Firming real estate market tipped for 2007

The Australian property real estate market stabilised through 2006 and most states can expect a stronger performance in 2007, according to a report from LJ Hooker Financial Services. Published in the Australian Property Investor Magazine March 2007. For more info, visit www.apimagazine.com.au.

First homebuyers are returning to the real estate market and owner-occupier activity is improving, the company’s general manager, Peter Bromley, wrote in a report, which went on to detail conditions in each state.

New South Wales Real Estate

Bromley said it was “genuinely difficult” to predict NSW real estate market movements at this stage. “Big price increases are unlikely through 2007, though the top end of the market - $2 million plus properties – should continue to climb,” he said. In what could be an interesting tip for real estate investors, Bromley said some regional NSW areas may outperform Sydney, naming the centres of Newcastle and Wollongong in particular.

Victoria Property

Melbourne had an “outstanding” 2006, with the LJ Hooker/BIS Shrapnel Residential Property Index showing growth of 17.8 per cent over the year. “This remarkable level of growth also shows no signs of slowing down, with the final three months recording growth of 4.8 per cent,” wrote local real estate analyst Warren Urquhart. The metropolitan real estate market property was very strong, while the outer suburbs were somewhat slower, mostly due to buyers “being very deliberate in their decision making,” Urquhart said.

Queensland Real Estate

Growth of 4.6 per cent over the three months to December 2006 suggested three interest rate rises during the year had little impact on the Queensland residential property market, the report said. Glenn Prior of LJ Hooker Financial Services in Queensland said the Sunshine Coast market real estate was particularly active in the lead-up to Christmas and the start of 2007 fround the Gold Coast unusually busy. Real estate investors were also active in Townsville and Chinchilla, on the back of ‘planned’ commercial activity. On these, Prior warned, “Caution is needed where a property market is being driven up by speculation.”

Western Australia Property

Perth was the standout performer of 2006, with the Residential Property Index showing 34 per cent growth for the year. However, Barry Hurst of LJ Hooker Financial Services said the unrelenting rises would have an impact on first time homebuyers. “The $440,000 median house price is already out of many first homebuyers’ reach,” Hurst wrote. “Some real estate market observers are expressing concern that the possibility of concessions for first home buyers, as mooted recently by the State Government, may cause this sector of the real estate property market to go to ground. Even the suggestion of the ‘carrot’ may result in a ‘wait and see’ attitude and that would certainly have an impact on the property market at large.”

Tasmania Property

Home loan activity for established homes was growing above the national rate in Tasmania and first homebuyers activity was also above the national average, Urquhart said. Prices also climbed. The northern suburbs had strong real estate sales through November and December, Urquhart noted, and the southern suburbs should see increased activity driven by land releases this year.

South Australia Real Estate

Andrew Morrison wrote in the report that the real estate outlook in Adelaide for 2007 was “one of general optimism.” “It’s fair to say that the overall performance of the Adelaide property market in 2006 was flat but there’s every sign that 2007 will deliver better results,” Morrison said. He said low property vacancy rates were attracting Australian real estate investors back into the market in “noticeable proportions.”

Australian Capital Territory

The ACT’s market has continued to defy market observers in Australian real estate, with the Residential Property Index recording a return of 4.3 per cent for 2006. “December was strong, with good auction clearance rates and above reserve prices achieved in most instances,” Bromley said. “Real estate developments are still going strong, especially in Canberra’s inner suburbs.”

Northern Territory Real Estate

The Northern Territory experienced browth through much of 2006 but there was some decline in the final two months of the year, Morrison said. Nonetheless, the Residential Property Index of Australia Real Estate showed a rise of 10.6 per cent over the year. “Relatively low sales volumes in the second half of 2006 may have had some effect on median house prices however Darwin property real estate owners should keep the positive annual rate of growth in mind,” Morrison wrote.

A Hot Real Estate Market in Darwin

Wendy Trewartha found herself in NT when her husband was transferred with work. It was here she realised a passion for real estate property and found a red-hot market. By Bronwyn Davis for the Australian Property Investor Jan 2007 magazine.

Why have you invested in Darwin real estate?

We started investing in Alice Springs because we were living there. When we moved to Darwin about four years ago, we realised we could make a better return. It’s also easier for us to own real estate investment properties where we live so my husband can do the maintenance. We looked at the returns carefully. We wanted to be able to negatively gear but didn’t want to have to make up a large shortfall.

How do you believe the real estate market is performing and what do you expect from it in the future?

Prices are still on the rise, but things seem to have slowed down a bit. A couple of months ago a real estate property would be in the paper once before it was sold; now it might be advertised for a couple of weeks. A house around the corner from us went up for action recently and I asked a few real estate agents what they thought it would go for. They all thought about $450,000 but it ended up selling to an interstate investor in real estate for $493,000. I think this real estate market will continue to increase in value. They’re doing a new 700-block development of property near us at the moment. They’ve just done the first stage, with land priced at $217,000 to $250,000 for blocks from 500 to 900 square metres.

