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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.
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 23, 2024
Investors Not to Blame
Only a few weeks into the new year and rental affordability is once again making headlines. Core Logic’s latest numbers put national rents at $601 per week, up from $437 per week four years ago. Inevitably, calls to make rents more affordable will follow with campaigners Everybody’s Home calling on the government to scrap negative gearing and capital gains discounts to fund more social homes. This group, amongst countless others, fail to recognise the fundamental fact that across Australia, 9 out of 10 rented homes are provided by private investors. Removing negative gearing and CGT discounts and hundreds of thousands of investors would sell, decimating supply and setting rents soaring. Governments have very successfully shifted the blame for today’s housing affordability challenges away from their own housing policy failures and instead pointed the finger at property investors and the real estate agents that represent them. Politicians have very effectively shifted the narrative away from supporting private property investment to supply homes to the market whilst simultaneously blaming investors for spiralling rents and house prices. This is a remarkable achievement. Like it or not, unsophisticated private investors – ordinary Australians – supply 27 percent of all homes in the nation to tenants. Government supply about 3 percent as social housing. Yet, in this time of greatest need, with supply of rental homes at severe lows, there are few housing policies that seeks to encourage the investor cohort into supplying more homes. On the contrary; governments shun the idea of stamp duty reform, land taxes continue to rise and tenancy laws continue to swing in favour of tenants. Negative gearing and capital gains tax discounts are no longer sufficient incentives to encourage enough investors to buy. Appealing tax settings and returns in superannuation funds, commercial property and syndicated funds offer ‘mum and dad’ investors an alternative to direct residential property investment. Prior to 2014, the volume of investors buying residential homes to add to the rental pool, ran at a higher rate than those selling rented homes. Talk of changes to negative gearing tax laws from the then opposition, along with broader market factors, began to see this trend reverse. Nowadays, there are far more rental homes being sold than purchased. In Victoria, thanks to rising land taxes and changes to tenancy laws, for every three tenanted properties sold, only one remains in the rental market. In WA, there are now 18,000 fewer tenancy bonds being held today by the Bond Administrator than in 2019. When investors are inactive in the market, it falls to government to provide the housing; something they have failed to do. Put simply, governments – supported by the media and tenancy advocates – have been busily whacking investors, whilst simultaneously failing to provide enough rental housing for Australians as the only alternative to the private investor market. And, somehow, they’ve so far been able to get away with it.
Dec 14, 2023
Christmas Markets
Around this time of the year, property markets normally begin to slow in anticipation of and planning for Christmas festivities and the summer holidays that follow. This year is shaping up to be different with buyer enquiry remaining strong and sellers committing to coming to market during the Christmas period. Property values across Australia continue to grow, spurred on from the demand side by higher migration levels and low stock levels. The federal government have already predicted a 115,000-property shortfall by mid-2024 and with dwelling commencements stubbornly stuck below the long-term average, there is little relief for buyers on the horizon. The Real Estate Institute of Australia released the comprehensive September quarter Market Facts report this week, revealing Australia’s median house prices rose 3.2 percent in the past twelve months to rest at $990,807. Perth’s median house price was at $595,000, the cheapest major capital by some margin. Sydney’s median house price as at September 30th was an extraordinary $1,578,000. The remaining capitals (aside from Darwin) returned a median house price of between $710,000 (Adelaide) and $934,000 (Melbourne). With such a yawning gap between our local market and eastern Australia, there is a sense of inevitability that prices here will continue their upward trajectory and the Christmas season will have little impact in quelling buyer and seller enthusiasm. Most agents I speak with expect a flurry of fresh listing activity in January, with new stock to be taken up from buyers bereft of choice. A recent property my agency sold received 20 offers. Another 15 offers. That’s 33 buyers that have committed to purchase, have missed out and will keep trying until they succeed. It is going to take some time for this buyer pool to deplete given stock levels remain below the five-year average, and new buyers keeping entering the pool. Meanwhile, rents continue to rise up to $581 per week nationally and $550 per week in Perth for 3 bedroom homes. Returns on investment for buyers in Perth are at 15.1 percent, leading the nation by some margin. Investors will take note of these numbers and continue to grow as a buyer cohort adding further pressure to our undersupplied market. This year, there will be no Christmas slowdown and buyers holding back waiting for the Santa Claus to deliver a market correction are likely to find their Christmas stocking empty.
Dec 7, 2023
What’s in Store for 2024?
