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Interesting times in the Sydney market, indeed. Despite the expected agent hype around the “super Saturday” – traditionally one of the most active weekends for buyers and vendors in the Sydney resi market – the Sydney market did little to inspire. Clearance rates were at a relatively flat 52% (across 641 scheduled auctions). Capital 360’s observations point to a lingering disparity between vendors’ expectation and buyers’ keen desire to press on price and snag a bargain.
As expected, market activity has been buoyed by a late rush by first home buyers – keen to beat the forthcoming cessation of stamp duty concessions.
Despite this, in the lead up to the recent rate cuts, market sentiment appears to have been flagging and in a fairly fragile state. Andrew Wilson, Chief Economist at Australian Property Monitors, points to the prospect of a European credit crisis as being a contributing factor to the downward pressure on local house prices and market activity.
The latest RP Data-Rismark Home Value Index indicates that capital city values slid 0.5% in seasonally-adjusted terms over October, while the 10 months prior saw dwelling vales decline 4%. Sydney and Canberra were the most resilient markets, showing flat to positive growth over October (0% and 1.6%, respectively).
RP Data research director Tim Lawless notes that the lower, more affordable segment of the resi market has endured current market conditions comparatively better than their premium-priced counterparts. Certainly, with a combination of falling interest rates and some more attractively priced properties in the lower-mid range segment, we’re observing that the lower priced market segment appears to be responding to improvement in affordability faster than the upper end.
“The combination of lower interest rates, cheaper homes, and rising incomes is generating a welcome boost to housing affordability, particularly in those markets where value falls have been more significant,” Lawless said
ON the rental front, the recent Labor Party proposal to cap rents in Australia has thrown the cat amongst the pigeons with a prompt response from the REIA, saying it would be disastrous for rental affordability and the property market. The proposal has two aims in both monitoring rising rents in the private rental market whilst identifying mechanisms through which affordability can be maintained through rent capping legislation.
Meanwhile, vacancy rates across key Sydney inner-ring suburbs are still hovering at a super tight 1%, which is tough news for tenants. Investors, on the other hand, should take this as welcome news. On a wider scale, vacancy rates remain relatively higher, ranging up to 8%+. Again, Capital 360’s caveat for investors is to do your homework and avoid the mistake of adding sluggish investment assets to your portfolios.
The Capital 360 buying team are always on the lookout for good buying opportunities – both pre and post-Christmas – as vendors are keen to lock in sales and create some certainty for their next steps into 2012. As a prospective investor having your finance approved and deposit in hand will put you in good stead for some great buying opportunities into 2012.
Why spend too much time worrying about tomorrow when you’ll miss the opportunities you have today?
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Is the Melbourne market in an undersupply like some experts are still predicting? The answer is there are pockets of Melbourne that are in oversupply and more pockets are likely to appear as we move further into 2012. This is evidenced by the amount of stock which is currently for sale according to Louis Christopher of SQM research there are approximately 52,000 properties for sale – which is double the long term average. Furthermore, the low clearance is compounding this issue and stock just keeps building.
According to Charter Keck Cramer we have moved from a general undersupply of property in 2008 to an oversupply which is not set to reach its peak until mid 2013. The reason why developers and governments have let this happen is the record population growth of 2008 and 2009 has not been sustained and now there are too many properties and not enough buyers.
The increasing stock levels is also having an affect on vacancy rates with the REIV indicating that they have moved to 3.1% – this is the first time they have been above 3% since 2006.
Vacancy rates above 3% give renters the upper hand in the market place and means rents will not rise in the short term and in the oversupplied areas rents are likely to come back slightly.
This is not good short term news for investor – but this will start to open up some opportunities by way of distressed property by mid next year. The interest rate cut today is positive news for the market however unless stock is reduced and/or rents start rising, there is little hope of any positive market movement in the short term.
Melbourne is going through a correctional phase at the moment and this is likely to continue well into 2012, if not beyond. This is a normal pattern in any real estate cycle and the market will recover as we have solid long term growth fundamentals. If you are going to invest in Melbourne, stock selection and a sound strategy is critical. It is vital that you align yourself with a buyer’s agent that can not only offer you the best of Melbourne (in difficult times) but superior opportunities in other parts of Australia where your investment may have a better opportunity for short term growth.
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Similar to the Perth market, the bottom is near… Brisbane has experienced the largest median house price decline of any capital city down 8% to $402,000 according to RP Data, continuing the decline which began almost 18months ago in June 2010. We are also experiencing the same downward trend in the median unit price as well.
