21 Apr Don’t discount SA + Sydney takes a breather + Face the new property market ‘reality’
George Raptis tells us that while Sydney is taking a breather, it is still performing well. Good properties are short and demand is strong. He says developers are going crazy.
Korgen Hucent gives us a sobering report on the Northern Territory and that the oversupply is bringing a whole different type of investor into that market. He tells us about the new challenge property owners are facing.
For the first time in this whip around the country, we acknowledge the importance of the North Queensland property market and Chris Gay from Cairns gives us his view on why investors remain positive about the north.
Dr Andrew Wilson from Domain takes an overall view of the national market and says we have a new reality in the Australian housing market as he predicts the boom times are behind us and the market is likely to flatten.
Despite so much bad news coming out in the South Australian market, what with the news from Holden and more recently the shut down in Wyalla, Peter Koulitzos says investors should not discount the infrastructure development happening there.
Kate Forbes helps us understand why the ACT market has underperformed in recent years but she points out there are some signs of improvement but that with a looming Federal election, consumer sentiment will again play a roll in what happens there.
George Raptis –
Kevin: As you heard at the start of the show, this week and next, we’re going to be looking at Australia, at the different property markets. Where better to start than in the Sydney market, one of the hottest markets we’ve seen in a long time? Our expert on the ground there is none other than George Raptis from Metropole Properties in New South Wales.
George, it’s been an incredible time – hasn’t it – for that market?
George: It sure has, Kevin.
Kevin: Let’s have a bit of an overview. We’ll have a look at the Sydney market first and then take me into the state overall. Tell me what you’re seeing there now.
George: It was a head-spinning 2015, wasn’t it? Property markets had started 2016 with a bunch of mixed predictions: some people calling for property bubbles, others forecasting lower but some continuing capital growth.
The scorecard is in for the first quarter, and yes, our property market have slipped down a gear a little. The Sydney market is taking a well-earned breather, with house prices dropping in some locations, but overall, they’re up nearly 50% from the previous market trough in 2012.
Kevin: What’s impacting the market now, both positive and negative, George?
George: I’d say the fundamentals for our harbor city property market are sound because jobs are being created here and the population continues to grow strongly, actually. There was a lot of the media reporting that Sydney markets dropped. That’s true; the market is still fragmented with a shortage of good properties, especially in areas like the inner western and eastern suburbs, at a time when there is still strong demand from both homebuyers and investors.
Kevin: Are there any areas that you’d avoid, both in Sydney and in the state?
George: I haven’t been in [1:44 inaudible] a long time, as you know. There are certain areas that I am concerned about, especially areas in previous industrial areas where they’re now over-developing, a lot of new things mushrooming out of the ground.
The last time I saw it was the last boom here in Sydney in the 1999–2003 fall when a lot of people bought speculatively, a lot of off-the-plan type properties and when they were due to complete, unfortunately, evaluations came in low and they couldn’t get them rented because so many of them looked the same. I have a little bit of concern about that particular segment in the market, for sure.
Kevin: How would you describe investor sentiment right now?
George: The current low in the property market is creating, in my opinion, a great opportunity for both homebuyers and investors, especially those with a long-term perspective. But you have to be careful; as we know, property selection is critical.
Auction clearance rates are always a pretty good barometer, in my opinion, as far as how people are feeling as far as sentiment is concerned. Since the auction markets kicked in at the beginning of the year, it’s been quite positive. Auction clearance rates have been hovering around that mid-70% band.
Our economy here is strong. The government is spending some serious money on infrastructure. We have strong population growth and low vacancy rates currently. All of that means that some segments of our market here are likely, in my opinion, to revive in the second half of 2016.
Kevin: Are there any developments or infrastructure projects on the go – in the planning or underway – that you think are going to impact the market in New South Wales?
George: I’d have to say you need to look at places like the inner west where the state government spent a fortune on that new light rail and what that has actually done for that location there and how easier it’s made it for people to commute in and out of town. I’d be suggesting looking at where the new light rail is going to be servicing the eastern suburbs of Sydney. I think that’s going to impact that particular market big time.
