four weeks, which has meant many buyers have not been able to bid at auction for the homes they want.

The tightened credit environment has no doubt sped up the cooling of both Sydney and Melbourne and has led to median price falls in other markets as well. Latest CoreLogic figures show weaker conditions across most capital cities and a ‘loss of steam’ in other areas where values are rising.

So, in terms of the Royal Commission’s final report, the big question for buyers was whether the report would make any recommendations that would make it easier or harder to get a home loan.  

The report basically says current rules for loan assessments by the banks are adequate, they just haven’t been followed or enforced well enough in recent years. The report noted that the banks have already begun to address this and have made substantial changes to meet their obligations.

How this translates to today’s buyers is that credit will remain harder to get. The bar has been shifted and we need to get used to it. The era of easy credit is over and this is good because it will help ensure the long-term stability of both our property market and the economy as a whole.  

I see the role of mortgage brokers becoming even more important in helping customers navigate what will now be a longer and more detailed process.

Alan Hemmings, General Manager of McGrath’s mortgage broking division, Oxygen Home Loans says customers are feeling frustrated and brokers can eliminate much of their confusion and stress. 

“Borrowers need an experienced broker with vast product knowledge to help them through the process. Customers are coming to us saying they feel overwhelmed and need help.

“Brokers should do more than home loan applications. I’d be suggesting for a broker to work with clients well before the application stage to help them budget for their deposit and understand what type of property they can afford.  

The key benefits of brokers today include choosing the right lender whether it be a bank or non-bank, with consideration to how each one has altered their assessment criteria, to get loans approved faster.  

“There are differences in the way lenders look at expenses, especially discretionary expenses; and there are also differences in how they assess income. Understanding these differences helps ensure customers maximise their chances of getting approval,” Alan says.

This is important because when a loan is refused, not only is the buyer’s purchase delayed while they go through the application process a second time, the refusal is recorded on their credit history.

Brokers can also educate clients on new lenders and the opportunities they present.

“Brokers can help customers understand how online-only lenders, smaller banks and non-banks work.  A huge number of small lenders have entered the marketplace over the past few years but many customers don’t know about them.

“Right now, many are offering significantly better rates than the big banks to gain market share, so we’re taking a lot of clients down this non-traditional path to secure a much better rate for them,” Alan concludes.

I have always advocated making the process of getting a loan easier for clients.  That’s why McGrath set up Oxygen in the first place.  But good quality regulation is certainly required to make sure all broking customers receive excellent, open, honest and transparent advice.

Over my 35 years in real estate, I have seen the market adapt to many changes imposed by government or regulators.  Each change causes disruption, the market figures out a way to adapt and life goes on. 

This might already be happening, as many of our agents on the ground in Sydney are telling us that more buyers are attending opens compared to last year.

We always see renewed interest early in a new year but this year it seems to be higher than usual. This will be partly due to prices being down 10-15%, which also means buyers don’t need to borrow as much. 

I'd say we're pretty close to the bottom of the cycle in Sydney, so it’s important for buyers to talk to their broker as soon as possible to find out what they need to do to ready themselves for a loan application.

Once that’s done and you’re out in the marketplace this Autumn, if you find a home you love and the price is right, I think you should jump on it.

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The future of Aussie apartments – lookin’ good!

Thursday, February 07, 2019

The era of uninspired common areas in apartment blocks is over.

The basic shared gardens, old-style barbecue facilities and kidney-shaped fibreglass pools have become redundant.  They’ve been replaced by glamorous relaxation areas, café-style dining zones, communal kitchens, landscaped gardens and lap pools. 

Rooftops that once had no purpose are now impressive entertaining and socialising zones where residents can stretch out with a drink in their private cabana, cook a meal in a state-of-the-art outdoor kitchen, kick back on a beanbag and pick fresh produce from the communal vege patch.  

As discussed in our 2019 McGrath Report, stylish developments are seeing much more focus on common areas to differentiate their buildings and create more lifestyle appeal for time-poor buyers.

They are adding value and functionality to spare space and aiming to create a significant ‘wow factor’.

The body corporates of older buildings are also investing in the redesign of their common areas.

In 2013, the residents at Paloma in Surry Hills, Sydney hired revered design house, BKH to create a spectacular rooftop terrace, where residents could sit with friends in elegant timber cabanas for a front row view of beautiful sunsets over Prince Alfred Park.

The newest types of common spaces include the shared entertainers’ kitchen, yoga studios and a return to the once despised shared laundry – now considered a socialising opportunity in beautiful rooftop or garden surrounds.

Shared rooms arguably provide better value to young buyers, who would rather pay less for a smaller crash pad that comes with a selection of outdoor areas where they can relax and entertain friends.

As the affordability challenge grows in Sydney, some buildings are purposely being built with smaller, more affordable apartments but much more grand common entertaining spaces that residents can enjoy, rather than entertaining in their own apartments.

The Commons in Brunswick, Melbourne has a communal rooftop laundry amongst its gardens, vegetable plots and timber decks with banana chairs.

Breathe Architecture says the laundry was one of a series of construction savings that made the apartments cheaper to buy and run, earning them scores of sustainability awards, while also encouraging social interaction between the residents.

Shared kitchens are a fairly new idea, with many younger people, in particular, responding to the concept of a stylish, compact apartment with access to larger, more glamorous communal facilities.

They’d rather dial deliveroo for weekly dinners and entertain in the residents’ kitchen when required.

