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Apr 4, 2024
Perth Property Takes Lead
It doesn’t seem that long ago when Perth’s property values made us the cheapest major capital in the nation. At the time, it failed to make any sense that Hobart and Adelaide’s median house prices were significantly higher than ours given our low unemployment, high wages, lifestyle and economic strength. Two years ago, Perth’s median home value for the March quarter was reported by Core Logic as $525,800. The current median house value for Perth as reported this week sits at $703,502. In March 2022, we were the most affordable place in Australia to buy real estate with all the evidence pointing to Perth being on the brink of a property boom. Back then, buyers dabbling in the Hobart property market parted with $820,000 during the quarter, in our nation’s capital they paid $982,000 and in Brisbane $760,000. In Darwin, the median house price reached $583,000 and Adelaide put on a tremendous 7.1 percent spurt from the previous quarter to reach a median of $649,000. Melbournian buyers paid a median of $1,121,500 for a detached house and Sydney topped the list with an extraordinary median of $1,590,900 for the quarter. Perth’s median house price growth for the twelve months to March 2022 was 4.1 percent. Compared to the same twelve-month gains had in Hobart (31.5 percent), Brisbane (26.7 percent) and Adelaide (24.8 percent), Perth’s property price gains back then were comparatively modest. Perth’s annual house price growth is now a nation-leading 19.8 percent and showing no signs of slowing. Brisbane sits in second place at 15.9 percent, Adelaide 13.3 percent and Sydney (somewhat remarkably given their high median price) has put on a further 9.6 percent. Remaining capitals are still growing but by less than 3.5 percent. Usefully, Core Logic’s statistically references ‘series peaks’ demonstrating current market sentiment within the context of a ‘since -COVID’ cycle. Brisbane, Adelaide and Perth are the last remaining cities to be at peak since that time with Sydney, Melbourne and Hobart all having peaked in early 2022. It would appear Perth has some way to go with Adelaide’s median home value at $734,173, and Brisbane’s – the capital most typically value-aligned with Perth – at $817,564 with both still growing. I predict Melbourne will continue to constrict from its current $778,892 median value, Hobart’s anaemic growth at 0.3 percent could turn negative at the year progresses and Sydney’s growth pattern will stall. I punt Adelaide is close to peak growth and whilst remaining positive will only gain 5 to 8 percent over the next twelve months and Brisbane should continue its double-digit performance for the remainder of 2024. With Perth gaining 1.9 percent in March and 5.6 percent for the quarter, we could see gains of around 22 percent this year. Meanwhile, local rents are up 13.7 percent for houses and 15.9 percent for units. Housing affordability has deteriorated and will get worse before more supply arrives.
Mar 20, 2024
Selling to Buy
Supply of homes to buy remain well below the long-term average. REIWA reports 3,971 listings available broken down into 2,230 houses, 1,129 units and 612 vacant lots. This time last year there were 7,262 listings. Meanwhile, sales volumes last week were 1,036 metro-wide up from an average of 615 weekly transactions in 2019. The lack of supply and listing choice is exacerbated by would-be sellers’ lack of confidence in coming to market, fearful of not being able to find a property that meets their needs once they’ve sold. And, given the high levels of demand, offering to buy ‘subject to sale’ of their own property is often trumped by buyers without such buying terms. Normally, sellers would rely on moving to a rental property for a short period in the event they’ve sold and yet to find an alternate home. However, the rental market is tighter than the sales market with median rents at $640 per week up from $360 per week in 2019. A mere 1,817 properties are for lease on reiwa.com and vacancy rates are at less than one percent. So, how do sellers overcome this dilemma? Firstly, be ready to come to market at short notice. Once you’ve chosen your preferred agent, present your home and arrange for professional photography. That way, your agent will be ready to go to market within a day or two should you successfully buy. Secondly, if you decide to sell and need to buy, structure the sale contract to give you sufficient time to buy an alternate home by negotiating a longer settlement period. Thirdly, consider a negotiating a ‘rent-back’ period with your buyer. This may not suit the buyer of course, but if an investor ends up buying your property, then this option comes into play. At settlement, sellers can remain in their home, pay rent to the buyer and have the luxury of only needing to move once upon finding their next home. Fourthly, introduce yourself to as may agents as possible when searching for your next home, give them your contact details and let them know what you’re looking for. This gives you more chance of securing a home ‘off-market’ whereby more flexible terms around settlement and the like are common. Finally, have confidence you’ll find a suitable home after you’ve sold. Sure, you’re not likely to be spoilt for choice and you may need to compete to buy, but there’s sufficient stock coming through the market to meet most family’s needs.