Kevin: Let’s have a look at what buying opportunities there are right now. What’s the best buying in the capital now – where and what do we get for our money?
George: I’d still suggest looking at properties in the inner and middle ring, established properties where there is that scarcity and demand. Home buyers are selecting a lot more carefully now, their decisions being driven more by lifestyle. In other words, a lot of them are trading backyards for balconies in well-located apartments in a lot of Sydney’s gentrifying suburbs. They’re the sort of areas that I’d be focusing on, for sure.
Kevin: What are we going to get for our money in those areas? Are we looking at units or houses?
George: You’d predominantly be looking at units. Entry level for something in the inner west, you’re talking somewhere in the vicinity of $500,000 and up from there.
Kevin: At $500,000, that would be single bedroom, or would it be a two-bedder?
George: In the inner west, that would single bedroom. In some cases, there is still a possibility of getting a two-bedroom apartment.
Kevin: What sort of rental return would you get on one of those?
George: I was actually speaking to our property management head the other day, and the rental market has picked up a lot in the sense that vacancies have tightened up a lot, we’re seeing big numbers of people attending open for inspections, rents are starting to creep. I think the next headline that the media might jump on the bandwagon – and this might be a bit of crystal ball gazing – is I think we might hear those two words “rental crisis” again.
Kevin: Good talking to you. George Raptis from Metropole Properties in Sydney.
George, always good catching up, mate, and thanks for your very valuable time.
George: Likewise, Kevin. Thanks very much.
Korgan Hucent –
Kevin: Let’s go from one end of Australia to another. Two very different markets – Sydney and Darwin – and this time, we’re going to take you to the Darwin Northern Territory market. I’m talking to Korgan Hucent from Ray White at Bayside, working out of the Darwin market.
Korgan, thank you very much for your time.
Korgan: Thanks, Kevin. It’s good to be on the show.
Kevin: I’d have to say as an outsider, Darwin’s had a bit of a patchy year. Would you agree with that?
Korgan: Yes. Look, that’s probably being a little bit conservative. Property values and the market performance probably peaked in mid-2014, and we’ve certainly seen a softening of the market, certainly in the last 12 months. That’s for sure.
Kevin: What impact has that had? Has that brought more opportunistic buyers into the market, Korgan?
Korgan: It has. We’ve seen a drop in volume both in the housing and the unit market of a significant figure. Housing, overall, Darwin is down by about 30%, but the unit market is down and probably more affected by almost 50%. Just a result of oversupply and of developments that were up and running in 2013 and 2014, and now, obviously, just loads of choice. The market is certainly not where it was this time in 2014.
Kevin: One of the questions I wanted to ask you was how would you assess investor sentiment, but I might swing that around and ask you about developer sentiment. What are they saying to you? Are they confident about coming out of the ground?
Korgan: In my conversations on the ground, there’s certainly a loss of confidence both from investors for properties that we manage and just general sentiment, but also developers recognizing that obviously the market is down, and while there’s so much choice around, obviously, people are holding back. They are holding back.
Kevin: It must be an interesting dynamic in the market. You’ve come off a fairly hot time to now a difficult time, and your communication with sellers is probably one of the most difficult things you have to do right now because I imagine there would be a number of people who want to get out but can’t get back what they paid for their properties.
Korgan: No doubt. In the last three, four, even five years, if someone is looking to exit the market, in the current climate, it’s certainly going to be a challenge. It just means people need to either accept the status of the market and make decisions accordingly or be prepared to ride out the next two, three years, what we believe where it’s probably going to remain a little bit flat, and obviously, maybe in the medium-term, things will pick up from there.
Kevin: How has that impacted rental returns?
Korgan: We’re seeing yields at the moment for housing and units combined somewhere around 5.5%, so they’ve come back a little bit, as well. Average housing at the moment, around $550 for an apartment, somewhere around $400 per week. Vacancy rates are sitting somewhere around 9% and have sat there for probably a good two, three quarters now.
Kevin: That’s a pretty big number, isn’t it – 9%?
