16 Jan More concern over unit growth and prices – Cate Bakos
This time last year, I asked some of our experts what they thought we would be saying about 2016 at the start of 2017. I check back in with them and play back their comments. This time last year Cate Bakos was concerned about APRA, unit vs house price differences and she thought the unit market might improve. So is she still concerned?
Kevin: This time last year, I asked a number of our experts around Australia what they thought we’d be saying at this time about 2016. I’m going to play a number of those for you today in the show, and I’m going to start it off with Cate Bakos, who is a buyer’s agent out of Melbourne. Cate, hello and happy New Year.
Cate: Happy New Year to you, too, Kevin.
Kevin: Do you remember what you said this time last year? Just in case you don’t, let me refresh your memory. This is what you said. What do you think we’re going to be saying about the property market this time next year, Cate?
Cate: I have two answers here, Kevin, and…
Kevin: You’re going to hedge your bets, aren’t you?
Cate: I am. Keep my crystal ball in good shape. I will hedge my bets. I think that the APRA changes have a lot to do with how our market has finished up in 2015, and unless we have some loosening of bank scrutiny and criteria for investment lending, I think that we’ll see a bit more of a divide between our auction clearance rates in our capital cities for houses versus units and also unit price growth. I’d like to optimistically say that we’ll see a rebound in clearance rates and value growth for our unit markets, but the skeptical side of me or the concerned side of me thinks that divide will become greater.
Kevin: Cate, I thought you were pretty spot on. You must be proud of that.
Cate: Yes, I am proud of being able to pick that one. There were certainly some signs there, but it is always a challenge when someone says what could identify a year or what will be a theme – and in this case, it certainly was lender scrutiny and that disparity.
Kevin: I think the mention you made there about those APRA changes have really been quite dynamic, and I really don’t think we’re through the tunnel yet, Cate. I’d be interested to get your opinion on that. I do think we’re going to see a number of defaults during 2017 and even 2018.
Cate: I agree, unfortunately. I wish I had a better outlook on that front, but I think aside from just the APRA changes, we also have some lender changes. We’re seeing that with the appetite that lenders have for various types of properties and extending on not just from units but also more challenging types of properties, whether they’re quirky or not fitting that perfect profile as a lending security. I think buyers need to be really careful this year – and next year – about what they sign up for, and they need to make absolutely sure that regardless of the pre-approval they feel they have in place, the lender is actually going to have an appetite for the type of property they’re picking.
Kevin: A lot of talk, too, about an oversupply of units, particularly in the Brisbane market and especially in the Melbourne market. You’d probably be seeing a bit of that. Your feeling about the unit market – you said that you had hoped it would improve. What are your thoughts now?
Cate: I don’t think that it will improve in the inner ring areas where we already have an over-supply. There are some hallmarks that buyers and investors can look for to shed light on whether there is a bit of a higher risk. The first port of call should be checking out the vacancy rates. All they need to do is look at what’s advertised for rent. If there’s an overwhelming number of properties that are available that are all quite similar and in abundance, then that should be ringing some warning bells. I don’t see the overall unit market improving for Melbourne in the short term, and I think if buyers are keen to secure a unit, particularly if it’s an owner-occupied unit, they really need to focus on the areas where they’re not in such abundant numbers.
Kevin: You’ve also talked about the house versus unit price separation. What’s your view on that now we’re 12 months down the track? Cate: It certainly has been extremely noticeable. We’re finding that houses in those really highly contested, competitive environments – particularly the inner ring and some middle ring areas where train and a community feel and a village atmosphere is present – they’re really drawing a crowd. We’re finding that cashed-up singles, couples, and families, are all fighting hard for those types of properties, and unfortunately, our limited numbers of properties for sale – so our supply – is not as great as our demand. So we’ve really had an upwards pressure placed on prices, and I don’t see that easing in those particular areas.
Kevin: Okay, fast-forward this time next year. Here we go again. Get that crystal ball out, Cate. What do you think you’re going to be saying about 2017 at the start of 2018?
Cate: I think we will still have continued house price growth, particularly in Melbourne, but I don’t think it will be quite as extreme as 2016. I think there’ll be a little bit of caution out there in relation to lender scrutiny. Also we’ve had prices shooting through the roof for houses but salaries haven’t been keeping up at that same pace, so eventually affordability really does become the question. I think that we will still see some price growth but not as dramatic. I also feel that units will be problematic still, and I think that news of defaults and of people not being able to settle unit purchases – particularly off the plan, longer sunset-type purchases – will give people a little bit of a scare. So there will be a fair bit of information in the media, I think, and I believe that investors who are targeting units will probably think twice.
Kevin: Let’s have a look at a national perspective. What do you think will be the hot markets around Australia during 2017?
Cate: That’s a good question. We’ve seen house price growth in cities that haven’t been well documented for house price growth over the last five years, but we’ve seen them come into the equation just over the last 12 months. I’ve talked about Adelaide and Hobart, but it doesn’t necessarily mean that they’ll continue to soar and it doesn’t necessarily mean that they’re perfect investment areas. I think that our Eastern seaboard major cities will continue to perform in the housing market, and I think that Perth and Darwin will still be doing it a little bit harder into 2017. Being a Melbourne specialist and being a little bit biased, I’ve certainly got a focus on Melbourne and I think that our housing market will continue to perform.
Kevin: Any regional areas stand out for you, Cate?
Cate: If I’d chat about Victoria – which is my patch and that’s where I’m licensed and where I know – I think that our regions will continue to perform. Geelong has been an interesting one. I have an eye on Geelong and I have had for a while. It’s undergone a lot of change since the auto industry has disappeared. There was a lot of upset in Geelong at the time. But what we have seen is that Geelong is becoming a bit of an extension of Melbourne for a lot of people who can commute or can base themselves in Geelong or can work locally. We’ve seen some really dramatic and beautiful changes around the city in the waterfront precinct and areas like Newtown and Geelong West, East Geelong, and South Geelong. They’re doing really well. They have been doing well for a little while, so I think Geelong deserves to be in the spotlight for all the right reasons.
Kevin: Cate Bakos, all the best for 2017. We will definitely talk to you more during the year, but we’re going to check in with you again at the start of next year for sure.
Cate: Kevin, I look forward to it.
Kevin: We will talk to you as the year goes on. Cate Bakos, thank you so much for your time.
Cate: Thank you.