The latter half of 2011 saw a difficult national property market with many purchase prices struggling to meet the expectations of vendors. Nationally each capital city has experienced a reduction in median values of between -7.0% (Brisbane) and -0.5% (Sydney) for the year ending 2011. We anticipate that this subdued market will continue until later in the year. Any improvement in the market is unlikely in the first half of 2012 given the moribund state of the fiscal affairs of the EU and other global economic uncertainty.

Some good news for housing on the home front comes from the resource sector with activity increasing and resource costs upheld from strong international demand. The perceived instability of the Federal Government is also deemed as being less threatening, which some commentators believed was troubling domestic economic policy and subsequently house price growth during 2011. The Melbourne Cup Day interest rate cut and the following December reduction were welcome news for buyers and sellers alike and future interest rate movements will continue to influence the market strongly. With interest rates likely to see further falls (likely to be in the first half of 2012) this will act to limit the falls in softer markets and help facilitate the modest gains that will occur in the Nation’s more resilient markets. Keep an eye on areas that have a known high rate of household debt and/or a high turnover of properties as these will give a good idea of whether prices will fall further or start to steady.

The National market is likely to experience several new trends whereby apartment growth will outperform house price growth. Obviously exceptions will apply, however it will continue to reflect the demographic shift towards apartment living, particularly with affordability constraints in established metropolitan areas (as well as the stronger rental yields obtained by apartments for investor owners). While prices will grow towards the end of the year, it will be nowhere as dramatic as the gains experienced in the last 3-5 years and in real terms the affordability of Australian property will improve, which ought to be welcome news to prospective purchasers. Different price brackets will also continue to perform differently with more affordable properties transacting in larger numbers and the more premium ($2.0m+) house and apartment market remaining difficult territory for vendors to navigate.

Although a constant source of argument amongst property commentators, the relationship between supply and demand will see prices remain steady rather than soften dramatically. The limited supply of good quality properties remains a ratchet mechanism to inhibit prices entering free fall. The already low number of new dwellings constructed in 2011 is set to further fall in 2012.

Rising rental yields in most capital cities will be a large factor behind any resurgence along with local and global economic influences. While the Bottom of the property market is notoriously hard to predict we anticipate that until the global economy shows signs of consolidating and/or the official cash rate falls below 4.0% buyer numbers will continue to plateau. These will be crucial points to observe for anyone waiting on the sidelines.

As the property market is so obviously and closely linked to the economy it may potentially be a turbulent year for both. Nonetheless, based on the factors we have identified, we remain cautiously optimistic and as always will make sure we position ourselves to give our clients the best advice in the year ahead while being ready to take advantage of any opportunities that may present themselves.

Here are Capital 360’s ‘Top 2 Suburbs by State’, hand picked by our Research Team.

New South Wales:

Without doubt New South Wales and the Sydney market in particular are demonstrating their ongoing desirability for investors and homeowners alike, with values remaining steady and marginally rising in many areas. While many continue to question affordability constraints of Sydney pockets of Newcastle have been tipped to perform well, particularly those close to the CBD having benefitted from recent gentrification and development. However, owing to overwhelming demand and limited supply in Sydney’s middle and inner ring suburbs Capital 360 has picked two standout Sydney metro suburbs as our top picks.

Alexandria: Formerly a suburb dominated by industrial activity the investment potential offered in Alexandria has been a poorly kept secret. The suburb has several desirable pockets with the most notable being the ‘Golden Triangle’ in the suburb’s north; a very tranquil area that is very close to it all, including the now redeveloped Australian Technology Park which now also houses Channel 7’s new headquarters. The traditional workers cottages and Victorian terraces offer excellent renovation potential for savvy buyers and with the development of the former industrial Ashmore precinct into apartment dwellings good quality houses will be sought after by working professionals wishing to be close to the CBD and lifestyle attractions.

Dulwich Hill: Being sandwiched between two strong performing suburbs of late (Summer Hill and Marrickville) Dulwich Hill is very well placed to enjoy strong capital growth for both houses and units. Both younger apartment buyers and families looking for houses are attracted to the area. With an established train station as well as the forthcoming light rail infrastructure there is excellent appeal to professional renters and buyers. With median prices for houses and units at $814,000 and $460,000 there is increased affordability (compared to other areas in the inner west) and with block sizes and units slightly larger there is also more bang for your buck.

A.C.T

Canberra currently has the nation’s second most expensive capital city median price (behind Sydney). The vacancy rate in Canberra has traditionally been extremely low and this has helped achieve very high average yields (units) of approximately 7.7%p.a. The two suburbs put forward offer a sound relationship between yield and growth prospects and we anticipate that the A.C.T and Canberra will continue to track the performance of the combined capital cities.