Mar 14, 2024
More Growth to Come
Perth’s housing values have increased more than 50 percent since the end of 2019 firmly putting an end to speculation that our run of price gains was purely due to the low interest rate, stimuli-fuelled COVID period. Core Logic reports Perth’s current median home value to be $687,004 up 52.9 percent since the bottom-of-the-market March 2020 price of $449,325. Current values eclipse the previous 2014 peak of $518,540. We’ve been witness to similar markets in the past. For example, back in 2006, Perth’s median house value rose a whopping 40.6 percent in twelve months thanks to the mining boom. Prices retreated relatively quickly after mining-related construction jobs ended and workers returned to whence they’d come. Back then, WA’s population gains went from +1,000 persons per week to -150 per week in a short period, hence the fairly spectacular downward adjustment in house values; demand simply fell away. There is a fundamental difference in Perth’s housing landscape this time around with population gains, low housing supply and relative affordability the three fundamental drivers of our market. These three factors are set to underpin positive house price growth for at least this year and into next with no predictable market shock on the horizon to bring this upward trajectory to a premature end. Considering each fundamental in turn, Perth’s house prices could gain a further 15 to 18 percent this year based on current trajectories. WA’s changes to population growth are at peak levels with around 22,000 new arrivals quarterly. Overseas migration is out-pacing interstate migration growth and with a housing shortage, the demand for more homes inevitably pushes up house prices. Meanwhile, REIWA continues to report low listing numbers currently at about 3,250, well below long term averages. The supply pipeline looks bleak too with current annual dwelling approvals 24 percent below the 10-year average for houses and an astonishing 74 percent below for units. Clearly, we are not going to be building enough homes for to cater for our population gains anytime soon. In fact, WA is leading the nation in terms of time taken to build new homes. Yet Perth remains one of the most affordable places in the nation to buy property with a year-to-date median house price of $718,500, well behind Sydney’s $1,395,804, Melbourne’s $942,671 and Brisbane’s $899,474. We have nudged past Hobart’s $696,508 in recent months. And the percentage of average household income to service current average mortgages in Perth is 29.8 percent, way more affordable than Sydney’s 58.1 percent. Interest rates are predicted to fall later this year as the broader economy slows. It’s foreseeable that such a move will add further fuel to Perth’s already hot property market.
Feb 29, 2024
Sorry, Disconnected
Sometimes, governments make decisions that have unintended consequences that impact the practical ways certain industries work. Canberra’s latest effort to over-regulate comes in the form of changes to the Fair Work Act that formalise an employee’s ‘right to disconnect’. The changes effectively mean an employee may refuse to monitor, read or respond to contact from an employer outside of the employee’s normal working hours. As an employer, I think it’s perfectly reasonable for an employee to ignore my phone call after hours, and unless it was a serious emergency, I wouldn’t be calling them after hours anyway. But, do we really need to make a law for it? For the real estate industry, the implications could be significant. The business of real estate – sales or property management – doesn’t happen during usual business hours. The laws extend to an employee (sales representative or property manager) refusing to monitor, read or respond to contact from a third party if the contact relates to their work. This includes contact from vendors, tenants, buyers and lessors. The obvious issues for national companies operating in Western Australia have been neatly overlooked by east coasters with the 3-hour time difference in summer could mean an effective workday starting in midday in Melbourne and Sydney and ending here two hours later. The changes could result in lost business if employees refuse to take urgent calls on a critical matter, such as a live sale negotiation. And what about a matter concerning safety at a property where property or person is at risk where a worker is required to manage such emergencies? The new laws are set to become law in July this year. After which, a tenant, needing assistance to get into their home after losing their keys at 6 pm can expect no reply from their property manager. A vendor, - in theory - wanting to know how Saturday’s home open went, can’t demand a response from their sales agent until Monday morning. As a result, many real estate employees will ignore the new laws and carry on providing service to their clients, tenants and buyers outside normal working hours. It won’t be until something goes wrong with the employer / employee relationship that challenges might arise. Employers could find themselves in strife with the Fair Work Commission if a disgruntled employee claims they were expected to work outside normal business hours without the right to disconnect. Employees working from home further muddies the water given these arrangements enable a degree of flexibility that transcends normal work hours anyway. Time will tell what impacts come from these laws that seem to be an answer to a question no one ever really asked.
Feb 22, 2024
Who’s to Blame?