With Perth’s property market growth leading the nation as at the end of last year, some property commentators are predicting a slow-down in capital gains as the year progresses. Returning a 13.7 percent growth rate in property values to date 2023, Core Logic data showed Perth ahead of the rest of the nation in growth with Brisbane the next strongest market performer with 10.7 percent value gains. Perth is at its market peak reaching a median dwelling value of around $650,000 at the end of last month. Yet, despite Perth’s strong market performance, our local market remains the most affordable major capital city aside from Darwin in terms of median prices comparative to average family incomes. It is this relative affordability, strong economy, full employment, an uplift in migration intakes and limited housing supply that will continue to drive our market forward. Whilst it is always difficult to accurately predict property markets, in the absence of significant and unexpected market shocks, WA residential property is likely to put in another strong showing in 2024 with 8 to 12 percent gains predicted. Turning to the rental market, with vacancy rates below 1 percent for most of 2023 caused by a lack of housing supply, it will take some time to deliver enough homes to the market sufficient to bring the rental market back into balance. Rents have risen sharply since mid 2020 after a decade of falling and stable rents, rising a further 13 percent last year. Strong demand from incoming residents and low supply remains the core cause with little relief in sight for tenants struggling to secure suitable accommodation. With less than 2000 properties listed for rent on reiwa.com, supply constraint due to a lack of investor buying activity over the past decade has seen house rents move from $350 per week in 2017 to $600 per week today. Investors have come storming back to the Perth market as they exit the overheated east coast city markets and look to capitalise on the prospect of price growth and nation-leading yields. As more supply comes to market, rents could moderate this year but further rent rises of at least 5 to 10 percent is likely thanks to the slow construction cycle and lacklustre dwelling approval numbers. Overall, WA is the place to watch in 2024 as its property market continues to expand from a base of relative affordability.
Sep 28, 2023
Preparing Your Home for Sale: Making a Great First Impression
Selling your home is akin to a first date — those initial moments are crucial. Just as you'd dress to impress and mind your manners, your property should radiate charm and care when it's time to list it for sale. The Power of Small Improvements In the process of getting your property ready for sale, it's often the seemingly minor tasks that hold significant sway. Those "I'll get to it someday" jobs around the house? Now's the time. Building that garden bed, freshening up the front fence, fixing the side gate, or bidding farewell to that old couch are prime examples. These tasks fall into the "small but impactful" category. Why Small Tasks Matter Addressing these minor tasks is essential for achieving a swift sale at the best possible price. Buyers notice these details too. A rusty downpipe, for instance, can appear as a major issue to them, potentially hinting at overall neglect of the property. The Balance of Renovation However, it's crucial to strike a balance. Beware of overcapitalising on costly renovations like bathroom and kitchen upgrades. Depending on your property and location these investments might not yield the desired return. On the other hand, a charming Fremantle cottage could benefit from such improvements due to the strong demand for turnkey properties in popular areas. General Guidelines for Presentation While specific recommendations vary by property and situation, some principles remain universal. A clean, tidy, and well-maintained home is your strongest asset. "Present it like you don't live in it," as one client aptly put it. Key Tips: Neutralise Interiors: Paint over bold wall colours to create a neutral canvas. Declutter: Store away trinkets, family photos, and personal items to create a spacious feel. Clear the Fridge: Remove magnets and children's artwork, maintaining a clean appearance. Consider Stylish Furniture: For vacant properties, renting tasteful furniture can significantly enhance the appeal and expedite the sale. Focus on Paint and Landscaping Don't underestimate the power of a fresh coat of paint and well-kept gardens. These relatively simple improvements can yield a substantial return on investment and attract prospective buyers. Professional Guidance Lastly, consider consulting a qualified home stylist. While it involves an investment, their expertise can be the difference between exceeding your selling price expectations and no sale at all. Property Preparation Checklist In the world of real estate, presentation matters. Before listing your property for sale, consider these essential steps: Minor Repairs: Address any minor repairs and maintenance tasks around the house. Neutralise Interiors: Paint over bold wall colours with neutral tones. Declutter: Remove personal items, trinkets, and excess family photos. Kitchen and Bathroom: Evaluate whether a renovation is warranted, considering the property's location. Landscaping: Ensure the garden is well-kept and attractive. Furniture Staging: For vacant properties, consider renting stylish furniture. Professional Advice: If uncertain, consult a qualified home stylist to optimise the presentation. A well-prepared property stands the best chance of attracting potential buyers and achieving a favourable selling price.
