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May 3, 2024
Rent Bidding
As recently reported in these pages, the West Australian parliament passed into law changes to the Residential Tenancies Act designed to further protect the interest of tenants. Some of the changes bring WA into line with other states where substantial changes have altered tenant-landlord relationships and, in some cases, have deterred investment and pushed up rents. Many of the changes will be relatively benign, such as rent increases limited to no more than every twelve months (currently it is a minimum of six months). None of the laws encourage investors to further supply rental stock by improving protections for landlords from tenants that breach the lease agreement and / or wilfully damage the property. One of the changes will be to make it illegal for a landlord (or their property manager) to encourage a tenant to offer more rent to secure a lease. Known as ‘rent bidding’, in a tight rental market it is common for tenants to offer more than the advertised rent for a property. It’s important to note that the ban will not prevent a tenant from offering more rent than advertised. In other states, rent bidding is already banned, but the outcome of the ban has failed to afford any additional benefit for tenants. In the current market, most properties receive multiple applications to rent with many tenants prepared to offer more than the asking rent to secure the property. Under the current arrangement, tenants will typically seek guidance from the leasing agent as to what constitutes market rental value and without specifying the details of competing applications, tenants are able to secure a lease by offering a modest amount above the asking rent. With a ban on rent bidding, tenants will be ‘flying blind’. The leasing agent will have to be silent on proffering any advice as to the level of competition, or where the market sees value. What has occurred in other states is tenants are offering substantially more than the asking rent because the leasing manager is unable to guide them where fair market rent might lie. I am told desperate tenants in NSW will offer 20% above asking rent where a 5% increase would have been sufficient. Already, property managers are advertising asking rents with a “From” in front. This makes it more difficult for tenants to determine fair market rent, especially once rental bidding is formally banned. Mostly, landlords are seeking quality tenants at a reasonable rent. Many will choose the best tenant over one offering the highest rent. Property managers have a duty to their landlord to secure the best possible lease outcome for their client and the rent achieved is but one component. Banning rent bidding will do nothing to further the plight of tenants already dealing with a highly competitive, stressful market of limited supply and rising rents. Governments should spend their time thinking about how they can get more rental supply into the market by actively encouraging property investors. Everything else treats the symptom not the cause and rents will continue to rise.
Mar 27, 2024
Love Thy Neighbour
In our secular society, Easter has lost some of its religious importance, but for Christians, it is the most important religious festival of the year. Christian values of love and forgiveness, whilst sometimes buried beneath layers of modern life, remain important foundations for a cohesive society. Our media is filled with stories that reveal the worst, rather than the best of us. A recent article I came across covered a boundary fence dispute between two warring neighbours. After about $10,000 in legal costs, neither side seemed any closer to a resolution with each party claiming the moral and legal high ground. Not much Easter spirit on display here. The exact detail of the boundary fence dispute is not revealed, but it is a shame that such a dispute has escalated to cost thousands of dollars and, more importantly, ruined a neighbourly relationship. Real estate agents are able to recount many stories involving neighbourly disputes and some sales occur due to neighbourly disharmony. Many neighbourly disagreements stem not from social disharmony, but from legal ones. The repair, replacement or alignment of boundary fences, Rights of Carriageway, the use of Common Property in Strata Schemes and Easements all carry certain obligations for those affected by them. Solving disputes with such matters is normally quite straight forward because there is either legislation that provides the framework for a solution or common law precedent that defines a prior legal decision. Sections 14 and 15 of the Dividing Fences Act WA 1961, for example provides detailed rules as to who pays for the cost of repairing a dividing boundary fence. Arguments may arise when one neighbour refuses to contribute but the Act provides a process for recovering monies due. Arguably more difficult is boundary alignment issues particularly in areas like Fremantle. I would wager that probably the majority of boundary fences of inner city housing in Fremantle are imperfectly aligned. In some cases, the boundary fence may be out by a significant margin. Such title encroachments can lead to the more complex legal matter of “adverse possession” under specific circumstances and whilst common in real estate vernacular, actual claims for adverse possession are relatively rare. Thankfully, neighbours prefer to live harmoniously and a misaligned boundary that has been in situ for decades in normal circumstances is often better left alone. The ability for neighbours to compromise over normally petty issues goes a long way to providing years of friendly “hellos” and a good supply of lemons from over the side fence.
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.
Mar 7, 2024
Women in Property
The Real Estate Institute of Australia is now led by a CEO, President and Deputy President all of whom are women. Six of the eight state and territory Real Estate Institutes have women CEOs. Most of the high-profile property commentators we see in the media are women. Women represent the majority of real estate practitioners across Australia. Property Managers, Sales Agents, Agency Principals, CEO’s, Heads of Franchise groups, Marketers, Executive Assistants, Leasing Agents, Buyer Agents, every conceivable role, women are at the forefront of our industry. In terms of the daily work of real estate practitioner, women tend to develop a rapport with a property owner from a genuinely empathetic approach and can have a better appreciation of the stresses associated with selling or renting a home. In these early exchanges, women also tend to take time to listen to the homeowner and feedback advice that is in tune with their property needs. For a long time, real estate practitioners have had a reputation of unethical behaviours in search of a commission. Thankfully, for a variety of reasons, this has necessarily changed and agents now enjoy strong endorsement from the broader community for the work they do. However, the remnants of these biases float about from time-to-time with such negative perceptions usually focused on slick haired, gold chained blokes who seem prepared to sell their grandmothers for a quid. Such views are almost always born out of ignorance with such stereotypes fast becoming a thing of the past. Yet if any such stigma remains, it is interesting that it doesn’t appear to apply to women real estate practitioners. And perceptions are powerful motivators. There is a perception that women are more trustworthy, more honest and better organised than men; important qualities for a real estate agent. Women are often touted as having a superior eye for detail in design and decor than their male counterparts do too. It is International Women’s Day this week and is a celebration of the empowerment of women across society, including the work force. On average, we still pay women less than men to do the same job, but not in real estate where an increasing number of the top selling agents are women. So, in celebration of International Women’s Day, congratulations to all women involved in real estate, may they continue to grow the professionalism of our industry to the benefit of us all.
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 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 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.