Bruce: Underpinned by the tight rental market Bruce derives its popularity from two large tenant bases, namely the University of Canberra and the numerous government offices in the immediate area. In four years the population has increased 47% and the vacancy rate is as low as 0.5%. In the last twelve months house prices have jumped 11.0%. With a median house price of $660,000 it is routinely possible to achieve 5.0%+ yields.  For those seeking affordable units with high rental yields 4km from the CBD an alternative may be the suburb of Braddon.

Kambah: Kambah offers an investment alternative well suited to lower price points and investment strategies. Located in south-west Canberra the median house price of $480,000 it is well priced to make the most out of Canberra’s strong demand for housing. An alternative area offering the same strategy in the Territories North is Charnwood with median house price of $390,000.

Queensland:

Queensland (with Brisbane in particular) has recorded some less than flattering statistics in the past twelve months. Largely owing to the ‘F’ word (floods) Brisbane has recorded a fall of 6.3% in median house values in under a year. With much hub-bub and volatility in resource based markets in regional QLD we believe Brisbane offers a low risk alternative, well-suited to a medium-term investment outlook. While the national property market has surged since the GFC Brisbane has undoubtedly underperformed when compared to other capital cities. With long-term rental growth sitting at 5.6% and 6.5% per annum for houses and units respectively Capital 360 believes that the Brisbane market will begin to change for the better.

New Farm: While investment grade housing in New Farm has a higher entrance price ($750,000+) correctly positioned units in smaller complexes are well-placed to enjoy growth through their proximity to lifestyle attractions and the CBD. The long-term growth rate of 8.98%p.a. (units) is strong and the suburb has low vacancy rates (1.9%) helping to offer a sound ‘set and forget’ investment option.

Paddington: In contrast to New Farm the Paddington housing market is an attractive proposition for would-be investors. With good housing stock available from between $650,000 to $720,000 there is still scope to build capital value and rental income through renovation works. The relative value on offer (just 3km from the CBD) is a bonus and with half of the population renting and a vacancy rate of just 0.8% finding a good quality tenant should be no problem. Likewise, the apartment market is comparably affordable (with good two bedroom units available to purchase from $400,000) and is well placed to enjoy gains as the Brisbane market gains momentum.

Victoria:

Like the rest of the Australian real estate market Victoria is made up of countless smaller markets and in spite of a broad market decline in Victoria (compared to this time last year) there are numerous pockets where value and good growth prospects may be found.

Geelong: With a diverse local economy and ongoing gentrification Geelong’s profile remains firmly on the ascent. Increased government spending on infrastructure such as road and rail upgrades (over $4b worth) is likely to boost the already strong population growth (higher than the national average) putting an upward pressure on both house and unit values.  The area remains relatively affordable with median pricing of $440,000 for houses and $329,000 for units, making it a worthwhile area to consider.

Balaclava: Balaclava abides by the investment notion of ‘low price, high location’ inferring that units at lower purchase price, in a premium location offer good resilience and growth prospects driven by affordability. Balaclava is normally over-shadowed by its higher profile neighbour, St Kilda East, though with 50% of residents renters, a vacancy rate of 1.6% and advertised rental yields increasing by 24% in the year to date it is well worth further consideration for prospective investors keen to purchase a quality unit.

Western Australia:

While Western Australia has recorded falls in values recently, Capital 360 believes Perth is approaching the bottom of the property cycle and likely to approach a growth phase in the short-term.

Subiaco: Being one of Perth’s more sought after suburbs Subiaco invariably has a strong level of interest from affluent buyers. While the suburb is far from cheap (with a median house price of $902,000 and $638,000 for units) there exists strong potential to negotiate favourable prices in a desirable and well serviced area while taking advantage of negative gearing benefits with the anticipation of growth returning the a competitive inner-Perth market.  Harder hit than its more affordable neighbours by recent price declines, watch this space for a ‘bounce’ as the cycle turns.

Carlisle: Carlisle is a pretty suburb 6km south-east of the CBD. It is well serviced by train, shops, and educational facilities and with easy access to the airport. With unit prices relatively affordable (a median of $412,000) the average rental yields are quite high at 5.2%. With the dominant demographic being young professionals (singles and couples) and student rental demand is high. Even in a slow market the suburb has recorded (albeit a modest 2%) growth, making this a area to observe when heat returns to the West Australian market.

South Australia:

South Australia and Adelaide in particular are very affordable on a national scale.  In fact, with a median house price of $400,000 it is the most affordable of any mainland capital city.

Semaphore: At 15km from Adelaide’s centre Semaphore is an older beachside suburb that still demonstrates good affordability, especially compared to more expensive suburbs nearby such as Henley Beach. As the development of the port nearby continues and the introduction of cafes and restaurants continues we hold reserved hopes for the area.

Torrensville: Capital 360 appreciates that the beginning of gentrification is a good indication of investment potential with Torrensville being an excellent example. Located just 4km west of the CBD the identity of the suburb is changing and with good proximity to the city, beach and transport it is likely to experience good growth in both rental values and capital value.

Tasmania:

In a similar fashion to South Australia, Tasmania is tipped to be a solid performer based on the affordability of the area. Hobart remains Capital 360’s pick with two suburbs standing out.

