Real estate markets, especially in Melbourne and Sydney, are at the cusp of a spring sales boom, thanks to record weekend clearance rates in recent weeks, higher finance approvals and historically low interest rates.
Nationwide, house prices rose 2.2 per cent in the June quarter and, on the reckonings of the Australian Bureau of Statistics, they are up 5.5 per cent since the recent bottom in the December quarter of 2011.
High clearance rates are typically the harbinger of rising supply and two of the prospective winners from this renewed interest are the real estate websites Realestate.com.au and Domain, the latter owned by the Fairfax Media, owner of this august journal.
If last week's profit results from Fairfax are any guide - they were a mixed bag, generating both analyst upgrades and downgrades - the fillip to Domain has come at a good time.
The woes of newspaper companies around the world persist, as digital revenues fail to countervail the declines in traditional advertising and circulation.
For Fairfax, the ''Digital Transactions'' businesses have been the ''growth story'' for a while. But these too - principally holidays website Stayz and dating site RSVP - have plateaued.
It is a good thing for the future of this creaking but critical cornerstone of democracy that Domain is growing. And it has the real estate agents on its side, leery as they are to be subjected to the domination of Realestate.com.au. The latter is 61 per cent owned by Rupert Murdoch's News Ltd.
But get this: the sharemarket value of Fairfax at $1.4 billion is less than one-third the size of REA, which is capped at $4.6 billion. Either Fairfax is too cheap, REA is too expensive, or a bit of both. But the opportunity surely lies with Domain.
In terms of numbers of property listings, Domain.com is 60 per cent the size of REA yet it is only one-third the size when it comes to online listing revenue. REA has been more aggressive in rolling out ''depth products'' to enhance profit margins. These are value-added display offerings - pay for listing prominence.
In such an emotional market, where the sale is typically one of the largest transactions of a customer's lifetime, a ''depth product'' is an easy sell. It's growth. And Domain is yet to capitalise on this ''value-add''.
By all accounts when one reads the news our property markets are apparently booming.
As they say if you want to make a mountain out of a mole – hill just keep adding dirt. It’s very easy to use the boom word just as its very easy to use the word bust. What the vast majority forgets is that real estate is not an exacting science, if it’s such a great time to buy now then why did the markets fail to react from 2008 to 2010 when prices dropped by 30%?
Sydney’s property bubble hysteria is unfounded where it was correctly pointed out by Terry Ryder that “three years ago BIS Shrapnel, which makes part of its living from mis – forecasting property markets, declared in 2010 that capital city prices would continue to rise strongly. By 2013 Perth would be up 22% and both Sydney and Adelaide would have added 20%. Nothing of the sort happened, of course. Three years on, Perth is up about 7% and Sydney a meagre 4%. Adelaide is still down 3%. These are not statistics that support bubble theories.”
The capital growth rates (average annual growth in median prices over the past ten years) have Mosman at 2.4%, Cremorne at 2.8% and Neutral Bay at 3.5%. Our demographic property markets are performing currently at their highest level in six years albeit with the tightest stock levels not seen before in decades. If you are, for example, looking to buy a house presently in Mosman, Cremorne or Neutral Bay you have a choice of 110 homes, for apartments your choice is 112. Sydney’s property market is a bit like the porridges of the three bears in Goldilocks – too hot or too cold and, for some, just right – I would put our market in the just right category; “Data from Australian Property Monitors shows 40% fewer homes selling in the $4 million to $6 million price range in the first half of this year compared with the same period in 2010 when the market was enjoying a fillip.”
All up sales of $4 million to $6 million sales in Sydney, in six months to June 30, 2010: 187 compared to in six months to July 30, 2013: 111.
The last time the Reserve Bank of Australia (RBA) moved the cash rate up was back on November 3, 2010 to 4.75%, so it’s little wonder that we are seeing engagement in the property markets given today it sits at 2.50%.
Interest rates increase an eventual risk for borrowers: Fitch warning – monthly home repayments will rise 40% if interest rates return to 2008 highs and banks might not be taking this into account when lending. Since October 2011 the RBA has now delivered eight cuts so it’s inevitable that they will start increasing the cash rate – the warning signs already are starting to appear.
When I want an accurate gut – feel for our property market I look no further than the available stock levels which still remain in decline. For houses Mosman is averaging a twenty% decline on previous years and to be honest I can’t really see this changing anytime soon.
A report into the Sydney CBD unit market – focusing on Dawes Point, Haymarket, Millers Point, Sydney and The Rocks – has found that demand for new apartments was strong in the first half of 2013.
Investors and owner occupiers in the postcode 2000 suburbs are opting for one and two bedroom units, leaving sales of existing units subdued.
The Sydney CBD unit sales cycle graph points to steady activity over the 18 months to April 2013 with 385 transactions in the most recent period. This compares with highs of 985 transactions in October 2007 and 1002 transactions in October 2003. New apartments lifted the median price to $692,000 over the six months from October to April.
New apartments selling off-the-plan not included in the data are expected to boost the April 2013 six-month result, with five new projects at various stages adding 383 units to the existing stock.
The market overview, by researchers PRDnationwide, found the current market is attractive to a mix of local and overseas buyers, with those from overseas often using a 20%-30% deposit and finance of the balance from local financiers.