In 2016, developer SP Setia launched its Parque luxury apartment project in Melbourne, which included a glamorous banquet-style shared kitchen designed by celebrity chef, Shannon Bennett.

Parque residents have exclusive access to the kitchen with its Miele appliances, a temperature-controlled wine cellar and a dining area for 16 guests – all bookable online for dinner parties and family gatherings.

Shared basement parking is also on the way out – replaced by bike rooms or racks, a GoGet car either in the building or on the street, or no parking at all if enough public transport is nearby.

In Victoria, local governments can waive their planning schemes’ on-site parking rules, as happened with The Commons. Located next to a train station and major bike path, Moreland City Council allowed the block to have a permanent GoGet rental car on site instead of parking.

In New South Wales, planning laws were changed in 2015 to allow new apartment buildings to have smaller floor plans and less parking, as long as public transport options were easily accessible.

The recent construction boom along the East Coast of Australia has resulted in many fantastic new buildings coming to market – many with outstanding residents’ facilities.

As common spaces evolve and more people choose apartment living for lifestyle and/or affordability, buildings with truly exceptional residents’ spaces and facilities will inevitably develop superior reputations in the marketplace that will ultimately add value to every apartment.

Just like house buyers want to buy on the best street or in the best neighbourhood, Australia’s apartment dwellers will increasingly desire certain buildings with the ‘wow features’ they love.  

Keep this in mind next time you’re looking to buy. Modern day common facilities can really enhance your ‘at home’ lifestyle – just make sure the strata levies aren’t too high.

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Big infrastructure re-shaping East Coast cities and the ACT

Thursday, January 31, 2019

When markets are cooling like they are in Sydney and Melbourne, there are lots of distractions for home owners and investors.  Fear can set in, as property values in your own neighbourhood soften and various ‘experts’ make wild predictions about massive citywide house price declines.

It’s easy to forget the long-term fundamentals that will keep Australian property values strong well beyond the current short-term cycle change. One of them is infrastructure.

It doesn’t matter where you live - if a new train station, light rail link or improved roads are being built in your suburb, or there’s a new shopping centre or café strip, or new recreational amenities like public pools or major services like a new hospital or school, you’re going to see a positive flow-on effect to house prices. 

This is because every infrastructure project usually has direct lifestyle benefits for residents. New infrastructure also means jobs, which means greater economic activity and prosperity for workers. 

As discussed in our 2019 McGrath Report, massive new infrastructure is currently underway in every one of our East Coast capital cities. These are exciting times, with record spending in NSW, Victoria and Queensland all happening over the next few years.

This is great news for home values in the long term and will have a far more significant effect on property prices after this downwards cycle is done. 

Our Report focused on the big infrastructure that is set to benefit whole states and cities but it’s important to remember that small local projects should also boost your property’s value long term.  

So here’s what’s happening from a big infrastructure point of view in your state today. 

New South Wales: The country’s largest state infrastructure commitment ever

Transport infrastructure is the centrepiece of the four year $87 billion building program in NSW.

In Sydney, we’re finally getting close to fruition on some major projects that will transform many areas. The Sydney Metro Northwest rail line – the first rail line for the rapidly growing Hills District will commence operations in the first half of 2019.

It will be followed by the CBD and South East Light Rail and the second stage of WestConnex in 2020.

We’re also at the beginning stages of the Western Sydney Airport at Badgerys Creek, which will result in tens of thousands of new jobs and billions in new investment across the region.

This will be extremely significant for local house prices because the west is Sydney’s most affordable market, where home values have the most room to grow.

The airport will adjoin a 10,000 hectare Aerotropolis housing scores of local and international companies, as well as an Aerospace Institute, high performance secondary school and STEM* university.

Planning is underway on the Sydney Metro West fast train connecting Parramatta to the CBD; as well as the North-South Rail Link connecting St Marys to the airport and aerotropolis; and the Western Harbour Tunnel and Beaches Link.

Parramatta, Sydney’s second CBD, is undergoing a $10 billion rejuvenation including construction of the $2.8 billion Parramatta Square, one of Australia’s largest urban renewal projects ever.

The 20km Parramatta Light Rail will connect several western precincts for the very first time, creating 5,000 jobs and stimulating economic growth with residents able to easily access jobs, entertainment and sporting options.

*STEM:  science, technologyengineering and mathematics

Queensland: Biggest infrastructure spend since the 2011 flood recovery begins

Worth $45.8 billion over four years, Queensland’s capital works program is designed to stimulate economic growth, encourage private sector investment and create tens of thousands of jobs, including 38,000 in FY19 alone.

This should go a long way in raising consumer confidence and encouraging further internal migration, particularly from NSW and Victoria.

Projects include upgrades to the M1 Pacific Motorway between Varsity Lakes and Tugun and Eight Mile Plains and Daisy Hill, the Beerburrum to Nambour Rail duplication and the 10km Cross River Rail between Dutton Park and Bowen Hills.

On the Gold Coast, an enormous infrastructure spend before and after the Commonwealth Games now totals $13 billion, including the light rail expansion and ongoing conversion of the Athletes Village into a world class Health and Knowledge Precinct, creating 26,000 new jobs and limitless new investment once completed. 

Victoria: New investment worth 7 times the average annual infrastructure spend begins 

Massive new infrastructure over the next four years is needed to service Australia’s fastest growing state, with record population growth higher than any other state or territory in FY17.

Melbourne’s population has soared, hitting the five million mark in late 2018.

In the FY19 Victoria Budget, the Government committed to a $38.4 billion infrastructure program, which is seven times up on the state’s average annual infrastructure spend over the past decade.