Moonah:  Less than 10 minutes to the CBD and with access to good schools and shopping centres Moondah has numerous attractions for would-be investors. Cheaper than neighbouring New Town it is possible to enter the housing market with as little as $350,000 and experience strong rental demand from a large pool of prospective tenants.

New Town: 3km from the City Centre Moondah has a strong popularity with young professionals and families. Houses have a median of $438,000 and have grown 14% in the past 12 months. With good yields of 4.51% the suburb is likely to continue as a favoured spot for investment.

Northern Territory:

The last decade has seen a phenomenal level of growth with an annual compound rate of approximately 12.8% for Darwin. More recently this has reversed with the 12 months to June 2011 recording a fall in values of 2.2%. For this reason Capital 360 advises investors to focus on more central suburbs within close proximity to the Darwin CBD, which are more likely to be more resilient and offer strong rental yields.

Parap: With a gross rental yield of 5.5%p.a. for units Parap offers good investment potential. In the last twelve months the median unit price has fallen to $397,000 (down 16.2%) so there are some good buying opportunities.

Stuart Park: Similarly to Parap, Stuart Park offers excellent rental yields (which are of paramount importance in a slow market as the NT’s at present). With units returning 5.75%p.a. GAR and a median of $416,250 (cheaper than surrounding areas) the suburb should be buoyed should short-term market volatility continue.

While a long term buy and hold strategy is an ideal way to achieve maximum capital growth from your investment property, there will come a time when it will benefit your wealth creation position to sell.

When that time arrives, your first priority as an investor should be to achieve the best sale possible. So here’s a concise explanation of the sale process to put you on the right track.

Preparation

Before you rush into the sale process, it is important that you have a firm idea of your end goals and have evidence that the sale is going to be worth your while.

Use your most recent valuation of the property – a fresh one is ideal, but up to six months old is acceptable – to gauge the market value of your property and the possible outcome of the sale. Then, meet with your accountant to crunch the numbers. This should also help you determine your asking price.

It can be almost impossible to successfully predict the most advantageous time to sell your property, however you can hire an independent property advisor to help improve your chances. They will also be able to review the asset you’re looking to sell, consult you again on the possible sale price and help you plan an appropriate timeline for the sale.

Methods of selling

There are two main ways to sell a property. The most popular is to recruit a professional, although there are many property owners who choose to sell their property themselves.

Using a professional

Hiring a professional to manage your property transaction is the best way to reduce the time, emotion and stress that is often consumed during the sale process.

Consider hiring either a selling agent (real estate agent) or the increasingly popular vendor’s advocate. Both professionals will ensure the important things are taken care of, such as advertising, open inspections and negotiation (of the final sale price).

However, a vendor’s advocate offers a more holistic service in the sense that they oversee the entire sale including;

• Selection of the right selling agent (and negotiation of their fees)
• Overseeing the marketing process
• Property presentation tips

The combined use of both advisors will set you back between 1%-3.5% (plus GST) of the final sale price. However, if you have chosen the right professionals, the improvement in your final sale price will outweigh the cost of their services by far.

As part of your selection process for the right professionals, ensure they are licensed in their field and registered with the Real Estate Institute in their state. Also, ensure they;

• Are willing to reveal their fee and commission structure
• Are experienced selling in the area
• Are good communicators and personable
• Quote an asking price similar to your independent valuation results
• Are willing to provide you with a defined period for sale (usually within three months)

Your vendor’s agent should ensure that you stay in close contact with the real estate agent and the buyer during the process of the sale. Feel free to contact them as often as possible to stay in the loop and to express any concerns or requests you might have.

Selling DIY

A successful DIY property sale requires a generous combination of four elements – time, organisation, research and personality. Even with all four, it can be a difficult task to ace.

However, it is achievable with the right preparation and guidance on what to expect. And so, in order to provide the best possible chance of a top sale, we suggest you read and heed advice from the following steps.

1. Follow the ‘preparation’ steps explained (here-link) in the beginning of the article
2. Research the net for recent sales (for properties similar to yours) located within a 3-6km area and compare the results from your valuation against actual sales
3. Attend multiple open inspections to get the snoop on your target market’s needs and wants
4. Consider advertising options (newspapers, real estate magazines, internet, ‘For Sale’ signs). Which would best reach your target market of buyers (while staying on budget)?
5. Talk to your valuer or current rental property manager about how to improve on any negatives in relation to your property (but don’t over capitalise getting things fixed!)
6. Focus on your property’s positives to create your marketing material for advertisements. Read other ads for style and structure ideas, and always highlight factors that reveal the property’s uniqueness, aspect, land size, as well as local area reputation, services, amenities and proximity to transport
7. Conduct research into auction clearance rates in your property’s area. If they are high (above 70%), your property is unique and there is a seller’s market, then an auction might be for you. If an auction makes you nervous, or you’d prefer not to pay the $300 for an auctioneer, consider selling via private treaty
8. Prepare for open inspections by cleaning and styling the property, and compiling an information pack to hand out to potential buyers (including photos, and the property’s address, positive features, a map, a floor plan and your contact details)
9. Make it easy for potential buyers to find the property on inspection day by using signs out the front. Have windows open, something fragrant cooking on the stove or some refreshments for potential buyers. Remain emotionally unattached and be ready to answer some tricky questions (rehearse with friends)
10. Respond to any offers within 24 hours and never drop your price more than 1-2% (of your original asking price) at a time. Ideally, you want the buyer chasing you to secure the sale, not the other way around!
11. Remember that the buyer has the right to inspect the property before settlement to ensure everything is as it was when they first viewed the property.