Korgan: Yes. Again, two, three years ago, it was probably less than 50% of that, so we’re facing right now a market where both the values in terms of the volume as well as the actual values have dropped, and equally, on the rental side, we’re seeing vacancy rates up and rental values drop in some instances, Kevin, up to 20%.
Kevin: Korgan, what’s on the horizon? Are there any developments coming up, infrastructure projects that are going to enhance the market a little bit?
Korgan: There are some positives and some negatives. We’re seeing that the big INPEX gas project brought a lot of confidence back into our market a few years ago. That’s within 12 months of shifting from the construction phase to the ongoing maintenance phase, so that will, we believe, have an impact on the market within the next 12 months.
We have a local election within a few months, so what we’re anticipating is that the government might roll out some spending to bolster up the market and the economy. One of the most significant changes that, as an industry, we’d like to see is the shift from first-home owner’s grant being directed towards new dwellings only to established, and I think that will make a significant impact in improving the status of the market.
Kevin: Just to round out our chat, Korgan, best places to buy right now in Darwin? If I had some money in my back pocket, where should I invest?
Korgan: I think probably the northern suburbs right now would be the place to be investing in or both investing or buying a home within. There’s good value there. Certain parts, despite the challenging market conditions, are still holding values to some degree. Probably two areas that I would pick would be Jingili and Leanyer. Average house prices are probably a touch over $600,000, mid-$600,000 in both those areas, and I think they’re probably the places to be looking at in Darwin.
Kevin: Very sobering, but thank you for your insight there. Korgan Hucent from Ray White Bayside in Darwin.
Korgan, once again, great talking to you mate, and thanks for your time.
Korgan: Thanks again, Kevin.
Kevin: We do this every year when we have a look around Australia, and I think this is the first time ever we’ve looked separately at the North Queensland market. So many things happening and Queensland such a big state that we’ve decided to split it up. Joining me to talk about the northern part of Queensland is Chris Gay from Chris Gay Real Estate based in Cairns.
Chris, thank you for your time.
Chris: Not a problem.
Kevin: A pretty interesting area, isn’t it, North Queensland? We’ll try and focus, if we can, on Mackay north, but it’s interesting to look around in the Cairns market at whether or not those big developments are going to happen that have been on the drawing board for some time, Chris.
Chris: Yes, that’s right. There is a little bone of contention with some of them because they have, unfortunately, dragged the chain a little bit, Kevin. There seems to be some renewed interest in the Aquis development with Tony Fung coming up here recently and meeting with our mayor.
Kevin: Is it going to happen, do you think, Chris?
Chris: I’m still sitting on the fence, I have to be honest. I’m a realist with these things, and while I’d love to see it go ahead, when they turn soil, then I’ll be a lot happier than I am right now.
Kevin: How much does it mean to the area to have a development like that?
Chris: While it would be a very good thing to have, Cairns has a hell of a lot more going for it than just one development such as Aquis. We’ve seen a market turnaround in the last three years with tourism in the town. There’s talk of a substantial increase in the near future with the Navy base. We’ve started to see the odd crane on the horizon with a new $50 million aquarium being built.
There’s talk of a number of other developments going ahead. There have been some large commercial sales. The local DFO has just been sold for about $40 million, I believe, and they’re doing a $10 million upgrade on that, so there’s more than one area that makes me feel very positive about Cairns.
Kevin: You’ve given us a very good overview about some of the future projects. What’s impacting the market there right now, both from a positive end and a negative point of view?
Chris: Probably from the positive point of view, it’s the actual affordability of the established market. What I’m seeing is a heck of a lot of the mid-range houses between, say, the $350,000 and $450,000 mark that are selling are still below a replacement cost if you were to go out, buy a parcel of land, and then build yourself a new home. To me, they represent fantastic value.
The unit market, residentially, has copped a fairly torrid time over the last few years with some dramatic insurance increases, which have all, obviously, been passed back on to owners. However, we are seeing the Insurance Council start to come in and downsize some of those costs, which is a plus, which is reducing that again. Our rental return market is, I think, very, very good when it comes to an investor return for your bucks on what you’re buying.