Melbourne’s brand new 9km Metro Tunnel and its five stations, due for completion in 2025, will improve CBD connectivity and likely result in price growth in beneficiary suburbs including Kensington, South Kensington, North Melbourne and Parkville.

Investment worth $6.7 billion on the West Gate Tunnel project will aid those in the city’s growing western fringe, which offers family houses for less than $600,000. The underground road will reduce congestion and commuter times when it launches in 2022, linking the West Gate Freeway, Maribyrnong River and the Port of Melbourne. 

International air access to Melbourne will be enhanced by Avalon’s new international terminal, with Air Asia flights commencing in December 2018. The airline expects to carry 500,000 passengers per year between Avalon and Malaysia, Thailand, Vietnam and Delhi.

A 340-hectare greenfield industrial precinct is being built alongside the curfew-free airport, which will generate 1,180 new jobs once operational.

Australian Capital Territory: Canberra’s first light rail opening soon, with CBD renewal projects underway

The first stage of Canberra’s $700 million light rail network, one of the biggest transport projects in its history, is due to open in early 2019. The gleaming new light rail corridors snake through Canberra’s north from the city to the fast-growing Gungahlin region.

The City Renewal Authority, established in 2017 to transform central Canberra including Civic, Northbourne Avenue, Dickson, Haig Park and West Basin, has many projects underway.

Among them is the revival of London Circuit with new office space, a hotel and retailers, as well as the transformation of the 19-hectare Haig Park into a more socially active recreational zone.

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Two big questions for the property market in 2019

Thursday, January 24, 2019

Two big questions loom large in the Australian property market this year. What will happen to credit conditions once the Royal Commission into banking is over; and how will the Federal Election affect the market, especially if Labor wins and major changes to tax policy on property investments are introduced?

Latest figures from CoreLogic show most regions across Australia were weakened by the banks’ tighter lending practices in 2018.  The effect was magnified in Sydney and Melbourne, where many buyers were unable to purchase at the price level they expected or unable to compete at auction due to longer approval processes.

Property prices and auction clearance rates fell faster than is normal for the first year of a correction, culminating in a -10% dip in house prices in Sydney to a median $918,000 and a -9.1% drop in Melbourne to a median $751,000.

Apartment prices also fell by -6.3% in Sydney to a median value of $711,000 and -2.3% in Melbourne to a median $541,000, according to CoreLogic.

RBA Governor Philip Lowe and Federal Treasurer Josh Frydenberg have both indicated that credit is too restricted but nothing is going to change until the Royal Commission delivers its final report on February 1.

This report will include recommendations to improve accountability and regulation and should lead to more universal standards of lending for property buyers. Those standards should rightly be stricter than in previous years when credit was too easy; but hopefully they’ll also be more workable than they are now.  

The Federal Election will be a major disruption this year.  It’s highly likely to happen in mid-May, which means market activity will dampen down around April, as most people adopt a ‘wait and see’ mentality. This is typical close to elections but buyers and sellers will be even more cautious this year – especially investors.

Here’s a quick re-cap of Labor’s proposed changes to negative gearing and capital gains tax for investors.

  • If Labor wins, it intends to limit negative gearing to new or off-the-plan investments; and it will reduce the current capital gains discount from 50% to 25% if you hold your property for more than a year.
  • These changes will apply to investments purchased after a certain date, which will be announced after the election.  Existing property investments will be grandfathered, meaning those owners can carry on with negative gearing and will still receive the 50% capital gains discount when they sell.

This year in Sydney and Melbourne, I’m expecting cooling market conditions to continue. I think both cities are getting close to the bottom of their cycles, however it might get a bit worse before it gets better.

I think we’re through the worst part of the correction in both markets, so Autumn could be the best time to buy. The bulk of new campaigns will begin after the Australia Day weekend, so buyers should expect to see lots of new options advertised.

First home buyers in Sydney and Melbourne are certainly taking advantage of the market cooldown, with activity in NSW reaching its highest level since stamp duty concessions were introduced in July 2017.

Latest data from the Australian Bureau of Statistics shows 16% of new loans in NSW for the month of November 2018 were for first home buyers. In Victoria, activity was even stronger at 19%.

Changing market conditions always present opportunities. Here’s my advice for 2019:  

  • If you’re a buyer, now’s the time in Sydney and Melbourne.
  • If you’re a seller, seek advice from an experienced agent who has been through market highs and lows before. They will know how to maximise your sale price in today’s market.  
  • If you’re an owner, ignore the scary headlines and focus on interest rates. Some lenders are offering fixed loans at far lower rates than variable, so there might be an opportunity for you here. Loan rates in the 3%-4% range will not last forever. Remember, the long term average in Australia is above 7%.
  • If you’re an investor looking to buy in the future, consider whether you can afford to invest without the benefits of negative gearing.  Every poll has Labor ahead, so it’s best to be prepared for a change in tax policy should that be the case.

Whatever your real estate goals are this year, I wish you all the very best.

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What's ahead for property?

Thursday, January 10, 2019

A friend chatted to me over coffee recently. He was disappointed and concerned that property values were all falling and even more distressed about a TV programme that predicted a seismic 40% drop in values in the near future. As I listened, I wondered how many other Australians were sitting with this same fear.

Firstly, I pointed out that in Sydney (and Melbourne), the 5–10% drop we’ve seen so far followed a growth cycle that added 60–100% to property values overall. Many Australians owned property for the entire duration of this cycle and therefore have enjoyed the full benefit. I suggested he consider shifting his view. In reality, his particular property had gone up by 70% and that included the recent 10% correction in his area. 

