It’s a new year and for many it allows for a chance to reflect on the year that was, take stock and start to set aside some time to plan for the future.
When it comes to planning, the most popular topic for Australians to discuss and consider generally involves the property market and why wouldn’t it! The recent RP data numbers showed that the total value of residential real estate in Australia is up to $6.4 trillion dollars, almost three times larger than the size our combined Superannuation at $2.3 trillion, followed by listed stocks at $1.6 trillion and Commercial real estate at $700M. They are mind blowing numbers for any accountant or financial planner on their own, but once you realise that residential land and dwellings caters for over 52% of our total household wealth, it really brings it home as to how important real estate is to most of us!
So, its a good time to review where the markets sit at the end of 2015 and start to work out where-to-next for Australians who are wanting to use property as one of their vehicles to build wealth.
It is hard to cut through the clutter that is out there and really gain a good unbiased understanding of whats at play, but we think RP Data is one of the shining lights when it comes to providing quality, independent housing data for everyone to utilise. They recently published their quarterly home value index report which makes for some interesting analysis for the quarter ending December 2015.
You see, off the back of one of the most dynamic market increases in recent times, Sydney and Melbourne drove the lions share of the growth across the major cap cities in 2015, but the last quarter of 2015 started to show trends that are expected to continue in 2016. CoreLogic RP Data statistics showed that in November 2015, home values dropped 1.4%, while in December it dropped 1.2% – the first time since May 2013 that they have fallen for two successive months. However the two standout city that seems to be diametrically opposed to these drops (often occurs given Australias property clocks never run concurrently) was Brisbane. Indeed only Brisbane and Adelaide were the two capital cities to show any rise in house prices over the December quarter and only Brisbane showed growth in December as well as the entire quarter. Homes in Brisbane grew 1.3% over the quarter, with annual growth of 4.1%, while homes in Adelaide fell 1.5% during the month, but did deliver a small quarterly gain of 0.6%. Perth ended the year as the country’s worst performer, with homeowners losing almost $20,000 off the value of their homes during the past 12 months Home owners in Darwin also saw a fairly sharp decline of just over $18,000 to leave a sour taste for Christmas.
Sydney was the main culprit for the overall 1.4% drop, delivering a -2.3% drop in the quarter, closely followed by Melbourne with -1.9% reduction.
For investors the yield numbers are also interesting which was showing Hobart leading the cap cities for houses with 5.4% and Brisbane heading up the unit market with 5.3% gross rental yield.
Overall, auction clearance rates also fell from their highs of up to 90% in some areas during autumn, to 62.1% for the December quarter (predominantly driven by Sydney’s decline), whereas Adelaide, Brisbane, Canberra and Melbourne all recorded higher clearance rates than a year ago.
The investor mortgage demand is also a very good index as to how lending is continuing to grow across the markets with owner occupiers now taking the lead in raw numbers having achieved $14.4B of approved lending versus investor loans down to $11.5B.
It was also interesting to see that the annual pace of investment credit growth has fallen below the APRA benchmark of 10% p/a growth in the December month which really shows the tightening of their lending restrictions have taken their toll for investors.
PRDnationwide National Research Manager Dr Diaswati Mardiasmo said cooling markets in Sydney and Melbourne “will be due to a more natural correction as opposed to a crash”.
“The unprecedented growth experienced in 2015 was a result of temporary factors such as low interest rates and increasing levels of foreign investment,” Dr Mardiasmo said.
According to PRDNationwide, there are a number of factors that will impact the market in 2016 including:
– The Aussie dollar: It’s still low, which makes our property more inviting to foreign investors.
– The increasing amount of infrastructure projects, which will see even more connectivity between regional and CBD areas.
When it comes to the best time to buy, Dr Mardiasmo refers to PRD’s Property Growth % table and Time to Buy graph (see below).
“These graphs are a good indication for what’s about to happen in 2016 as they indicate people’s buying patterns and their confidence in the markets. A decline in percentage growth between 1st half and 2nd half 2015; combined with decreasing time to buy signals that there will likely be a correction for 2016,” Dr Mardiasmo said.
PPI Advice director Josh Atherton is consistently at the coalface when it comes to working with investors and being privy to market trends before they occur. The current signs in market are certainly clear that Brisbane is being invaded by opportunistic investors across the country, seeking a lower entry level, higher yield and generally more viable opportunities when investing. “It is certainly ripe for the picking, if you know what you are wanting to achieve with your investing. We have seen consistent demand across the board for small development sites, splitter blocks and high yielding buy and hold options within the 10-15km mark of the CBD” he said. “We often see investors trying to purchase what they can from Sydney and often paying $100K+ more than the property is worth, based on a very poor understanding of the marketplace, property or even its zoning/potential. I personally have seen investors paying well above the odds for properties that the investor didnt even know was on a development site. There is a reason these sorts of sites are indeed on the market for a matter of days before they have unconditional offers on them. A lot of it is also due to most investors suffering from FOMO (Fear of missing out)” he said.
We have seen a lot of engagement already this year with most independent experts calling Brisbane as the likely growth horizon for all major cap cities in 2016 and for good reason. When you look at its very consistent growth patterns, lower median average and higher yields it is hard to identify a better option in the short to medium future. It has a lot of infill potential also with a lot of greenfield sites and renovation opportunities ripe for the pickings if you are a savvy investor and know what you are doing. So the next question becomes where to invest in Brisbane and what to invest in?