Legal representation

The typical approach is to hire a licensed conveyancer or licensed solicitor (usually at a cost of between $1,200-$2,500 respectively, per sale or purchase transaction). Each professional will organise the legal agreement by which the vendor (you) will sell the property and the buyer will purchase it. They also have your interests at heart when negotiating the final contract terms and conditions with the other party. On top of that, they will also both organise the legal transfer of ownership between you and the purchaser.

For more information on the Sales Advisory Process or if would like to arrange an obligation FREE Initial Consultation with one of Capital 360’s investment experts, please contact us online or call us on 1300 227 360.

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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MARKET REVIEW

Unfortunately for most property investors the impact of overseas economies and the ongoing lack of buyer confidence have translated into a softening of real estate prices.

The Australian Housing Market remains relatively soft even with the recent duel cuts to interest rates in November and December 2011. Its performance and stability in 2011 have been resilient as opposed to the extreme volatility of the Australian Sharemarket.

Capital city home values declined by -0.2% in October 2011 prior to the RBA’s decision to cut interest rates. The decline in capital city home values in 2011 stands at 4.0% on a seasonally adjusted basis, according to RP Data. If we add in gross rental income, total housing returns are up 0.9% 2011 YTD, which is a reasonable result considering 2011 has been plagued by many global economic uncertainties (e.g. debt crisis in Italy, euro currency stability, rising unemployment in the US, $AUS fluctuation impacting import/export markets).

With fixed and variable home loan rates falling in recent months, freeing up more disposable household income, Australian investors are benefiting from a very welcome boost in overall housing affordability.

Houses

In October 2011, Sydney and Canberra have been more resilient compared to other capital cities, where houses produced relatively flat capital growth in October 2011 (0% and 1.6%). The other capital cities did not come off so favourable with Brisbane reporting a negative capital growth rate of -1.6% during the same period, along with a decline in its median house price which is now at $402,000 (down 10% from $420,000 in July 2011).

Melbourne experienced it’s peak performance in the midst of 2009-2010 with capital growth between 25-30%, however, the Melbourne property market has corrected itself in 2011 to return -5.8% with a median house price of $458,500 (down 10% from $475,000 in July 2011).

While housing values have dropped, rental markets still remain relatively strong across the board in all capital cities, with very little movement up or down being identified.

We are still experiencing deterioration in housing values at the premium end of the market with large falls in house values, obvious over the past 10months. Rental yield results still remain strong for houses at 4.3% with no movement since July 2011, with the stand out performer in October 2011 being Darwin at 5.3%.

The level of demand for new dwellings remains high in the Sydney market, with more than 124,000 dwellings required (namely in the South West) over the five years to 2016 according to BTS Properties.

Although values across the residential property market have fallen by -2.0% over the past year the performance across all capital cities has varied significantly.

Market Review

Houses

Throughout the capital city markets value growth has varied from a modest 0.5% increase in values in Sydney to a -6.3% fall in Brisbane. Different sectors of the market are showing very varied performances with the most affordable suburbs actually recording the smallest declines in values while more premium areas have been amongst the hardest hit, with some dramatic reductions in values recorded.

Melbourne’s median house price is recorded at $520,000 and while the sales volume of homes on the market is -29.0% below the five year average properties are selling at a much slower rate than this time last year. This is largely due to the overwhelming negative sentiment in the market place and the belief that house prices will soften further.

The average discount rate for Perth, of -6.8%, indicates that market conditions remain soft, with the market having dropped off since the climax of 2007. This time last year the rate of discounting was lower, -5.9%, indicating that the market has softened further with vendors more willing to negotiate on price in order to achieve a sale.

Hobart and Adelaide remain amongst Australia’s most affordable suburbs with median house prices of $336,250 and $400,000 respectively. While value remains present in the marketplace house prices have performed well under national averages and so investment potential in these two cities may be restricted in the short-term.

In real terms (once inflation has been taken into account) all capital cities have experienced improved affordability and with rental accommodation becoming increasingly tight it is anticipated the decline in house prices will level out rather than continue to decline or crash.

 

Units

Last month Darwin was lauded for being the best performing unit location nationwide however the upward pricing trend is beginning to reverse with even some of the more desirable suburbs (i.e. Parap) recording price drops of -16.2%.