How is this affecting your real estate portfolio?

This new real estate development should increase the land value on my own home, which is good because I’ve been using it to buy other real estate properties. I’ve found it easy to borrow against my own home because each time I get a valuation done, it’s gone up. I bought this house four years ago and had a valuation done when I first purchased my first condo unit investment in 2004, then another when I bought the last two real estate units about a month and a half ago.

Do you intend to invest further in Darwin real estate? Why?

We’ll have a break for a little while because we only just bought the last two. The next one will probably be something we can rent out now and retire to later. We thought about buying and building in the new estate, but I think they’ll be priced out of the rental market so we wouldn’t get enough of a return. Half of them are going to be defence houses though, so we might consider one of those.

What advice would you give about buying real estate property in Darwin?

Probably the same advice I gave my daughter – she’s just buying her first real estate property. I told her that as soon as she gets enough equity in that one to try to buy her next real estate property and keep going from there.

In hindsight, what would you have done differently?

I would have got into it earlier. We procrastinated for a fair while before we bought that first unit.

Your best real estate investment?

The house I’m living in at the moment. That’s more than doubled in value in the four years we’ve been here. I’d say the same thing about the home I owned in Alice Springs. I bought that for $78,000 fully furnished and sold it 10 years later for $200,000. The difference being that this one has doubled in value in only four years.

Why real estate property?

I was working with the bank and I could see other people making real estate property work for them. At the time there were a lot of programs on TV about property investment too. They had a lot of millionaire experts talking about making money from real estate property and that really opened our eyes. I’m not the sort of person who likes to put all of my money into super. Now when I retire I can either cash in and use the funds from my real estate properties, or have them paid off and collect the rent from them. It’s a forced way of saving.

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Perth Maintains Appeal (Real Estate)

A survey conducted by Elderslie Finance Corporation confirmed that Perth was the hot favourite for residential real estate property in Australia. Published in the API Magazine January 2007 edition magazine.

The Elderslie Your Interest Survey is a bi-annual barometer which measure the real estate investment opinion of about 4500 Elderslie investors across Australia.

It found that Perth was considered the best value for residential real estate property investment by almost half o the survey respondents (49 per cent). This is the second consecutive time it has been favoured, with 36 per cent of respondents preferring it over other Australian capital cities in the autumn 2006 survey conducted six months ago.

Perth was followed by Brisbane on 23 per cent and Sydney on 10 per cent. Canberra (1 per cent) was voted the Australian capital city with the least value for residential real estate properties investment in a consistent finding between the autumn and spring surveys.

“It’s clear respondents aren’t just choosing their state of origin, with 18 per cent being from Western Australia compared with 39 per cent from New South Wales and 19 per cent from Victoria,” said Luis Garcia, director of Elderslie Finance Corporation.

Meanwhile, 62.5 per cent of respondents said that they further expect increases in interest rates over the next six months.

How much is a view worth?

Research analyst Michael Matusik says a new inner-Brisbane apartment without much of a view would cost about $450,000 today. The same apartment with a glimpse of the Brisbane River or the city skyline would be worth between $500,000 and $550,000 – “depending on the amount of glimpse”.

He says a full-frontage view apartment would attract between $650,000 and $725,000 – the upper end of that price range if both the river and city high-rises can be seen in the same frame.

Matusik says a vacant residential allotment with a view of a golf course fairway can attract between 50 and 70 per cent more than the price of a same size/shape allotment in the area without much of a view. In outer Brisbane today, this means around $180,000 for the no-view block and from $275,000 to $300,000 for the golf course block.

Matusik says an allotment facing square onto the fairway can attract a 100 per cent premium, fetching around $350,000.

Better-located fairway blocks – such as those on a ridge or facing north or with long-range views including over water – have attracted premiums between 125 and 150 per cent, depending on the quality of the position and view – therefore from $400,000 to $450,000 in this example.

Matusik says a waterfront allotment with deep-sea access in southeast Queensland now costs around $1.3 million for an average 895 sqm. This is six times the price of a similar-sized allotment – on average about $225,000 – in the same area but away from the water and with no substantial view. And while the waterfront allotments cost six times as much, their growth in value in the past financial year has been 11 times as much ($9000 versus $100,000).

Published in API Magazine – January 2007.

Real Estate Buyers Fly Solo and No Relief in Sight for Real Estate Tenants

Australians are waiting longer to commit to a relationship but aren’t letting that stop them from buying property, a survey suggests. Published in the January edition of API Magazine in Australia on Page 11.