Negatively, as much as anything, probably the turnaround time on financing has seen spectacular growth. What we have seen, however, is a nice, steady, sustainable growth over the last few years. That, to me, is a heck of a lot safer than some of the other areas that have been reliant on mining, etc.
Kevin: How would you describe investor sentiment in that area right now?
Chris: I think it’s fairly positive – and it should be because we’re looking, at the moment, on housing at about a 2.5% vacancy factor and on residential units, we’re looking at 2.9% there. That, to me, has always been around a crisis number of available properties to rent, so we’re seeing that rents are certainly doing better than just holding steady; we are seeing increases in them.
We haven’t seen any new unit development in the last four or five years, apart from the bit of government stuff, so that supply and demand situation has basically been very tight over that time.
Kevin: You mentioned affordability as one of the big pluses, and I would have to agree with you. Where is the best buying right now? Let’s look specifically in the Cairns area. What are going to get for our dollars?
Chris: On the south side, you have lower prices. When you look at a city like Cairns, you’re talking probably 20 minutes from the CBD, either north or south to the town. Travel time is not a major consideration that comes into it. But on the south side, you’re buying a nice home for around about $340,000 to $350,000.
Coming closer into town, of course, you have some more desirable areas – Whitfield, Edge Hill, Freshwater – and you’re up well over the $500,000s in a lot of those areas. But there is still the odd smaller property that offers some pretty good opportunity for someone who is prepared to take something on and expand a little bit.
Kevin: The bottom line in closing, if we could, your view about the next 12 months in the Cairns market?
Chris: I think for the next 12 months, we’ll be steady as she goes. I think we’ll probably see somewhere around about 3% to possibly 4% growth, which once again, as I said earlier, is quite sustainable. It’s the type of market I like to see. There’s no whizbang to it, but it’s certainly sustainable and it’s very viable.
Kevin: Good on you, Chris. Thank you so much for your time. Chris Gay from Chris Gay Real Estate in Cairns. Thanks, mate.
Kevin: As we continue to look around Australia at the different markets and what’s ahead for us – a bit of a mixed market, a bit of a mixed bag – as you’re probably already hearing, let’s get a national overview. Joining us, Dr. Andrew Wilson, Chief Economist at the Domain Group.
Andrew, thanks for your time.
Andrew: Thank you, Kevin.
Kevin: A little bit different in the show this time. When we talk to you, we’re going to look at a national view. Normally, when we talk, we talk about auctions and so on, but a bit of a mixed bag all around Australia is what we’re hearing. There are some cot cases, and there are some areas where it’s still ticking along quite nicely, Andrew.
Andrew: Look. I think the big picture, Kevin, is that we have a new reality in our housing markets this year, particularly if we look at the capital city energy, and that is that we’re certainly getting a convergence of growth rates.
The great booms in Sydney and Melbourne are now behind us, and I think we’re going to generally see a flattening of house price growth this year. I think that house price growth through the cycles now will be in a range of perhaps 2% to 4%, 2% to 5%, depending on local conditions. I think we’re going to have quite a flat year this year.
A lot depends, of course, on the underlying drivers, and that particularly means interest rates, but I think that even if we did get a cut in interest rates, it wouldn’t revive markets to the extent we’ve seen in previous cycles.
Markets are a lot more predictable, a lot more certainty, and I think that buying and selling decisions will reflect individual factors rather than whether it’s a good time to buy or sell. So look, a quieter year this year for prices growth, particularly in Sydney in Melbourne, and as I said, I think the future is a future of modest price growth, and I think we’re seeing that evolve now early days in the year.
Kevin: Some cot case markets, like Northern Territory, probably Western Australia, South Australia, maybe even the ACT. Would you categorize those as fairly tough markets right now, Andrew?
Andrew: There’s no doubt that the down turn in the resources sector has impacted the Darwin and Perth markets, and the particular factor there was the waning of the fly-in, fly-out mobile work force. That really did create significant levels of demand for property, whether rental property or for purchasing. With the downturn in the resources sector, that’s certainly taken that demand away, and we’ve seen prices in the Perth market at their lowest levels for two years and certainly down, as well, as in Darwin.