Next I addressed the sensational and erroneous theory being bandied about by some purported experts that there is another 40% drop in values to go. There is zero chance we will see a collapse like this. There would have to be a global economic ice age to generate this sort of slump and then it wouldn’t matter where your cash was tied up, we’d all be in trouble! The fundamentals underpinning property values in Australia remain solid. Rock solid. What we are seeing now is an important part of every major asset cycle – a correction in values after a sustained period of growth. 

Remember, it was only Sydney and Melbourne that had significant growth (over 50%) in recent years. The rest of Australia has had pretty subdued price increases post-GFC. I’ve heard the “40% overvalued” theory four times in my 35 years in property. It’s like the same groups are chasing the same headline impact every time the market corrects. Not once has this provocative prediction come true – or even close to it. It won’t this time, either. 

So, what’s next? Sydney and Melbourne prices might correct by another 5% to a maximum of around 10%. In 2019, I see the strong possibility of a mini rebound as buyer demand grows at adjusted pricing levels. It’s impossible to pick the top or bottom until they are behind us but my instincts tell me the market has corrected quickly and we are within a few percentage points of new price benchmarks. 

Only three things could change this. A spike in interest rates over the next 24 months, which would return us to the long-term average of around 7%. Banks tightening lending even further. Unemployment escalating rapidly. None of these are likely to happen. I believe the worst of this correction is already over and we’re in for a much softer landing than many pundits predicted. 

Meanwhile, it couldn’t be a better time for first home buyers. With the bank of mum and dad by their side, along with generous stamp duty concessions and government savings initiatives, there are excellent opportunities to get a foot in the door after a long period of difficulty. Within the broader market, I believe there is still solid demand across most price points but lending restrictions are ruling many buyers out. In the long run, it’s strengthening our broader financial system but the market needs time to adjust. 

As our major cities become more crowded, congested and expensive, will more people trade off size for location? Will people sacrifice a bedroom or garden to live closer to the CBD? 

As Uber Eats feeds more Australians, will kitchens become less important or even vanish in some instances? Will young families and empty nesters pull the rip cord on city life and escape to our vibrant, re-emerging regional centres that are readily available within a 90 minute radius of the capitals? 

Will Brisbane and South East Queensland finally get their time in the sun? The Sunshine State is once again Australia’s favourite destination for internal migration and most importantly, the economy is turning a corner. Prospects for investment up north are as good as I’ve seen them. 

Finally, a note on Sydney. You might think this great city has reached its limits, with affordability far too strained and little room for further capital growth in the medium term. I disagree. We are on the cusp of what will go down in history as the great renaissance of Western Sydney.  Massive new infrastructure, billions in new investment and tens of thousands of new jobs are about to emerge in Sydney’s most affordable region, where prices have the most room to grow. We hope this provides fresh insights and ideas for your benefit into the future.

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Paid a fortune for your property? What should you do?

Friday, January 04, 2019

There’s a cohort of home and property investment owners in Sydney and Melbourne today who bought at the top of the market, which was around mid-year 2017 for Sydney and late 2017 for Melbourne. 

If you’re in this boat, I understand your disappointment in terms of timing but please don’t despair. No one can pick the top – and that includes me, and I’ve been around in real estate for 35 years! 

Unfortunately, in boom markets, there will always be people who happen to exchange at the peak but try to remember you are one of many – thousands of people did the same thing. What’s important now is for you not to panic and to look at the situation objectively.  

If you’re an owner-occupier, stop worrying.  You have a new home to enjoy for as long as you can afford your payments in what continues to be a low interest rate environment.

If the capital value of your home has come back a bit, it doesn’t matter because you’re going to be there long term and prices will eventually rise again. 

If you’re an investor, you’ve bought for different reasons but the time period should be the same – always long term. No investor likes to lose money or see the value of their asset go down. It’s not pretty to watch but you’ve got to hang in there. 

All that has changed is the amount of time your asset needs to bear fruit. We’re in the winter period now but the sun will come out again. Whether you invest in shares, managed funds, property or any other asset class, there are always going to be highs and lows. Smart investors ride out the lows. 

Don’t feel compelled to get out.  It won’t take long for Sydney and Melbourne to rebound.  These are two major international cities with many unique factors keeping property prices strong. You just have to be patient while the magic of capital growth takes effect. 

As I said in my column last week, I think the worst is already over. There have been 5%-10% declines in values this year and we might see another 5%-7% in some areas. After that, there will either be a steady period of market stability or even a small positive rebound by a few per cent.  

If you bought at the top and you’re negatively geared, there’s a few things you can do to keep your cash flow healthy: 

1. Watch your tax deductions like a hawk. Many property investors short change themselves by claiming less back from the taxman than they are entitled to. Pretty much every expense is tax deductible or depreciable so keep every single receipt!  So make sure you get good tax advice on this.

2. If your investment property is new, you’re entitled to depreciation benefits and these can be substantial, so get a quantity surveyor to compile a tax depreciation schedule. It will tell you how much money you can claim every year.

3. If you’re negatively geared, you don’t have to wait until the end of the year to claim your tax back. Say your property returns a loss of $10,000 pa; and your salary is $90,000. This makes your estimated taxable income $80,000. You can apply for a PAYG Withholding Variation to have your withholding rate recalculated based on this. You’ll have more money in your pay packet each period, which you can use immediately to pay the costs of owning the property.

