14 Dec How to accurately ‘measure’ the market – Louis Christopher
Louis Christopher gives us an insight as to how he measures the market. He has noticed a decline in vacancies in some areas. He talks about what this means and looks at individual markets and what he is watching closely.
Kevin: As we track the market, a couple of indicators for us: those areas that are distressed around Australia and also vacancy rates. No one measures both of those better than Louis Christopher from SQM Research, who joins me.
Good day, Louis.
Louis: Hello, Kevin. Good to be here.
Kevin: Thank you, mate. I know you always keep a very close eye on these two indicators. Let’s firstly talk about vacancy rates, because your recent report indicates that there might have been a bit of a change around Australia.
Louis: That’s right. Our most recent release, which was covering October, recorded a slight decline in vacancies nationwide, from 2.2% to 2.1%, representing some 67,700 vacancies nationwide.
Now, we did record some rather surprising results for some cities. Perth, for example, recorded a fairly steep fall, falling from 4.5% in September down to 4.1%. Now, 4.1% sounds elevated and it is elevated, but it’s a direction that we’re watching here for Perth. This time last year, the vacancy rate was 4.9%, and we’re clearly now recording a down trend in vacancies for that city indicating that we think the bottom is now in for the downturn that’s been occurring in Perth over the last few years.
Kevin: Could you indicate for me how many properties we’re talking about there in that drop in Perth?
Louis: In September, there were 9700 properties vacant, and now we have 8800 properties, so basically, a fall of 900 properties.
Kevin: There are still a lot of properties vacant – aren’t there – in that market?
Louis: Yes, there is, no question about it. It’s still a tenants’ market. To give it some perspective, Melbourne, which is considerably bigger than Perth, has currently 9300 vacancies. Yes, it’s still a lot of stock for Perth, but the point being that it’s in a down trend and that’s what, as a research house, we like to follow very closely.
Kevin: What does that number in Melbourne represent in a percentage term?
Louis: Melbourne’s vacancy rate also fell during the month. It’s now 1.8%. In Brisbane, we had a number of 3%, and that represents about 10,700 properties vacant. That was down from 3.2% recorded in September, so we’re also starting to record a slight trend in Brisbane vacancies, as well.
Kevin: Increase or decrease?
Kevin: Tell me once again in percentage terms, where do you measure the market between being in favor of landlords and being in favor of tenants? What’s the vacancy rate?
Louis: We think the equilibrium is circa between 2% to 3%. Generally, when you see over 3%, it’s favoring tenants. When you see it under 2%, it’s favoring landlords. But I stress that it’s the relative direction that’s important here.
For example, back in 2009, Canberra had a vacancy rate of just 0.5%. What happened after that in 2010 and 2011 was that the vacancy rate in Canberra rose to 2%, and we actually recorded a decline in rents during that period. So, 2% on its own sounds like it’s a landlord’s market, but it was the fact that it went up from 0.5% is what really mattered there.
Kevin: Did all of the markets around Australia have a decline in the number of vacancies?
Louis: Yes, they did, all capital cities did. The city recording the highest vacancy rate is actually Hobart, which has reached a new record low of just 0.3%, which is just 75 properties available for rent or vacant in Hobart. Now, Hobart is a small city, of course, for those who know it. But even so, just 75 properties vacant is very tight indeed.
Kevin: Many of the commentators we talk to are continually buoyed by what’s happening in Hobart in particular, and those figures would tend to support that, I would have thought, in terms of price growth, Louis.
Louis: That is correct. When we look at the rental market in terms of rents have done in Hobart, significant increases over the past 12 months. Units are up 12.6% in terms of renting in Hobart for units, and houses are up by 5.4%, so very much a landlord’s market in Hobart right now, and our forecast going forward is that that’s likely to stay the same for at least 2018.
Kevin: Can we turn the focus now and maybe have a look at the most distressed areas around the country in terms of properties on the market and those that are not selling, Louis?
Louis: Sure. We regularly have a distressed properties report, where each and every month without fail there are at least about 10,000-odd properties in some type of distress form on there. So, that’s mortgaging, possession, deceased estates, sellers moving up overseas, and so forth.
One area that regally keeps coming up in our report is the Gold Coast. It’s always been that way that the Gold Coast continues to record by far the largest number of distressed properties. I’m not sure why that is. You might have a better idea for it, but it’s always been the Gold Coast that’s come up.
Kevin: How do you measure distress?
Louis: We measure distress by looking at key search terms, advertised search terms. So, “mortgagee in possession” as an example, “divorced sale,” “deceased estate,” “bank-forced sale.” There are about 20 different key search terms that we judge this by.
Kevin: Let’s have a look at the Gold Coast for a moment, a market that is the most distressed in Australia. How many properties are we talking about in terms of percentages, Louis?
Louis: On the Gold Coast, that would represent some 5% to 6% of the market overall. As mentioned, the Gold Coast has always been this way; it’s not a new phenomenon. I want to be very clear here; we’re not recording any sudden spike in defaults on the Gold Coast or anything like that.
I think the Gold Coast, it’s safe to say, has always been a fairly transient type of place, and so I think with transient areas, you tend to see this type of phenomena a little bit more. Ever since we put this report together in 2009, the Gold Coast has always been right up there.
Kevin: In the most recent release that you put out on distressed properties, are there any areas around Australia that have spiked that you’ve noticed?
Louis: We are coming across more Sydney properties that are increasingly on the radar, sellers having to discount because they had too big an expectation and suddenly, they have to move really quick.
We’re seeing a little bit more in Sydney. We’ve had a few in the Brisbane CBD area, being apartments. These developer bargains are definitely starting to come through now, which is good for buyers who do their research. They’re probably the main areas we have had over the last few years. A few in Perth as well, just with the mining downturn there, as you may well expect. But that’s been it.
We rarely see any in Melbourne, as an example. You just rarely see it in Melbourne at all. Surprisingly enough, when you look at regional areas, agriculture-based towns, you don’t see too many of them at this point in time, either.
Kevin: A lot of that’s to do with privacy, in some cases, too.
Louis, can I ask you about apartments versus houses in terms of the number of distressed properties you’re seeing? Can you say it’s predominantly apartments?
Louis: I think we can say it’s been predominantly apartments. That may well be because of the whole issue of the Gold Coast. When I look at the Gold Coast itself, it would be running 70/30 in favor of apartments in terms of a ratio. So yes, more often than not, it’s apartment stock that we see that’s under some type of distress condition.
Kevin: Louis, the distressed properties, is that available as a report from your website?
Louis: That’s right. It’s actually a login. You get access to a program and a database where you can sort the data by geography. And we do it fairly cheaply as well. I think we offer a subscription at $29.95 a subscription, if I recall.
Kevin: It’s great information for anyone looking to buy below-market or even off-market properties, so it’s really good advice. Louis Christopher there from SQM Research. The website is SQMResearch.com.au.
Louis, thanks for your time. Great talking to you, mate.
Louis: Good to be here, Kevin.