But look, I expect those markets to start to bottom out this year. I think the rate of decline will start to actually moderate, and I think that there may be some capacity for some small prices growth towards the end of the market. I think what we’ll see in Perth and Darwin is the value buyers starting to recognize that there are good opportunities to get into the market at the bottom of the cycle.
Kevin: Yes, if you’re willing to get in now and hold for a while, it’s obviously good buying with low interest rates, as well. How would you describe investor sentiment right now?
Andrew: Obviously, we had higher interest rates last year, Kevin, which took the top off that investor market, which was very strong, particularly in Sydney. But investors were quite strong right across the board. Investors were activated with those low interest rates.
We have seen a slight sense of a rebound after a falling away of investor activity, and I think that investor activity will be quite solid this year continuing forward. Yields, even though they’re between 4% to 5% in most markets, are still attractive when compared to underlying yields for other asset classes in the economy, and of course, there are still significant taxation advantages for being a residential property investor. I think that we’ll continue to see quite reasonable activity levels going forward in most capital markets this year.
Kevin: Now, you’ve just released your rent report, too. What did you learn from that? What did that tell you?
Andrew: Very interesting results in our March Quarter Rent Report, Kevin. We’ve seen that unit rents are actually on the rise. We recorded unit rent increases in Melbourne, Sydney, Canberra, and Hobart.
It’s been a little counterintuitive because we’ve seen strong development of high-rise apartments, particularly over the last two years in those eastern seaboard markets. Most markets have seen higher levels of apartment development, but it’s certainly having no impact on demand for rental properties.
What I think we’re seeing in a lot of those eastern seaboard markets, there’s a shortage of houses for rent, and I think we’re seeing tenants starting to pick or choose as an alternative units, and that’s pushing rents up.
Kevin: Where is the best buying right now if you look around at some of the cap cities, Andrew?
Andrew: As I said, I think we’re looking at the bottom of the market in Perth, so opportunity is knocking there. I think sellers would be quite ready to deal in those markets. Some of the underperformers have been quite strong over the last 12 months – I’m talking Canberra and Hobart.
Hobart has been a market that has revived over the last year. Hobart offers the highest yields of any of the capital cities at the moment and still upside for capital growth. But investors tend to look sideways at that Hobart market. Perhaps, they will take a closer look this year, particularly given it remains the most affordable capital city market in the country.
Kevin: Yes, interesting that both Hobart and Brisbane were tipped as probably some of the best investment markets, and you’re right; I think Hobart traditionally has been overlooked. Why is that do you think?
Andrew: Perhaps it’s an off-shore market, Kevin. It has had problems with its economy. Of course, traditionally, it has had the highest unemployment in the country. It still has high unemployment. But there’s a definite chronic shortage of rental properties or houses in Hobart. Its vacancy rate is now at 0.7%, and that’s very, very low. There’s no wonder that rents are rising at the fastest rate of any of the capital cities down in Hobart.
Also, prices are rising, and I think that’s a reflection that that market was flat for a couple of years when interest rates started to fall, so it’s in catch-up mode. I think there are some good opportunities there in the Hobart market, particularly given that markets such as the other resource markets of Western Australia and the Northern Territory have been flat.
But look, I think there are still reasonable opportunities for investors in most capital city markets. I think the positive fact is that we’re not looking at any of those extreme price scenarios that we’ve had over recent years. There’s a lot more stable capital growth prospects in most capital city markets.
Kevin: Andrew, great talking to you. Thank you very much for your time.
Andrew: Thank you, Kevin.
Kevin: As we continue our look around Australia, this time, we’re going to have a look at South Australia. Been in for a bit of a hard time in recent times, but what’s happening ahead for the future? Joining me, a man who is commonly known as the Property Professor – Peter Koulizos.
Peter, Thank you very much for your time. Tell me about South Australia. What are you seeing there now?
Peter: We’re getting a bit of a mixed bag here, Kevin. We’ve got bad news so far as the Whyalla Steel Mills and Arrium not going so well. We’ve also got the impending closure of Holden’s next year. But the good news is I’ve never seen so much infrastructure going on in my state in my life.