Finally, whether you’re an owner/occupier or investor, it would be a good idea to put some spare money into your loan or an offset account while interest rates remain this low. 

Many people panic when they’re negatively geared, with no capital growth on the horizon and interest rates going up. This is a situation that could very well eventuate in the next few years, so get yourself mentally prepared now to wait it out.  Long term, you’ll be glad you hung in there.  

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My top 5 suburb picks

Wednesday, January 02, 2019

In our 2019 McGrath Report, we give a much needed simpler and clearer perspective on what’s happening in Sydney and Melbourne as both cities continue to cool.

The 5% to 10% drop we’ve seen so far followed a growth cycle that added 60% to 100% to property values overall. Many people owned property for the entire duration of this cycle and therefore have enjoyed the full benefit.

I believe we have seen the worst of Sydney and Melbourne’s correction and we’re in for a much softer landing than many pundits predicted.  My instincts tell me the market has corrected quickly and we are within a few percentage points of new price benchmarks.

In 2019, I see the strong possibility of a mini rebound as buyer demand grows at adjusted pricing levels.

It’s been about a year since both markets began to cool.  The theory of a 40% drop has resurfaced, like it did after the last boom and the boom before that; and retreated in the face of indisputable evidence that our market will be just fine.

Our two biggest cities have held the spotlight for many years, so in this year’s McGrath Report we ask the exciting question: which city will be next to step on stage?

History tells us Brisbane and South East Queensland tend to follow Sydney and Melbourne; and with the state economy up north in a turnaround phase, boosted by the biggest infrastructure spend since the 2011 flood recovery, we see great opportunities there now.  

Also in this year’s Report, we review some of the social trends impacting Australian real estate.

As our major cities become more crowded, congested and expensive, will more people trade off size for location?  Will people sacrifice a bedroom or garden to live closer to the CBD?

As Uber Eats feeds more Australians, will kitchens become less important or even vanish in some instances?

Will young families and empty nesters pull the rip cord on city life and escape to our vibrant, re-emerging regional centres that are readily available within a 90-minute radius of the capitals?

We’ll discuss all these questions in detail over the next few months here on Switzer. 

For now, let’s get started with my Top 5 Suburb Picks for greatest capital growth potential in each east coast capital city.

John McGrath’s top suburb Picks

My Sydney suburb picks

1. Putney: Once dominated by mainly public housing residences, this charming waterside pocket is one of Sydney’s least known riverfront addresses. When it goes the way of its sought-after neighbor, Hunters Hill, you’ll be regretting not owning a small piece of it.

2. Avalon Beach: The glorious Northern Beaches continues to offer value to Sydney buyers for a world-class coastal lifestyle. Avalon Beach and surrounds is my pick of the available addresses mainly because of the charming retail village which sets it apart. Enjoy the Palm Beach lifestyle without the hefty price tag.

3. Maroubra: Like Avalon in the north, Maroubra Beach offers relative value if you’re prepared to travel a few extra minutes to track into the CBD. The heartland of the South Sydney Rabbitohs, this beachside neighbourhood will catch up in time to its slightly more glamorous neighbouring beaches.

4. Earlwood: This is one of Sydney’s most diverse multicultural communities with Greek, Italian and Lebanese heritage delivering a wonderful vibe to this beautiful garden suburb. And with Marrickville shops up the road, you won’t go wanting for great eating options or a strong Turkish coffee or two. 

5. Stanmore: The Inner West continues to attract both upwardly mobile executives and families, as well as downsizing baby boomers looking to move closer to the action. Attached cottages, bungalows and now a selection of apartments delivers something for almost everyone within 15 minutes of the city.

My Brisbane suburb picks

1. Maroochydore (Sunshine Coast): The economic hub of the Sunshine Coast, the reinvention of Maroochydore is starting to take shape courtesy of its Priority Development Area designation. A 53-hectare greenfield site in the heart of Maroochydore is being transformed into a cutting-edge CBD, with a pledge to provide a 21st century epicentre that includes a high speed, high quality fibre optic network, free public Wi-Fi and an Australian first underground automated waste collection system of this size.

2. Pimpama (Gold Coast): Pimpama recorded Queensland’s fastest population growth at 31% in FY17, with buyers enthusiastically buying or building brand new homes. Pimpama is affordable with a median house price of $475,000 and is located within the rapidly developing northern Gold Coast region along the M1 corridor. The $100 million Pimpama City Shopping Centre is opening in September 2018 and the $56 million Northern Gold Coast Sports and Community Precinct is slated to open in 2020. A brand new $470 million Westfield will open in nearby Coomera in late 2018 and there is a proposed new train station to better connect it to Surfers Paradise. The northern Gold Coast population is projected to double from 75,000 residents to 167,000 in 20 years, accounting for one third of the city’s total growth.

3. Annerley (Brisbane): Only 4km from Brisbane CBD, this suburb has been under the radar until now. It neighbours the more prestigious Highgate Hill and Dutton Park, which is partly why the market is showing signs of growth and gentrification. While you need about $865,000 to buy a house in Dutton Park, next door in Annerley you can pick up a solid home for less than $710,000.

4. Grange (Brisbane): The leafy inner city suburb of Grange is fast becoming popular with young families with its easy access to the CBD, relative affordability, quality schools such as Wilston State School, and access to the airport and both the Sunshine and Gold Coast. The blocks are typically a little larger than the average and for a family friendly suburb, this is king.