Capital 360 believes that the Brisbane property market is still impacted by a continuous oversupply of properties versus buyers (stop levels are increasing where buyers are decreasing). Combined with low expectations for capital growth and tighter financial constraints, the situation in Brisbane is improving, however, and consumer confidence is beginning to return to the property market.
Auction clearance rates have been steadily declining in recent months with the latest weekly result sitting at 25% with 24 properties scheduled and only 6 sales recorded with 6 withdrawn. This represents a total value of just over $2m in property value.
Rental incomes from houses and units have remained relatively stable and are almost on par with each other representing an average $390 per week and $380 per week, respectively. Rental yields should remain at a modest 4.5%-5.5% over the short tem with minimal impact on property values. With limited government reinvest predicted in 2012, Capital 360s view of Brisbane remains optimistic in spit of little stimulus activity to promote capital growth in the long term. Opportunities will continue to come from distressed sales and off market transactions.
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The Perth market has been steadily declining for a number of years, however, recent indicators are predicting that this could change in the coming quarters as Perth approaches the ‘bottom of the market’ and is now preparing itself for growth in 2012. Perth’s median house price continues to fall at $443,000 down 5% since September 2011 according to RP Data.
Unemployment has increased slightly, but not by any alarming margin and migration to the state is very strong in comparison to other states and territories, which is the best indicator for real population growth.
Property sales and listing numbers are increasing and first home buyers are becoming active in the market. Investors are still holding back somewhat, but that is expected to change as more evidence points to growth early in the new year.
However, Capital 360 believes all the signs and indicators are there for future opportunities – rental rates have been climbing slightly since June 2011 (experience flat growth leading up to), sitting at $380 per week for 3 bedroom house rents (up total 5.5% year to date) and $360 per week for 2 bedroom units (also up 5.8% year to date). Vacancy rates have fallen slightly by 0.9%, down from 1.2% in the June quarter and yields for houses are around 4.5% while units yield returns are 5.1%, respectively. We are also experiencing a surge in first home buyer purchases accounting for 17.4% of all investor purchases up more than 4% in June 2011. With the recent interest rate cut in early November, Capital 360 expects this buying trend to continue in the first quarter of 2012, especially in light of another rate cut of 0.25% recorded on Tuesday 6 December 2011.
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The Adelaide rental market has remained sluggish in the lead up to summer indicating that the Adelaide property market is still patchy with the statewide vacancy rate recorded at 3.21%. A general trend emerging in the Adelaide market is that we are currently experiencing a rental market that is more closely aligned to the sales market. When sales trend downwards, rentals are up and vice-versa, but currently, we are experiencing a slower economy, so vendors are holding tight and waiting to see what happens over the first quarter of 2012. Vacancy rates are up to 7% in the Riverland region and 3.4% in North Adelaide, according to REISA.
In terms of these high level results, Adelaide’s median house price according to RP Data/Rismark continues to drop in value to more than 5.5% during the past year to $387,000. The fall in values is in line with results throughout Australia, where median house prices across the country’s capital cities were down 4.7% over the past year.
However on a more positive not, Adelaide continues to experience consistency in terms of auction clearance rates with another 37% recorded in the last week of November 2011. Auction clearance rates for the last week of November were significantly stronger helping the November month close out on a high with 130 auctions scheduled (up from 89 recorded auctions in the previous week), 26 reported sold and 46 passed in recording a total value of $5.9m, respectively. These figures don’t take into account activity following November’s interest rate cut, which Capital 360 believe will generate better results in the first quarter of 2012.
According to REISA, higher yields in the vicinity of 4%-4.5% can still be found in Adelaide’s metropolitan areas where purchases can be as little as $250,000 and in these areas, rental yields have remained relatively stable. The average rental for houses is now $310, up from $300 in the September quarter. We believe there is real opportunity out there now, especially as property prices have softened in recent months, so now is the time to start thinking about investing.
According to RP Data, Adelaide suburbs represent 28% of the total number of national suburbs where the median house price is below $300,000. Capital 360 believes this represents significant opportunities for property investors in other states looking for lower entry points into residential real estate investing.
With both fixed and variable interest rates on the decline, Capital 360 expect to see an improve in housing affordability, which will also have a flow on affect in terms of quality property listings and housing valuations in the new year, especially in Adelaide.
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