Although Melbourne has been a solid performer buyers ought to beware of overpaying on speculative stock and stick to apartments in proven areas with higher rental yields than the cities average gross yield of 4.3%pa.

Brisbane units have outperformed Sydney units on a 5-year view returning 5.6% versus 5.3%. Whereas the growth profile for Sydney units has been fairly consistent over time (with annualised returns of 6.6% over 5-years and 4.4% over one-year), Brisbane unit prices have only delivered moderate 3-year growth and have fallen 3.5% in value in the aftermath of the January floods.

While the rental growth for units in Perth has been strong (7.5%pa for the last five years) the capital growth experienced has been less than spectacular with the twelve months to date recording a fall in median values of -1.1%. Similarly market weakness is evident in the high rate of discounting, currently sitting at -8.0%.

Possibly as a result Sydney’s more consistent performance, Sydney has overtaken Hobart unit market performance (5.3% for Sydney compared to 5.2% for Hobart) the latter of whose longer term growth profile has been impacted by more recent downside volatility.

 

Opportunities

While at present distinct opportunities remain elusive it is envisaged that vendors coming onto the market in late 2011 or 2012 will do so with an awareness of the prevailing softer conditions. This will inevitably result in vendors having more realistic expectations. At present we are finding vendors are not adjusting their expectations to the current market and this is hampering the potential to secure a well-priced property.

Sydney’s lower price points are likely to be influenced early in the year with a predicted drop off in first home buyer activity. With first home buyers forced to cough up an extra $8,000 in stamp duty on a $400,000 purchase there will be a short vacuum in this price point that may present opportunities for prospective investors. This may be more likely for more premium areas where rental yields are higher than average. The drought of first homebuyers may also have a domino effect upon the ‘upgrader’ market that have been reliant on first time buyers propping up interest and prices in their more affordable properties, allowing them to upgrade. In both cases expect a mild level of negotiation potential in both price brackets.

The lackadaisical market conditions in Melbourne mean that buying opportunities are still some way off. Fear in the market about further falls in median pricing (over a range of price points) indicate that for those considering purchasing to focus heavily on securing a property underpinned by strong rental returns in premium locations. Solutions may be offered in apartment stock in lifestyle locations close to Melbourne’s centre.

Brisbane is heavily rumoured to be at the bottom of the property cycle and in the process of experiencing some growth in the more sought after areas close to the City’s centre. Keep an eye on prices and the level of interest amongst buyers in areas such as Paddington and New Farm as suburbs like these will be indicative of confidence returning to the market place.

In a similar fashion to Brisbane, Perth is anticipated to begin showing signs of recovery. While some suburbs will remain in the doldrums for the short-term other suburbs have recorded their first reported results of positive growth for some time. Watch areas such as Carlisle and surrounds (for the ripple effect) and see how they track.

]]> http://www.capital360.com.au/2011/11/australian-property-market-overview-november-2011/feed/ 0 http://www.capital360.com.au/2011/11/geelong-a-city-on-the-rise/ http://www.capital360.com.au/2011/11/geelong-a-city-on-the-rise/#comments Tue, 15 Nov 2011 04:00:28 +0000 admin http://staging.capital360.com.au/?p=4726 Continue reading →]]> Geelong has long been a gateway to regional Victoria, however now with commitments to drive economic growth to the region, Geelong is proving itself to be a prosperous yet still largely affordable option for investors and home buyers.

The Geelong Waterfront development

Staking its claim as the second largest city in Victoria and located only 75km south west of Melbourne, Geelong is now benefiting from key development projects from both Federal and State Governments in a push to ensure sustainably and ease pressures on housing supply for the ever-expanding Victorian population. Supported by strong compounding growth rates, the Geelong property market is setting the scene for strong investment opportunities.

Flagged as a key component of the Melbourne @ 5 million plan, Greater Geelong along with Ballarat and Greater Bendigo have been tipped to accommodate around 40% of this additional population. As it stands currently Geelong has an average population growth rate of 1.3% per annum which equates to around 3,300 new residents and was Victoria’s fastest growing region between 1996- 2005.

With this in mind, the Armstrong Creek project (a 2,580 hectare urban growth development) is to be rolled out over the next 10-15 years making it Australia’s largest urban growth area. When complete this community will be home to approximately 50,000 residents and will include over 22,000 homes, 22,000 permanent jobs across two employment precincts along with several shopping districts and schools in the vision of a sustainable and technologically forward community.  This development project is further supported by the completion of the Geelong Bypass, extended rail links and plans to convert Avalon Airport into Victoria’s second international airport. This large injection of infrastructure and spending will further enhance Geelong’s already strong diversification of industry. Furthermore, the Port of Geelong is set to increase its current productivity with an estimated doubling of its bulk handling facilities by 2020.