5. Springfield Lakes (Brisbane surrounds): Located in the Ipswich region west of Brisbane, this popular master planned community continues to attract new residents with its population growing by 8.7% or 1,400 people in FY17. With a median house price of $440,000, two new releases have come to market over the past year – Springfield Rise and Creekwood. The region is set to benefit from a proposed passenger rail line extension between Ipswich and Springfield via Ripley, which is likely to be constructed after the Cross River Rail project is completed in 2024.

My Melbourne suburb picks

1. Bonbeach: If hunting beachside bargains, Bonbeach must top the 2019 shopping list. With a median house price of just $900,500, expect the ripple effect of pricier neighbours Edithvale and Aspendale to wash over this undervalued postcode. Cafes arrived in 2018; a sure sign of what’s ahead.

2. Thornbury: First home buyers are keen to stay as close to Brunswick’s action as money will allow, which will continue to underpin value growth. Interestingly, apartments listed with a median price of $500,000 are on the market for just 30 days. Strong investor interest and low 1% vacancy rates suggest a strong performer going forward, according to SQM Research.

3. Box Hill: Just 14km from the CBD with its own rail hub and hospital, Box Hill’s astonishing 118.9% growth since 2013 has pushed the median house price to $1.696 million. But its golden era is far from over. The Chinese community, which represents about 27% of residents, fights hard to buy in Box Hill Secondary College zone, one of the city’s top public schools. Houses on large blocks remain goldmines for small developers.

4. Wantirna: Wantirna South’s median entered the $1 million club in 2018, so its sister suburb, Wantirna is inevitably next in line. With a median house price of $960,600, it offers excellent transport links, schools and proximity to Westfield Knox Shopping Centre, which will undergo a long awaited major redevelopment from November 2019. 

5. Cheltenham: Straddling Nepean Highway, house prices on Cheltenham’s west side are still well beneath those of its salubrious neighbours Sandringham, Mentone and Black Rock. Its second metro commuter rail option, the recently opened Southland Station, cements this suburb’s profile as a business and commuter hub.

My Canberra suburb picks

1. Campbell: This inner north suburb is a 25 minute walk into the city and a short stroll to Lake Burley Griffin. Several substantial new apartment projects have opened in recent times. A decade-long transformation of Constitution Avenue on the border of Campbell has provided plenty of new eateries and shops for locals.

2. Greenway: A happy hunting ground for investors with impressive apartment median yields of around 6.4%. Greenway’s waterside living is enhanced by mountain views. It is enjoying an influx of people buying affordable new townhouses and drawn by jobs at two government departments including the Department of Social Services national headquarters, which opened in September 2017.

3. Kaleen: This suburb provides a good entry point into the inner north, with original older style homes remaining affordable. Kaleen Plaza, with its major supermarket and specialty shops, is complemented by smaller local shops. Proximity to the city and good transport links are a major plus. Demand pushed house prices up 12.8% in the year to June 2018 to a median $733,000. 

4. Mawson: The Mawson Southlands Shopping Centre is about to be redeveloped and upgraded. Young couples are overhauling the older housing stock and a bigger assortment of housing choices is on the way.

5. Harrison: Harrison has expanded rapidly in the past few years, embracing multiculturalism and an inner-city vibe where unit and semi-detached living is popular with young families and professionals. It is set for future growth with local shopping amenity and eateries, close proximity to the airport, and the added benefit of brand new light rail opening in December 2018 providing direct access to the CBD.

We hope the 2019 McGrath Report provides fresh insights and ideas for your benefit into the future. Please download your copy from www.mcgrath.com.au

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Does flipping work?

Thursday, December 27, 2018

Flipping is a strategy employed by property investors who typically buy, make improvements (such as renovating, sub-dividing or securing DA approval for development) and re-sell within a very short timeframe for a profit.  

It sounds like a great idea and all those TV renovation shows make it look pretty easy. The reality, however, can be far different, especially for people with no experience or skills relating to home renovation.

Mistakes get made, costs and timetables blow out and in the meantime, you’re covering the full loan repayments yourself with no rental income to help.

Successful flipping means recovering the cost of the purchase, the improvements, the loan repayments during your hold period and hefty trading costs, including stamp duty when you buy and agents’ fees and capital gains tax when you sell. After you’ve covered all of that, what’s left is your profit.

In short – it’s tough to do well and this is why flipping accounts for only a very small percentage of sales each year.

CoreLogic data shows only 1.3% of homes re-sold over the 12 months to June 2017 in Australia were held for less than a year. Only 5.7% were re-sold within 1-2 years of purchase.

Does flipping work? Well, yes it can, if you get absolutely everything right, including buying the right type of property at a good price in the right location; adding enough value through high quality renovations, sub-division or other means; and selling in reasonably strong market conditions.

Flipping, by definition, is done in a very short timeframe, which is why you can’t afford to make mistakes. There isn’t the luxury of time, which is the one factor that every investor can count on to deliver capital growth on a good quality investment.  

You have a better chance of making a profit flipping during boom markets, when rapid price growth coupled with the value of your renovations can deliver a handsome profit.

In fact, you can buy a property at the start of a boom, do nothing to it; and sell within a few years for a profit, too. We’ve seen that happen in many cases over the past few years in Sydney. But few people get all the ingredients right.

The biggest challenge for flippers during booms is buying at a reasonable price. If you pay too much, there’s less profit to be achieved at the other end because you’re selling in such a finite timeframe.  