We have the new Royal Adelaide Hospital, which will be completed later this year, some major road upgrades – and number one would be the upgrade of South Road between the River Torrens and Torrens Road. There’s a relatively high number of cranes in the CBD, building public and private infrastructure. So yes, economically, the news is a mixed bag.
Kevin: I was going to ask you what are the positives and negatives, and you mentioned a couple there. Of course, Holden closing down, we’ve known about that for some time. Recently Whyalla looks like it might be in for a bit of a tough time, almost needing a $2 billion bail-out. But isn’t it interesting, Peter, how where there has been a lot of adverse news about a lot of industries in South Australia, the federal government propping it up with a lot of infrastructure projects – which is what you’re talking about – to try and balance it all up?
Peter: That’s right. The state and the federal government are certainly taking up some of the slack, but the perception here is that if we get the submarine contract, all will be fantastic. And if that is people’s perception that turns into a reality, then that would be lovely. It would certainly be good for South Australia, but it is not the be-all and end-all.
What we need here is a bit more consumer and business confidence, but thankfully we are sitting pretty with the federal election coming up. South Australia is a key state as far as the Liberal Party is concerned, so I would expect a few more announcements between now and July when the federal election is scheduled to be held.
Kevin: What is the balance like in South Australia between Adelaide and the regional areas? Do you think a lot of this infrastructure development is happening in Adelaide, or is some of it being stretched out to the regions, as well?
Peter: Most of it is in Adelaide, Kevin. The regions aren’t doing so well. They are hurting fiscally. We’ve just talked about Whyalla. In Port Augusta – which has a number of industries, but one of them is where our electricity is generated – one of the substations is being closed down because I suppose it’s good news here in South Australia, we’re generating enough of our electricity through solar panels.
Also a town nearby Port Augusta called Leigh Creek, which had a brown coal mine that was used for generation of electricity, has also had to close down. The mine shuts down, and so the whole town is closed down.
It’s a very interesting time in South Australia, but there has also been of late some very positive property news.
Kevin: How would you describe investor sentiment right now?
Peter: South Australian investor sentiment is okay. What’s really propping up the market, Kevin, is the interest from eastern state investors. In Sydney, for example, where the median house price is a million dollars, it is very hard to buy an investment property in Sydney because you need to fork out several hundred thousand dollars. But you come to some very lovely areas here in Adelaide and $250,000 to $300,000 will get you a two-bedroom [4:07 inaudible] unit very close to the city, or even $300,000 to $350,000 will get you a house on a decent block in the Brisbane equivalent of Redcliffe or Woody Point.
There is a lot of interest. I know there are a number of buyer’s agents buying for their clients in Adelaide, and there are also a lot of people off their own back either coming to Adelaide and looking for property or just buying sight unseen off the Internet.
Kevin: That draws me to my next and probably final question, too, Peter, if I may. What are some of the areas you think are good buying right now, let’s say in Adelaide, and what are some of the areas that you would avoid?
Peter: The good areas: I would stick to the inner western suburbs like Mile End, Thebarton, Torrensville, Cowandilla, Hilton – they’re all at various stages of gentrification. To that mix, I would also add Croydon and West Croydon. A prospect that is also close to town just on the northern edge of the CBD is also a good prospect so far as investment is concerned. Or you look at some of your coastal suburbs. Australians and Adelaide people in particular, are very keen on lifestyle and in particular, lifestyle by the sea, so our coastal suburbs are also doing very well.
Areas that I would avoid at this stage for the short to medium term would be areas around the Holden plant, in particular around Elizabeth and Salisbury because even though it won’t be the end of the world – because we’ve had car manufacturers close down before – it will have some impact on the local property market and the local economy, so prices will probably drop a bit and rents will probably also drop a little bit.
Kevin: PropertyProfessor.com.au is where you’ll find Peter.
Peter, thank you so much for your time and that insight into the Adelaide market.
Peter: Thank you very much, Kevin. My pleasure.