The recent rejuvenation of Central Geelong and the Waterfront, including Westfield Geelong undergoing a $150 million redevelopment, the city now has a “cosmopolitan feel” which again further enhances its appeal. With character filled period homes within close proximity to established amenities, connectivity to Melbourne improving dramatically and strong yields prevalent, this not-so-quiet town is proving it can offer more than just a successful football team.

As with all investment options careful selection and due diligence is required, if you would like to further information on Geelong and its investment opportunities or would like to arrange an obligation FREE Initial Consultation with one of Capital 360’s investment experts, please contact us online or call us on 1300 227 360.

]]> http://www.capital360.com.au/2011/11/geelong-a-city-on-the-rise/feed/ 0 http://www.capital360.com.au/2011/11/on-the-ground-november-2011/ http://www.capital360.com.au/2011/11/on-the-ground-november-2011/#comments Tue, 15 Nov 2011 03:56:32 +0000 admin http://staging.capital360.com.au/?p=4723 Continue reading →]]>

Sydney

As a whole the Sydney (auction) market is tracking very similarly to last year. Despite a larger number of properties at auction, compared to this time last year, the clearance rates remain almost identical (56% now vs. 58% for same time last year). We’re observing that the volume of listings hitting the market during the traditional peak selling season hasn’t hit the heights that were widely hoped for by agents and buyers alike. Somewhat disappointing for buyers as tighter stock supply naturally means diminished options and increased competition – particularly on choice stock.

Market confidence appears to be on the up with a November Westpac-Melbourne Institute survey reporting a 6.3% boost in consumer confidence – welcome news to all. That, plus an almost instant response from the market, following the recent rate cut, bodes well for the local residential market. The November rate cut was a welcome news for property owners and prospective purchasers. While this rate reduction will be more likely to encourage property owners to pay down their current debt we anticipate that with the likelihood of further rate cuts investors and owner occupiers will return to the market in significant volume.

On a price point level, the upper end of the market remains extremely soft –with the $2.5m+ price bracket seeing some excellent buying opportunities for cashed up home buyers. With the lack of supply/demand tension, homebuyers are benefitting from the lack of competition and are able to negotiate price and terms far more easily than their counterparts in lower, more competitive price brackets. In the more competitive $500,000 – $1,000,000 range investors and home buyers are both extremely active but are being extremely choosy in the properties that they pursue, that is, good properties are selling well but properties with some faults are sitting on the market longer.

On the rental front investors are slowly being drawn back to the market with the allure of rising yields. The rental yields in middle and inner ring suburbs in particular continue to steadily climb while vacancy rates are tight and falling: an excellent sign of impending market recovery. In fact the rising rents and low vacancy rates are proving an alarming topic for the situation of rental housing in the city. The increasing cost of living and shortage of rental properties across the board should be of concern at a government level. On the ground rents have jumped considerably and a greater number of tenants are competing for rental properties.

The sense of market ambivalence has recently given way to a spike in enquiry and buyer activity – amongst homebuyers and investors alike, Capital 360 is encouraged by the increase in buyer confidence although, we expect that the timeframe for sentiment to transition into action will likely occur early next year. As we know property investment is cyclical and the patterns emerging at the moment (stagnating prices, falling interest rates and rising rents) indicate we are at the bottom of the market. In other words this is as soft as it is going to get before prices start rising again.

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Melbourne

Despite the recent interest rate cut on Melbourne cup day the local market continues to struggle.

In April 2010 the market in Melbourne was arguably at its peak, there was approximately 20,000 properties for sale in the metro area and the clearance rate was floating around 80%. Since then clearance rates have been deteriorating and the number of properties for sale has been increasing steadily.

According to SQM Research there is now more than 51,000 properties for sale meaning that we are without questions in a buyers market. In real terms this means there are pockets of Melbourne right now that are oversupplied and values are in decline  – generally speaking these pockets are where significant construction has taken place in the past 24 months, predominately the house and land areas of Melbourne. Some inner areas are also at risk with a large volume of apartments due for completion within the next 12 – 24 months – approximately 15,000 in total.

Furthermore the Melbourne metropolitan vacancy rate has increased from 2.6 % to 3% – giving little hope that we will see any rent increases in the short term.  The next 6 months will see some real opportunistic buying as pockets of the market will get hit hard in this short term downturn.

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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Brisbane

The Brisbane real estate market is definitely gaining positive momentum. Over the last two years there has been very little development or property construction in the Brisbane market, over which time rents have remained fairly flat.  As the population influx north (into Brisbane and surrounds) continues we will continue to see rents increase over the short term. So, as the population in Brisbane continues to rise and development activity remains low (suggesting a long-term shortage of available investment grade properties) we anticipate rents will underpin a healthy increase in capital growth throughout inner and middle ring suburbs.

The highest level of interest in the market has been for units and townhouses in the sub $500,000-$525,000 price range. The median value of houses in Brisbane currently stands at $438,000 with 10 year capital growth p.a. of 9.49%. The year ending September 2011 saw property values in Brisbane down by 4.05% (but up by 1.4% on the previous months results) which indicates a slight recovery in terms of housing values in Brisbane in the short term leading up to Christmas.