CoreLogic recently released its inaugural Property Flipping Report, which provides a national analysis of properties that were bought and re-sold within either 12 months or 1-2 years by sellers specifically aiming to make a profit.

Among the capital cities, it found that flipping was most successful in Sydney and Melbourne, where 9 out of 10 homes flipped within 1-2 years of purchase turned a profit in 2017.

The report doesn’t go into how much of a profit, but it’s not surprising that people made money when both cities were in the midst of a boom.

In flat or normal markets, it was a different story. Only 3 in 10 properties in Darwin and 5 in 10 properties in Perth flipped within 1-2 years of purchase sold for a profit.

The report identified several flipping trends and hot spots nationwide, as follows.

NSW

  • The highest rate of flipping nationally occurred in Sydney, where 6.8% of re-sales in 2017 were flips of properties held for only 1-2 years
  • Nine out of 10 flips in Sydney and regional NSW turned a profit in 2017
  • The Illawarra on the NSW South Coast recorded the highest percentage of flips in the state (8.7% of re-sales within 1-2 years of purchase)
  • About 98% of flips in the Illawarra turned a profit

VIC

  • Most flips occurred in South East and North West Melbourne (7.8% and 7.6% of re-sales within 1-2 years of purchase)
  • The Mornington Peninsula was the most successful regional area for flipping and Bendigo was the worst

QLD 

  • The highest rate of flipping was on the Gold Coast, with flips accounting for 7.9% of re-sales within 1-2 years of purchase
  • Flipping was most successful in Moreton Bay North (95.6% of flips sold within 1-2 years of purchase turned a profit) and least successful in Townsville (48.8% of flips sold at a loss)

WA

  • Losses were high for WA flippers in 2017, with 47.7% of properties flipped within 1-2 years of purchase in Perth sold at a loss
  • North East Perth recorded the highest losses

SA

  • An increasing number of people are flipping in West Adelaide

Flipping is not a wealth strategy I would recommend to the average property investor. It’s a great idea for builders or others in the construction, real estate or interior design industries, as they bring special skills to the table. But for ordinary investors, I will always recommend that you simply buy and hold.

Renovating is a great way to add value and there’s plenty of low cost ways to do it. But time in the market is a much more important and effective element for average investors to achieve capital growth through property.

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Close to the bottom

Tuesday, December 18, 2018

It’s been a year of volatility in Sydney and Melbourne but despite the scary headlines, this downward market cycle was entirely expected and very welcome following a protracted period of high price growth that probably went about a year too long.  

Latest figures from CoreLogic show Sydney house prices are down -9.2% in the 12 months to November 30 and Melbourne prices are down -7.6%. I think both cities have fallen further than this, as statistics tend to lag behind actual market activity.

I think Sydney is down 10-15% already and Melbourne is down about 10%. Both cities are getting close to the bottom of their cycles. It might get a bit worse before it gets better but I think we are through the worst part of the correction.

I think Sydney will soften another 2-3%, then there will be mini rebound, followed by two to three years of stabilisation, then another uptick.

As discussed in our latest annual McGrath Report 2019, affordability and declining investor activity are key drivers of this market fall, as is usual at the end of booms. But it is the engineered changes to lending that have arguably had the biggest impact below $5 million.

Greater scrutiny of borrowers’ personal expenses and debt-to-income ratios were implemented virtually overnight and affected almost every buyer this year. Suddenly, people couldn’t borrow as much as they thought, or get finance approved in time to bid at auction.

The impact on market momentum was quick and dramatic in comparison to normal cooling forces, such as affordability and rising interest rates, which have a much more gradual effect.

Tighter credit is a key reason for clearance rates dipping quite low in a comparatively short timeframe. So, you need to put screaming headlines like ‘biggest monthly fall for 14 years’ into perspective. The pace of this change is about lending – not market fundamentals. 

The economy is strong, unemployment is low, we have high population growth, an undersupply of housing and an extraordinary concentration of people living in our eight capitals (just under 70% of the entire Australian population), which puts a solid floor under major city home values.

APRA is insisting on tighter lending standards to shore up our financial system following high investor activity during the boom. The Royal Commission has added further pressure to the banks, who are curbing new credit so they can build an image as responsible lenders.

Credit is tough right now but it’s achieving a higher purpose in strengthening our financial system and it won’t be this way forever.

Lending standards have probably been too loose for a while; and in response to the Royal Commission, the banks have now set standards arguably too tight for the moment. Somewhere in the middle is probably where we will end up for the long term.

In a speech last month, RBA Governor Philip Lowe highlighted the need for reasonable availability of credit to keep the economy healthy. 

“Banks need to take risk and manage that risk well. If they become afraid to lend simply because of the consequences of making a loan that goes bad, our economy will suffer. So a balance needs to be struck here.”

The impact of tighter credit is still filtering through and it’s going to take time for the market to adapt. Prices have fallen a bit more and a bit faster in Sydney and Melbourne than we’d usually expect in a correction because buyer competition has dropped away very quickly.

CoreLogic figures show the worst peak-to-trough losses in our big markets since 1980 were -11.6% in Sydney in the correction of 1988–1991 and -9.4% in Melbourne during 2008–2009. 

I think we’re already beyond those numbers but it’s no reason to panic. Cyclical price corrections must occur to ensure the long-term stability of our property markets and the broader national economy.

If you bought at the top, remind yourself that property is a long-term proposition and you simply need to wait this out. The fundamentals of Australian real estate will continue to underpin property prices through the volatility of this shift period.

