By John McGrath, Real Estate Expert
We’re in a state of flux with ongoing uncertainty over the European debt crisis, job losses here at home and the banks signalling that the days of routinely following the Reserve Bank’s moves on interest rates may be over. Despite these events, buyer enquiry is considerably higher with more people attending opens in January and February. Australia’s largest mortgage broker AFG, reports a 40% increase in national mortgage sales in January (up 14.5% in NSW) compared to the corresponding period last year, when natural disasters significantly impacted sales.
The under $1M market is still the strongest segment but there’s new interest up to $2M and even beyond in Sydney and Melbourne where higher end buyers weren’t around as much in 2011. While it’s too early to tell whether this new enquiry will translate into sales, it’s logical to think that if enquiry is up and new mortgages are up then we will see a good start to the first quarter.
Fuelling buyer interest are the two interest rate cuts last year and vendors more aligned to the current market. There’s also a sense among buyers that after waiting it out in 2011, now is the time to buy when lower rates allow greater borrowing power and excellent value remains on offer.
While this show of confidence is encouraging, there are competitive forces at play. I believe the market won’t have significant price increases until the Europe is resolved and we see further signs of recovery in the US. An improvement in the ASX would also provide a boost but this too relies on overseas developments.
Locally, there are several issues that could stall the recovery in 2012. Unemployment is a concern, with several big companies announcing job cuts in recent weeks. While we’re not seeing rising unemployment on any major scale at the moment, if it were to blow out significantly from here it would likely have a damaging effect on property values and rents.
Also, the banks’ campaign to separate themselves from the RBA will cause some insecurity among borrowers. When the RBA drops rates, it’s a sign our economy needs a boost and in the past, homeowners have been able to count on mortgage relief during these periods. But with the banks citing international pressures as the major determining factor for their home loan rates, consumers may no longer have the comfort of lower repayments when our economy slows.
Preliminary RP data figures for December indicate a steadying market, with capital city dwelling values down -0.2%* following an upwardly revised +0.4% in November. Regional house prices dropped -0.4% in December following +0.5% in November.
Sydney has been the best performing market with dwelling values up 0.4% in December and 0.7% over the quarter*. Sydney is still the BHP of Australian property market. It has a major undersupply, excellent rental returns and a strong history of long-term capital growth. *seasonally adjusted
Many borrowers are choosing the safety of two-year fixed loan rates as low as 5.8%. AFG says 18.6% of all new loans in January were fixed, more than double that of six months ago. Borrowers are increasingly shopping around with 50,000 people reportedly refinancing last quarter. Buying residential real estate within 10km of the CBD in Sydney is an excellent choice, with outer suburban areas not doing as well as city hubs and the coastal belt. AFG says investors make up almost 36% of the market right now and I generally like buying in your own city.
Investors seeking higher rewards might look to South-East Queensland this year. We’re already seeing more activity on the Gold Coast, with investors coming from the local area, as well as Sydney, Brisbane and Melbourne. Markets like the Gold Coast and Sunshine Coast were significantly oversold during the GFC and depending on the level of mortgage sales over the next 12 months, should have very strong upside when they begin a real recovery either this year or in 2013.
Rents continue on an upward path in most capitals. Sydney was a stand-out in 2011, up 4.2% (houses) and 4.5% (apartments). Australian Property Monitors (APM) says the Sydney median has reached a record $500 pw (h) and $460 pw (a). Rents for apartments are increasing at a more rapid rate because more people are competing for the cheaper option and there’s more apartment stock in favoured beachside and inner city locations. Rents will continue to improve, with Sydney’s vacancy rate consistently around 1.5% (REINSW). Overseas investment continues due to our economic performance during the GFC and our outstanding education system. We are the third largest provider of international education behind the US and UK, with one in five of our university students from overseas (of which about 20% from China alone) according to the Bureau of Statistics. Studying here allows their parents to fund the purchase of an established property for them to live in, as well as for investment. Families who can afford larger homes are seeing opportunity in today’s softer prestige market too.
There was a rush of first home buying in NSW in late 2011 due to the end of stamp duty exemptions from January 1. The ABS says first home-buyers comprised 20.9% of all new owner occupied housing finance commitments in December, up 25.8% on December 2010. This should have a spill-on effect, as those who have sold are in the market to upgrade.