Stock levels have not increased and this has helped encourage prospective buyers to begin scouring the market for the more premium properties in the hope of securing a good price before the market begins its anticipated growth phase.  A indicator of this activity may be evident in the slowdown in the rate of discounting with advertised properties achieving close to their advertised list price.

Auction clearance rates within Brisbane remain extremely low (the lowest of any capital city excluding Darwin) however this is expected to change and the increase in Auction clearance rates for Brisbane will be a very good early indication of market recovery.

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Perth

Perth’s median house price is on track for a record sixth consecutive quarterly decline, with the majority of home owners reluctant to sell in a poor market, which is now causing a drop in property listings. What we are now experiencing is a large number of sellers taking their properties off the market rather than stock being diminished through sales. This reaction is causing some considerable supply and demand tension for the Perth property market.

However, we believe the Perth roller-coaster real estate market could be heading for a significant revival in 2012 after a four-year long slump in prices. Leading analysts are tipping a return to growth within the first quarter of 2012 on the back of high rents, stalling interest rates and weak building activity as well as the states planned business investments.

While property prices have fallen between 6-7% on average over the past 12 months, rents have risen by 8% over the same period – resulting in improved yields.  Improved yields attract gun-shy investors and are frequently observed prior to a market rebound due to their ability to stabilise prices.

Our Research Committee believes that the slow leak will come to an end by early next year and we believe Perth will represent good value and provide solid growth for the next 3-4 years.

Auction clearance rates for Perth for the week ending October 2011 were 30.8% with only 13 reported auctions with only one sold at auction while three more were sold prior. We are working with many local clients to restore buyer confidence, which continues to remain flat as well as clients from our interstate offices to get their strategy sorted and their finance in place so that our buyers agents can swiftly take advantage of buying opportunities as they present themselves in the Perth market.

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Adelaide

Adelaide is currently rated as Australia’s second most affordable mainland capital city (after Brisbane). With a median house price of $432,299 for the September Quarter. While this is regarded as relatively affordable by national standards many market pundits believe that this figure is likely to fall further, having already slipped -2.7% in the last 12 months according to RP Data. Weak market conditions are also evident in the increased number of properties on the market as well as the increased days on market for both houses and units. Houses are currently requiring 50 days to sell and units 48, both up about 20% from the same time last year. Capital 360 is of the belief that Adelaide will continue to experience a decline in property values over the short-term and has some way to go before market consolidation occurs and buying opportunities present themselves to coincide with a return of capital growth.

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]]> http://www.capital360.com.au/2011/11/on-the-ground-november-2011/feed/ 0 http://www.capital360.com.au/2011/11/the-8-steps-to-property-wealth-step-7/ http://www.capital360.com.au/2011/11/the-8-steps-to-property-wealth-step-7/#comments Sun, 06 Nov 2011 23:11:29 +0000 admin http://staging.capital360.com.au/?p=4682 Continue reading →]]> Portfolio Review - Step 7

“An investor’s ability to create true wealth from property investment is dependent on the health of their portfolio,” highlights Jason Isherwood, Managing Director of Capital 360. “The best way to keep your portfolio in good shape is to subject it to regular reviews at least once a year.”

A portfolio review should assess five key areas of each property in your portfolio and provide the chance for you to revisit your overall goals as an investor. If the results show that your portfolio is performing at its optimum level, there should be no reason to change any aspect of your investment strategy. However, more often than not, a review of your portfolio will reveal areas of opportunity to release hidden value in equity, rental income and tax benefits.

Remember to utilise the individual skills of the Capital 360 team of professional property advisors to help you systematically review the different aspects of your properties. Capital 360 recommends you follow 5 basis steps as part of your portfolio optimisation process:

Step 1 – Review your goals

It is highly likely that the individual goals you had for each of the properties in your portfolio have changed over time. Draw upon the original property investment strategy that you created before purchasing each high performing property and assess whether your short, medium and long term goals are being met or whether they require adjustment.

Step 2 – Review the value of your properties

Have your professional independent property valuer and property manager determine the current market value of each of your properties, to reveal any capital growth or rental value increase.

Any untapped equity can be used to re-invest or reduce your overall risk profile as an investor. Likewise, any growth in rental value can be used as a legitimate reason to increase rents and improve your overall cash flow position.

Also, use this time to seek advice on local buying, selling and rental market trends (including new developments or changes to zoning etc.), as these could affect the value of your properties in the short and long terms.

Step 3 – Review your add value potential

Your property valuer and property manager should also be able to help you reveal any untapped opportunities to add value by conducting a renovation or development. However, you should also contact a project manager or independent property manager for their advice about worthwhile additions.