Meantime, the RBA is keeping the official cash rate at historical lows. Savvy owners should use this quieter time to pay down debt; and recent borrowers should start preparing now for the inevitable switch from interest only to principal and interest over the next few years.

This is my final column for 2018. I’ll be back in January with my outlook for 2019. Until then, I wish you and your family a great Christmas and a relaxing holiday season.

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Has Uber Eats shrunk the kitchen?

Thursday, December 13, 2018

The kitchen is now the design centrepiece of our family homes, while Uber Eats shrinks the kitchens of apartment dwellers. 

We’re sharing cars, installing moveable walls, creating socialising spaces in residential buildings and swimming in demountable pools.

Feature walls are now feature ceilings and curves are replacing straight lines in the shapes of our best architectural abodes. 

The future of Australian home design is a dynamic space.

Adam Haddow, Director of Sydney architecture and urban design studio, SJB says today’s housing design buzzword is diversity.

“In the past, we had this fixed idea of what you got in a house – three bedrooms, backyard, maybe a pool,” says Haddow, who is a Churchill Fellowship recipient and thought leader on urban design and the modern evolution of city living environments in Australia.

“That hasn’t gone away but many people are realising they don’t need lawns to mow and four bedrooms. 

“You used to need a desk and possibly an office; now you need a kitchen bench the right height for your laptop, or a sunny courtyard with connectivity.

“These changes are dialling down in home design because we don’t need to create a space (for study/work); it is more about creating spaces where people want to live.”

In our recently released McGrath Report 2019, we revealed the hottest trends in urban residential design this year.

Repurposed living 

When Australia embraced open plan living at the start of the 21st century, there were inevitable casualties. Goodbye formal dining and lounge rooms.  Also over is the short-lived dalliance with the media room.

In came integrated study zones or home offices, with at least 3.5 million Australians now doing at least some work at home and nearly one million of us running home-based businesses. 

The future view is more flexible dwellings, reflecting the shrinking size of Australian homes with couple-only households due to outnumber couples with children by 2030. Greater use of moveable walls will allow room conversions and adaptable furniture will serve as room dividers.

Glamour kitchens in houses

Kitchens are still the heart of our homes but have evolved from utility rooms to social and entertaining spaces, Haddow says.

The open plan layout has brought the once segregated kitchen into the living and dining zones, typically with a sizeable island dining bench creating a gathering point for guests so they can chat with their host as the meal is prepared.

Prepping kitchens and butlers’ pantries are on-trend in new high end family home design.

As showcased in the luxury family-sized apartments of this year’s season of The Block, these separate private spaces enable home chefs to get messy, away from guests’ eyes and without detracting from their entertaining kitchen.

Smaller kitchens in apartments

Has Uber Eats shrunk the kitchen? The popularity of home delivered meals and our rising café and restaurant culture, particularly in big cities, has changed how Australians think about kitchens in the new millennium.

Food and drink delivery apps such as Deliveroo, Menulog and Uber Eats have exploded, with Australians spending $2.6 billion annually.

These trends are impacting how much of the modern floor plan is dedicated to food preparation, particularly in apartments which are more commonly occupied by time-poor couples and singles increasingly opting for Uber Eats over preparing food themselves. 

So, they don’t need a full kitchen anymore.

A rising trend in new development today is the glamorous communal kitchen and dining area that residents can hire to entertain guests, with more modest and functional kitchens in their own apartments.

Garaging parking

Our car-loving culture is rapidly changing, with 3.1 million active Uber users and 100,000 GoGet members nationally. 

These share services, along with expanding public transport, environmental awareness and dedicated bicycle lanes are reducing the need for parking on title.

Haddow says more small home designs will forego car parks. “What we are seeing is movement from majority to minority car ownership in the not too distant future. People are totally okay with using the one shared car on the street.”

City of Sydney figures show a 500% increase in the usage of its Kent Street Cycleway since 2008. Apartment blocks are increasingly supporting two-wheeling residents with shared bike rooms or racks. 

Blue sky thinking 

Textured housing exteriors made from recycled natural or industrial material like rammed earth, stone and bottle bricks are in vogue.

Architects are also departing from the traditional square shape, with curvy facades maximising the illusion of space and spherical structures emulating igloos offering bolstered thermal efficiency.

Fifth wall feature ceilings with stencil art and complex imagery have arty home makers talking. All the rage when Michelangelo was painting churches in the 16th century and Marie Antoinette was decorating ceilings with mirrors in the 18th century, housing costs eventually quashed the trend. 

Today, some owners and designers are resurrecting it, realising that ceilings are a blank canvas for injecting personality and texture into a home, Haddow says.

Keep a (goggled) eye out for the new wave of above ground pools. Able to be disassembled, the waist deep water features promise flexible all-seasons living in tight inner city spaces.

Green homes

Sustainability is becoming a major influence on home design, with record levels of solar use and rising interest in battery power resulting in the equivalent of 8.28 million households using renewable energy in 2017.

Savvy developers and home owners are fitting and retro-fitting properties to boost their appeal to an increasingly eco-conscious buyer pool.

Low cost improvements include draught sealing, insulation, low flow showerheads and taps, window shading and low wattage lighting.

Your personal touch 

Australians have embraced the concept of using their homes to reflect their lives and personalities. The ‘showroom look’ used in property marketing is often held up as the ideal, however that sort of styling is designed to appeal to the masses. Your own property, whilst you’re living there, only needs to suit you. So, make bold choices and I believe the real take-away is to create the ultimate home environment for your own enjoyment as it’s where you live.

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