Sep 20, 2023
2023 Australasian Auctioneering Championships
This week I attended the Australasian Auctioneering Championships, hosted in Auckland. The best auctioneers from across Australia and New Zealand fought it out ‘theatre-style’. An amazing event with the very best auctioneers moving through extraordinarily difficult bidding sequences that, thankfully, auctioneers don’t normally encounter. Christchurch based Ned Allison taking home the 2023 major prize with a stunning call of a very complex bidding sequence. I’m an advocate for the auction process as a method of sale for several reasons. It remains the most transparent selling process with all buyers able to see competing buyers, with the auctioneer bound by an ethical REIWA code of conduct, bringing fairness to the process. Buyers also usually have the time (unless the seller accepts an offer prior to the auction) to view the property several times, undertake all necessary due diligence, and be ready to buy on auction day. The benefits to sellers include cash, an unconditional contract, a settlement period that suits their needs, a healthy deposit, and the delivery of a price that is the definition of fair market value. The “no price” marketing strategy in the lead-up to the auction day is also beneficial as it captures all possible buyers, including those who may not otherwise consider the property if it were on the market at a fixed price by private treaty. the auction process ‘shakes the buyer tree’ In short, the auction process ‘shakes the buyer tree’ and reveals all possible buyers. If the property is being sold under an executorship arrangement, or the market price is difficult to determine, then auction may be the most appropriate method. And of course, let’s not overlook the X-factor an auction brings which, through fierce competition, sometimes delivers an amazing result well above expectations, one that can be hard to replicate with other methods of sale. Auctions may not be for everyone of course, it’s important that Sellers understand the process and feel comfortable with the strategy. Some sellers can sometimes feel under pressure to ‘meet the market’ on the day of auction if the highest bid is below their original reserve price. The lead-up to the auction day can be stressful too with multiple home opens and inspections during the weeks prior. Some buyers remain deterred by the auction process too; either too nervous to bid or unprepared to buy without certain conditions being met, such as finance approval for example. However, more and more these days, many buyers appear to be welcoming the transparency of the auction process over the blind, confidential negotiation of a Private Treaty sale. Be sure to ask your agent about all the options when coming to market, as there are benefits with all methods of sale. It’s a matter of choosing one that suits your needs and circumstances, and agents should offer you that choice and confidently explain your options.
Sep 7, 2023
Short Stay Rentals Australia
A recent visit to the Gold Coast on REIA business revealed one of the more vexing issues around rental affordability in Australia. In one of Australia’s favourite holiday destinations for both domestic and international travellers, the Gold Coast region has a high number of apartment homes traditionally used as a holiday flat or rented investment properties. A search of rental homes available across the Gold Coast region reveals about 1800 properties available for lease. By comparison there are some 5500 short-stay properties available. REIA’s analysis shows investors favouring the short stay market for a typical 2-bedroom apartment earn the same income in 156 days compared to a long-term rented property across a twelve month lease. a deep-dive study into short-stay accommodation Armed with this information, REIA undertook a deep-dive study into short-stay accommodation (SSA) across the nation which we released this week. The numbers reveal a remarkable level of growth for this sector with 133,968 (81.9 percent of which are entire dwellings) short-stay accommodation places across Australia, an increase of 22.8 percent for the period March 2022 to March 2023. Tasmania has witnessed the largest increase in SSA places, up an incredible 66.4 percent in twelve months to 4255 properties. Canberra came in second with a 49.6 percent increase in SSA places, followed by Victoria’s 32.4 percent, NSW’s 25.3 percent and Queensland’s 23.7 percent. Here in WA, there are 8,056 SSA places, an increase of 16.2 percent across the same twelve-month period; the lowest growth rate across the nation. Regional areas have the highest proportion of SSA places, making up 61.2 percent of all properties, with the highest differential between city and regional places found in Queensland (thanks to the Gold Coast and other coastal holiday destinations) at a ratio of 82:18 regional to capital city. In WA, 45.9 percent of SSA places are in the Perth metro area, the remaining 54.1 percent in the regions. Mature tourism destinations along with those more recently discovered thanks to the COVID-19 pandemic, welcome SSA opportunities for visitors with tourists contributing to local economies. Yet, the increase of SSA places has meant fewer properties available to traditional long-term renters with this shortening supply contributing to recent rent increases. SSA investments can be an appealing alternative to the long-term rental market. In Perth, an average two bedroom dwelling in the rental pool, earns $25,800 per year. The equivalent dwelling in the SSA market, based on average nightly rates, earns the same revenue in just 132 days. In regional WA, the gap in earnings from SSA and a long-term rental is even wider, taking just 107 days for a SSA property to earn the equivalent in the long term annual rental market. However, higher management costs (15-25 percent), no regulatory protections, risk of property damage and increased wear and tear are important considerations for SSA investments. The ‘gap’ in earning potential between short and long stay renting poses an immediate threat to further deterioration in rental affordability. Longer-term though, I predict the combination of cost of living pressures, slowing domestic tourism, potential excessive supply of SSA and risks associated with the SSA asset class will see long term rental investments regain favour.