Houses:
– Balmain East
– Coogee
– Hunters Hill
– Killara
– Palm Beach
Apartments:
– Cammeray
– Coogee
– Monterey
– Ryde
– Sydney CBD
There’s been a notable increase in numbers at inspections, with local upgraders in particular seeing now as the time to buy after many sat on the sidelines in 2011. Vendors are increasingly willing to meet the market and Sydney buyers continue to seek investment opportunities and/or a lifestyle change. We’re seeing a significant jump in enquiry in many of our markets, particularly Bowral, Ballina, Byron Bay, Wollongong, Thirroul, Newcastle, and the Gold Coast.
While the lower end dominated in 2011, we’re now seeing new enquiry in the middle to high price brackets as well. There seems to be a buyer consensus across many regions that prices have bottomed out and now is the time to get in. Adding to the demand are buyers who saw an opportunity to sell well during the first home-buyer rush, are now taking in a position to upgrade. Our Wollongong and Thirroul offices recently sold three homes between $900,000 and $1.1M in one day.
We’re still seeing young Sydney families looking for better value and lifestyle in markets such as the Blue Mountains and Wollongong’s northern train line suburbs, which both have easy access via road and train back to Sydney. Newcastle is also becoming steadily more popular with Sydney families who don’t intend to commute but who want close proximity to Sydney.
The Gold Coast market is not out of the woods yet but those who have the capital to buy and hold medium term will see this market recover more strongly over the next 3-5 years than most other markets hit hard by the GFC. A big change this year is the return of first home buyers and investors in the under $600,000 bracket in areas such as Labrador and the northern tip of Southport near the Griffith University campus and new hospital. We’re seeing more buyers at opens across the board, as people are sensing that the bottom of the market is near. But a real recovery is probably still 12 months off, so buyers have time on their side.
The Byron Bay region, also hit hard by the GFC, seems to have found an equilibrium and we’re cautiously optimistic. The Ballina bypass is now complete, removing 1,500 trucks and 6,500 cars per day from local streets, according to NSW Government figures. This provides excellent scope for property price rises. We’re seeing more buyers particularly in Byron Bay and Ballina, and instead of playing ‘wait and see’ like in 2011, they’re making firm decisions.
The Blue Mountains remains a strong market, with the new roadway highly likely to bring strong long-term capital gains. Investors were absent in the last quarter due to high first home-buyer activity but now they’re back. Rental returns are strong and our office currently has a less than 1% vacancy rate. Upgraders are dominating in early 2012, with locals who sold well to first home-buyers now stepping up into the middle price range of $450,000 to $600,000.
Newcastle has a promising future for capital growth. Compared to Sydney, it offers incredible value and a variety of housing from beachside apartments and houses to historical homes and period architecture. We’re seeing strong local enquiry as well as a variety of out-of-area buyers from Sydney, Far North Queensland, the ACT and Melbourne. Newcastle is becoming wealthier and the percentage of multiple property owners is high. It’s a developing market that is yet to be truly appreciated for its excellent lifestyle and growing local economy, with the booming Hunter Valley mines also on its doorstep.
– Bowral
– Burleigh Waters (Gold Coast)
– East Ballina
– Katoomba
– New Lambton
– Dickson (ACT)
– Kambah (ACT)
– Lighthouse Beach
– Terrigal
– Thirroul
Buyer enquiry considerably higher in metro and regional markets, with mortgage sales up.
We’re in a state of flux and some buyers are still waiting for more positive news before they act. The European debt crisis, banks acting independently of the RBA and Australian job losses all are “clouding the water”.
Metro property prices are steadying, with Sydney the stand-out performer in 2011.
More borrowers are choosing fixed loans and shopping around for the best refinancing deal.
Rents remain on an upward trajectory in most capital city markets, with Sydney rents up 4.2% (houses) and 4.5% (apartments) in 2011.
Key regional markets such as the Blue Mountains and Newcastle remain strong, with the Gold Coast offering outstanding buying for those who can hold long term for exceptional capital gains.