Add value potential can be one of the most advantageous areas to assess when reviewing your portfolio, because it provides you with the opportunity to;

• increase the value of your property, allowing you to unlock additional equity for reinvestment
• attract better tenants and be able to increase the rental value of your property
• achieve better taxation benefits when assessing your depreciation schedule

Step 4 – Review the performance of your home loans

Contact your mortgage broker or finance strategist to explore the following (for each of your home loans);

• The appropriateness of your current loans and whether they will allow you to meet your reviewed short, medium and long term investment goals
• The suitability of current loan features
• The possibility of refinancing to unlock equity and re-invest (and weighing up the costs versus the benefits of doing so)
• The cost effectiveness of your current interest rate structures (fixed versus variable)

Step 5 – Meet with your accountant

You will probably complete this step each year around tax time, but it is important to meet with your accountant to analyse your tax planning and minimisation potential, income allocation and asset protection. Remember to inform your accountant of any changes to your portfolio before they conduct their analysis.

Finally, make sure that each of your advisors assists you in the process of following through with any proposed changes to your assets. Also, have these advisors schedule in appointments every six to 12 months to conduct follow-up reviews. This will ensure any changes made now will continue to benefit your wealth creation ability into the future.

If you don’t have the time to round up and meet with your team of professionals, you can consult an independent property advisor to coordinate the process for you. They should be able to provide you with a comprehensive opportunity assessment, outline the steps required to unlock portfolio value and implement an action plan to maximise your profits.

There are lots of untapped opportunities and thousands of dollars to be gained by performing regular full reviews of your portfolio.

]]> http://www.capital360.com.au/2011/11/the-8-steps-to-property-wealth-step-7/feed/ 0 http://www.capital360.com.au/2011/10/the-8-steps-to-property-wealth-step-6/ http://www.capital360.com.au/2011/10/the-8-steps-to-property-wealth-step-6/#comments Wed, 12 Oct 2011 18:30:04 +0000 admin http://www.capital360.com.au/?p=4678 Continue reading →]]> Property Management - Step 6

Hiring a professional Property Manager

Here are a number of types from Capital 360 when identifying and selecting a professional property manager to manage your existing investment portfolio.

The advantage of a professional property manager saves time by leveraging off the professional’s knowledge and experience (the best decision you could make for the ongoing health and cash flow position of your portfolio). Rental payments and reviews are tracked diligently and you can even claim their fees as a tax deduction! But, consideration needs to be taken regarding the fees they charge.

• $80-$100 in advertising charges
• One week’s rent in letting charges
• Ongoing management fees (between 5-8%, plus GST, of your total rental earnings)

Choosing the right manager

The only way to experience the true value of hiring a professional is to conduct the right amount of due diligence and select the right property manager.

Ensure you speak to at least four property managers – covering the following areas – before making a decision.

1. Ensure your prospective manager manages rental properties in the area surrounding your investment
2. If you feel comfortable around the prospective property manager, it is likely that your tenants will feel the same. Happy tenants make happy landlords!
3. Check that your prospective property manager is a licensed real estate agent by contacting the Fair Trading department in your state or territory.
4. Always ask for a full disclosure of their fees and details about their processes in regards to;
   • Legal tenant checks, income stability checks and reference verifications
   • Maintenance and repairs
   • The storage and return of bonds/security deposits
   • Protocol for emergencies
5. Contact three references for each property manager and ask them about why they hired them, how often they receive updates from their manager, any previous disputes and the appropriateness of tenant selections.
6. Test your prospective manager’s knowledge by asking some curly questions. Some examples include;
   • Will you be my permanent property manager, or are you just the sales person for your agency’s services?
   • Will you work seven days a week until my property is rented out?
   • What is your strategy for chasing up rent arrears and dealing with disputes?
   • How can you ensure all tradespeople who work on my property are competitively priced, and appropriately licensed and insured?
   • Can you provide verbal progress reports on request?
   • What are your strengths and weaknesses?
   • If you were a landlord, would you pay for your services?

Don’t forfeit the skills of a good property manager by hiring a cheap manager. You risk losing rental income and negatively impacting your cash flow.

During the tenancy period

Your main concern during the tenancy period should be obtaining written routine inspection reports at least every six months. These should include updates on the condition of the property, any safety hazards or repairs to be resolved and any commentary regarding the prospect of reviewing leases and increasing rent.

Landlord’s Insurance

Landlords insurance is likely to set you back between $200 and $400 a year, but it is vital when managing your risk. Ensure your policy covers you and your property for the following;

• Damage caused by weather, impact, tenants (malicious or accidental), or electrical motor burnouts (fusions) and power surges
• Theft by a tenant or their visitors
• Tenants defaulting on rental payments
• Legal costs to chase up unpaid rent
• Full building replacement cover
• Personal liability – legal accountability if tenants or others are injured on the property
• Accidental and malicious damage caused by tenants

If you would like to know more about Capital 360’s Property Management services or would like to arrange an obligation FREE Initial Consultation with one of Capital 360’s investment experts, please contact us online or call us on 1300 227 360.

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