Housing affordability is one of the most significant challenges of the modern era. Both house prices and rents are at record highs in Perth and across much of the nation with Perth’s median house and rent prices at around $600,000 and $600 per week respectively and growing faster than any other major Australian capital. We understand that the reason for these rises is down to simple economics, higher demand and short supply means prices and rents rise. Governments have done a spectacular job at shifting blame away from their own housing policy failures to investors, banks, real estate agents, local councils and developers. Yet, each of these sectors play a pivotal role in delivering the existing housing stock. Governments, on the other hand, through their taxation and other policies actively undermine housing supply. Property investors, mostly families that own a single investment property, provide 90 percent of all residential rental homes across Australia, housing millions of tenants. They obtain a moderate benefit by claiming some of the expenses stemming from that investment against their taxable income via negative gearing. However, once positively geared, investors pay tax on the property’s income and pay Capital Gains Tax if they make a profit upon selling. Banks, whilst not the most popular corporate citizens, provide the funding for property through mortgages. Banks also provide the funding for developers. Us real estate agents provide the services that help investors navigate residential tenancy laws, help people into home ownership and enable property transactions. Local councils often stymie property developments, especially increased density but they also adapt their planning laws over time, enhancing our urban environments. Developers provide housing on mass, adding density to areas where people aspire to live, work and recreate. Part of the reason property values are rising is the cost of construction, both labour and materials, has risen by around 40 percent in 3 years with end property values for finished product not at levels sufficient to support the viability of the project. Developers work to a margin and if the project fails the feasibility test, it doesn’t get built. That’s why new emerging density areas such as those around the new Metronet hubs will take several years to be developed; the cost of delivering the project is higher than the combined value of the housing produced. These cost constraints are not limited to construction costs. Land tax, holding costs, public art levies, developer levies, rates, headworks fees and stamp duty are additional cost burdens representing around 25 percent of the total development costs. This is where government ought to step in. If they were serious about housing supply, government would support the groups that provide the housing. Instead, state and federal governments either fail to provide the housing themselves (public housing waiting lists are at record highs) or set policies (stamp duty, tenancy law changes and land tax for example) that actively discourage additional housing supply. If it isn’t government, who is to blame for the housing crisis?
Feb 13, 2024
Blockchain in Real Estate
Like a startled rabbit staring into headlights, this Gen Xer listened intently to the REIWA Trainer awaiting the lightbulb moment for clarity and understanding of what Blockchain is. Unremarkably, blockchain was simply described as a “chain of blocks”. Not that helpful to my understanding. For the benefit of others, here’s how I was able to better grasp the blockchain concept. REIA CEO, Anna Neelagama assisted by pointing out that unless you’re a coder, trying to understand the blockchain from a technical point of view is probably quite pointless. One way to gain understanding is to describe blockchain as a new layer of the internet building on Web1 and Web2. Web 1 was simply information being put out to be consumed in a one-way manner. Web 2 began to enable users to interact with content and “talk back” - remember the first online payment you made online and how revolutionary that was. Web3 will have a new level of the internet called a blockchain. This facilitates legal and financial transactions to occur in a secure way representing a true economic exchange. This is due to the blocks (which are pieces of programming that cannot be altered) enabling a complex transaction environment with many parties simultaneously involved. The blockchain therefore removes the need for a third party - such as a bank – to be involved in the transaction. Bitcoin is a well known example of a blockchain. As blockchains are unchangeable, malicious actors are unable to tamper with the transactions or contracts within it mitigating against fraudulent activity. The “smart” contracts (digitally created agreements) within the blockchain are immutable and record a complete history of transactions within the particular network which can be either private or public. PEXA, the digital settlement system now widely used for property transactions is an example of a private blockchain. Real Estate transactions are, of course, more complex than a simple bitcoin trade, with multiple participants and processes involved in a typical transaction. However, the principles of value exchange remain the same and that’s where blockchain technology can begin to play more of a role. Blockchain technology is able to verify, inform and enable transfer of property ownership. This is where things get complicated with the introduction of Smart Contracts, the Metaverse, Non Fungible Tokens (NFT’s), Decentralised Finance (DeFi) and Decentralised Autonomous Organisations (DAO’s). There is insufficient room to attempt to explain these terms. These are, in short, aspects of blockchain technology that can apply to real estate transactions in both the real and virtual world that are already with us. No doubt, the aspects of blockchain technology will be more easily understood as certain applications of it are applied to real world situations. However, the idea that people are actually buying (spending real money) advertising space in a virtual metaverse is, for this Gen Xer at least, a bridge too far divorced from reality.