It found anecdotal evidence of strong demand for one or two-bedroom apartments, allowing buyers to alternate between an investment and owner occupation. Similarly, overseas investors who bought a residential unit for children attending university use it as a conduit to further investment in residential and commercial properties.
The study found residential construction in the 2000 postcode is mainly south of Druitt Street, with the exception of Eliza, a 19-apartment development on Elizabeth Street near Hyde Park. Haymarket has the highest number of units being built, with the Quay, a 240 mixed use development on Quay Street, and the Hing Loong Apartments, a 47 apartment project on the corner of Dixon and Little Hay Streets.
A positive outlook for Sydney is backed by an ‘’accommodative mortgage rate environment’’ – the report says - and improved investment in real estate as other asset classes show low returns or volatility.
March rental data points to little change in rents for the 2000 postcode. The median rent for a one-bedroom apartment of $600 per week represents a 12 month growth of 1.3%. Over the same period the median rent for a two-bedroom unit remains at $800 per week.
The gross rental yield for one-bedroom apartments ranged from 4.5%-6.6% for properties under $1 million, with similar returns for two bedroom apartments. Today’s lending rates allow investors putting down large deposits to recover most of their annual expense from their tenants.
While rental return is important, investors are usually searching for long-term capital growth. PRDnationwide Research’s resale analysis ascertains the average annual growth achieved by vendors who sold in the April 2013 half year period. It reveals an average appreciation of 3.1% per annum, with an average holding period of 6.5 years. PRDnationwide says moderate capital growth and higher rental yield compared to inner city suburbs outside the city centre is consistent with the traits of CBD investment.
The changes in mortgage demand chart shows a 13% increase in the 12 months to April 2013 in NSW.
The unit price point chart shows the April 2013 price strength with properties selling for at least $1.1 million accounting for 25% of sales, those less than $500,000 at 20% of sales, $500,000-$600,000 at 16% and $600,000-$700,000 at 14%. The upper figure of 25% compares with 22% in 2012.
The Sydney precinct recorded the highest number of units available for sale in the first half of 2013. The Sydney CBD unit days on market table highlights the 30 days or less bracket as the largest for the precinct, suggesting a good turnover of stock. Only 23% of the stock was advertised for a period of 120 days or more, compared with 33% for Haymarket and 50% for units in The Rocks.
The June quarter recorded the highest 12-month increase in the volume of mortgage inquiries since June 2010, with the Veda Consumer Credit Demand Index pointing to a 12 months growth of 13% for New South Wales. The figure reaffirms the market’s strength.
Tim McIntyre Real estate reporter August 23, 2013 12:48PM
THE experts may be arguing over whether Western Sydney can expect a property boom or not, but the people who live there have some news for them - it's already here.
While property prices in greater Sydney were still recovering in 2013, suburbs like Cabramatta West, Fairfield, Auburn and Merrylands were recording million-dollar sales.
Fairfield medians grew 6.7 per cent over the three months to May, while Cabramatta West grew 4.4 per cent, according to RP Data. Over 12 months, Auburn was up 6 per cent and Merrylands 5.2 per cent.
Nathan Birch, founder of Blink Property, said: "Properties have been selling before they hit the market all year.
"This boom will go from the west to the east, rather than the other way around."
The last time western Sydney boomed, 10 years ago, it slumped again soon after.
"The blue-collar belt from Parramatta to Penrith and Liverpool to Campbelltown peaked around 2003, but dropped off in 2005 with a lot of bank repossessions," Mr Birch said.
"There are a number of key differences this time around. The local population has grown, interest rates are at record lows, compared to around 10 per cent back then, and rents are much greater now.
"We've got lower unemployment, we survived the Global Financial Crisis and now there's pent-up demand pushing the prices up."
That demand is unlikely to ease anytime soon, with the Housing Industry Association predicting 25,000 fewer homes will be built this year than in 2003.
Anna Wardle experienced the heat of the market first hand when she sold her home in Guildford for $561,000, through Starr Partners, more than $100,000 over the suburb's median price.
"I'd been thinking of selling for a while and thought now was the right time due to a shortage of properties," the mother of two said. "I didn't think there'd be as much interest in the house, but we had 32 families through during the open campaign."
I was almost tempted not to blog this week on the whole boom, bubble or bust debate.
At best I think it sounds like a playground game for kids; at worst it could be a late night drinking game!
And like those games I’m not sure there is any real purpose or value to the debate other than to perhaps occupy or distract participants for a short period of time.
And to be perfectly honest I’m not sure that anyone, including myself, really knows exactly what is going on out there right now but the market has undeniably picked up.
So let’s have a look at the options:
At the current rate of exposure I’d suggest any bubble is being inflated as much by the hot air of over excited media and agents as the ongoing record low interest rates.
However there is no doubt the market is being fuelled by a shortage of stock. Whether that makes a ‘bubble’ I’m not sure, but only a month ago we had fallen to record low stock levels. They’re now slowly starting to increase but I anticipate it could be a while before they return to traditional levels.
Does that mean the bubble will automatically deflate if we all stop talking about it? Or will the chatter continue to rise until the bubble inevitably pops?
In my view neither option is appealing.
A boom? I’ve said it before - I hope not.
Just like a drinking game surely we have all learnt the hard way that after the euphoria of a boom comes the dreaded hangover.
Maybe it’s because I had to deal with the hangover last time that I know it isn’t pretty.
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