The number of Australians planning to buy real estate property on their own is on the rise, a Mortgage Choice survey of homebuyers found.

The survey found that people looking to buy their own home within two years were much more likely to buy on their own than those who bought within the past two years. Of the homebuyers-to-be, 36 per cent said they would buy on their won, compared to just 18 per cent of the recent real estate purchasers.

“These days it’s becoming more common for people to commit to another person later in life,” said Mortgage Choice national corporate affairs manager Warren O’Rourke. “But (Australians) aren’t letting that stop them from investing in the real estate property market.”

“Even low housing affordability is not a deterrent. They are empowering themselves as individuals and taking charge of a real estate property portfolio on their own,” O’Rourke said.

Mortgage Choice found that Western Australia had the highest proportion of buyers-to-be planning a solo real estate purchase (46 per cent) while New South Wales had the lowest (32 per cent).

No Relief in Sight for Real Estate Tenants: Published in Jan ’07 edition of Australian Property Investor magazine. A majority of Australians expect their rent bill to rise in the next few months and predict rents will continue to climb as occupancy rates tighten, according to a recent survey.

Website realestate.com.au surveyed 1480 Australians, with 83.4 per cent of the participants saying they planned to rent a home in the next six months. While 67.1 per cent of respondants believed rents would rise, 15.4 per cent believed they’d stay the same and 5 per cent believed they’d fall. 12.5 per cent had no answer.

It may get worse for tenants before it gets better, with 64 per cent of respondants saying occupancy rates were likely to go up in the next five years. Only 15 per cent believed they’d go down, and 21 per cent thought they’d stay the same. Of the respondants, 68 per cent were female and 32 per cent were male. The survey’s participants were spread around the country, living in New South Wales n (25.8 per cent), Victoria (27.3 per cent) South Australia (5.5 per cent), the Australian Capital Territory (1.3 per cent), Western Australia (9.4 per cent), queensland (27.7 per cent), Tasmania (1.7 per cent) and the Northern Territory (1.3 per cent).

“Given real estate rental vacancy rates are at the lowest level on record, it’s not surprising that most people believe it’s going to get even tougher to afford the rent on their home,” said realestate.com.au general manager Australia and New Zealand, Shaun Di Gregorio.

Di Gregoria offered some tips to renters in this competitive real estate renters market. “Don’t limit your search to just one area,” he suggested. “Cast the net a little wider to include surrounding neighbourhoods. “With so much competition, get your application in as soon as possible, even if you’re uncertain about the real estate property.”

“Many agents will take applications electronically and this is a really fast way to submit. Scan copies of references, identification, like your driver’s license and the application form itself into your computer and then email directly to the real estate agent.”

Don’t Blaim Real Estate Investors: Despite getting some bad press, property real estate investors aren’t to blame for low housing affordability, says analyst Michael Matusik. Published in the Australian Property Investor magazine Jan ’07 edition.

Recent reports on the housing affordability issue had wrongly place the blame at the feet of real estate investors and the negative gearing provisions that make real estate investment more attractive, Matusik said.

He said it was a myth that investors were driving house prices higher by outbidding potential first time home buyers.

“Real estate investors in residential property are in the business of supplying accommodation,” Matusik writes in a recent Snapshot report published by Matusik Property Insights.

“Orthodox economics says that a subsidy (negative gearing in this case) to suppliers (investors) – all things being equal – will result in an increase in supply and a fall in the price of the product (rental housing) supplied. A subsidy to residential real estate investors results in an increased suppy of rental accommodations, lower rents, and a reduction in the demand for, and prices of, owner-occupied housing too. Favourable tax treatment of residential real estate investors results in lower, not higher, house prices. One could argue, given the current shortage of rental accommodations across Australia, that the subsidy to residential real estate property owners is not generous enough. There should be more negative gearing, not less!

“The parable that investors elbow intending owner-residents to the back of the housing queue, hence forcing up the price of real estate housing, is nonsense. Extraordinary price growth, resulting from competition for housing, can only occur when there is a constraint on the long-term supply of dwellings.”

To back up this point, Matusik pointed out that while the real estate market for rented apartments had performed as a normal market – with rents and prices broadly rising in line with inflation – since the late 1980s, house prices had increased substantially.

He said this was because there had been few limitations on the supply of apartments across Australia over the past 20 years but the supply of land for new housing stock had been limited. Matusik said financial, policy, and social barriers were conspiring to reduce the level of home ownership among first homebuyers – not real estate investors squeezing homebuyers out of the market.

He also warned that any move to limit or remove negative gearing would see property investors in real estate shift their money to other real estate investments and rents would subsequently skyrocket.

Did you know?
28% of households in Australia’s capital cities are rented
40% could be rentals within two decades

Source: Matusik Property Insights