Feb 1, 2024
Property Taxes Back on Agenda
The federal government’s revision of the Stage 3 Tax cuts has re-enlivened debate for a comprehensive tax review, with negative gearing and capital gains tax settings once again part of that discussion. The ability for investors to claim property-related expenses against other income (normally their taxed wages) has been a key part of Australia’s housing spectrum for generations, underpinning the supply of affordable rental homes for millions of tenants. Governments, unable to supply enough taxpayer funded rental homes has relied on property investors to supply property to the market at a ratio of 9:1. Calls from teal independents and others to remove negative gearing in order to address housing affordability fails to consider the impact this would have on supply, rents and the budget. With 27 percent of all homes in Australia rented, the estimated value of this asset class is $2.835 trillion; nearly three times annual GDP. The burden on taxpayers in Australia is already substantial (as a measure of overall tax take, only Denmark collects more tax than we do from wages), so without investors supplying the market (which would surely diminish if negative gearing was disallowed) how can government afford to supply the rental homes? The 2019 election campaign featured proposed changes to negative gearing with then would-be Treasurer, Chris Bowen saying, “Don’t worry if your property value falls.” I cannot imagine how the community could possibly think such a comment is okay given household consumption makes up about 45 per cent of the economy and if housing values fall, so does their spending and so does, therefore, the economy. Bowen’s comment back then is telling because it paints property investors as being aspirational and therefore on the wrong side of certain political agendas. If he’d said, “Don’t worry if your rent goes up,” he’d have been in trouble, but the brutal truth is that both comments are the same. Abolish negative gearing on established homes and prices will fall and rents will rise. Any plan to mess with the current negative gearing provisions is fraught because it is so deeply entrenched (it’s been part of our tax system for more than 100 years) and therefore interlinked with our vast and complex tax system. We know about 80 percent of investment properties are owned by mum and dad types who only have one investment property. Proposals to remove negative gearing is hardly taxing the wealthy and ignores the fact that not all investors choose to buy property to avoid tax otherwise payable. A loss is a loss and pressure on families to meet their daily expenses means investors are often attracted to property investments that either break even or are positively geared in order to maintain cash flow. The last time a government tried to abolish negative gearing it was back in several months later as the voter backlash from soaring rents and plunging property values frightened them into a retreat. If Labor once again wades into the negative gearing morass, the Opposition will be one step closer to winning government.
Jan 10, 2024
Missing Out
Licensed real estate agents are regulated by the Department of Mines, Industry Regulation and Safety (DMIRS) with consumers able to seek advice and lodge complaints about agents’ behaviour to that department. The Real Estate Institute of WA (REIWA) also has a community hotline where consumers can obtain real estate advice when dealing with a member agent. Current market conditions of savagely low supply and strong demand for both sales and rentals often leads to a spike in enquiry with REIWA and DMIRS, especially from tenants and buyers that have missed out on the opportunity to either buy or rent a home. Most are just wanting clarification of the process. When representing their vendors and landlords, agents have a role to play in ensuring their communication with interested buyers and tenants is clear and thorough, especially in circumstances where there is strong competition to either buy or rent the properties they represent. In the first instance, agents should make it clear to buyers and tenants that there is competition for the home. This can include asking prospective buyers to sign a document that acknowledges an awareness that their offer is one of many and that they’ve had sufficient opportunity to put forward their best offer. Similarly for tenants, the sheer volume of visitors to a home open should indicate that renting a home will be competitive. It is unlikely your application to rent will be the only one submitted. Local agents mostly manage competition amongst buyers and tenants in a professional, process-driven manner. However, it’s worth noting that agents are not obliged to inform you that there is competition for a property, albeit best practice to do so. Buyers and tenants ought to remember the agent is duty bound to act for their client and is not working in your interests. Agents are merely obliged to be honest, ethical and fair in their dealings with tenants and buyers. Despite this, buyers and tenants who miss out on a property are often quick to blame the agent. Some will lodge formal complaints against an agent even though the agent is simply discharging their responsibility to their client in seeking the best price or highest rent. A recent experience from a buyer who was repeatedly told a property would likely sell for above $900,000, was aware they were in competition and still insisted on submitting an offer for $875,000, was livid when told someone else had paid $975,000. Similarly, a tenant who offered $80 per week above the asking rent lodged a formal complaint against the agent when their landlord accepted an offer to lease $130 above the asking rent. Higher rents and selling outcomes are part of the natural market in action. Agents understand that buyers and tenants are trying to secure a property for the lowest possible price or rent, but it is not the agents’ role to achieve that outcome.