More property stats & opinions- Michael Matusik

Time in – not timing.  Flat rents.

Your second three minute market update this week.  Lucky you!

 Time in the market

You have to love those guys at RPData – more statistics than you can poke a stick at.  A new report every second day or so it seems.

A daily house price index – which if it is going in the right way – gives home owners an extra spring in their step as they head out most mornings.

And just last week these boffins released their residential resale report.

Now I like resale analysis – it is a much better barometer as to what really is happening with regards to property prices than medians or even means – and this report comes out quarterly, which for mine is about the right frequency.

The headline reporting by the mainstream media – and in keeping with the current flavour of the month – promoted our apparent ‘housing boom’.

Here is a sample:

In a new report, RPData found that of the 63,390 home sales in the June quarter nationally, 88 per cent of sellers made a profit, with more than 30 per cent of all resales changing hands for at least double the purchase price.  Residential resale profits increased 26 per cent in the June quarter to $12.1 billion.

Hmmm.

But when you look more closely – and the fellas in Eagle Farm did this well – the gains made by those sellers who purchased sometime in the last five years were substantially less than those who have held property for a much longer time.

[sam id=36 codes=’true’]Of sellers who bought after January 2008 – 22 per cent made an actual loss on resale; 32 per cent made less than a 10 per cent gain (so not worth the effort) & 25 per cent made between a 10 & 25 per cent gain on resale.  Just 5 per cent more than doubled their money.

Nearly all of these high-flying homes would have undertaken some form of renovation between sales.  So a true 100 per cent return in less than five years would be a very rare occurrence.

Of sellers who bought before January 2008 – 7 per cent made an actual loss on resale; 6 per cent made less than a 10 per cent gain & 11 per cent made between a 10 & 25 per cent gain on resale.  Over 43 per cent more than doubled their money.

Again, many of these better performing resold homes would have been improved between sales.

This just goes to show that “time in the market is more important than timing the market”.  Now, I don’t know who originally said this, but it rings true when it comes to residential property.

And thanks RPData for once again proving this point.  A daily house price index.  Ha!

 

Rental growth?

Where has all the rental growth gone?

According to Australian Property Monitors, rental growth across much of Australia is now flat & is expected to remain so for some time to come.

I agree.

Rents rose about 1 per cent during the September quarter, which is way down on previous results.

Some of the explanations as to why rental growth is being shunned, seem a little askew, if you ask me – first home buyers buying not renting; increasing supply of property for rent & an oversupply of new housing.

My experience – both professionally & as a property investor – is that rents rise because landlords increase them.

They increase them, not because they can, but because they have too, from a financial return point of view.  This happens more often than not when interest rates rise.

Lower interest rates reduce the cost of holding investment property, so instead of potentially losing a tenant (especially a good one) many landlords, including myself, are not increasing rents at present.

This, I think, will remain the case whilst interest rates remain low.

Remember, most residential property investors negatively gear.

According to the ABS there are 2.6 million rental household across Australia.  Only half of these properties are managed by real estate agents.  A quarter are being rented from a parent or other relative.  A third are supplied by a government body or community/church group.

So we are only getting half of the story when it comes to the rental market.

For many renting from their family – little or no rent is actually being paid.  If rent is being paid, more likely than not, it isn’t at a commercial rate & for sure these rents haven’t been rising.

Ditto goes for government/community rental households.

Finally, renters can be transient – although the official stats suggest that just over half stay in the same location for many years.  But the prospect of flight is always there.

Most, especially younger renters, have a set budget as to how much they will pay for accommodation.  This isn’t so much a financial consideration but a lifestyle one.

In inner Brisbane, for example, this ‘limit’ is currently set at around $300 per week for a bedroom, ensuite & car space (plus of course use of the rest of the dwelling).  Renters will pay more for the privilege of living alone.

But most will share in order to afford the overall weekly rent & stay in a good place.  Alternatively, they will move to a more affordable property if rents rise too quickly.  This places a limit on how far a landlord can push rents.

Rents, for mine, as we recently discussed, are not too expensive – as measured as a proportion of income – it is just that the rental market has set a limit as to how much it will pay for accommodation.

I don’t think there is an oversupply of actual rental accommodation – vacancy rates are mostly still under 2 per cent – it is more likely that there is excess capacity in many existing rental properties.

According to the ABS, two out of five (38 per cent) of rental households have a spare bedroom; with a further 20 per cent saying they have two spare bedrooms.  One in twenty have three or more spare bedrooms.

These spare bedrooms are now being rented out.  Under these circumstances, it is hard to lift rents.  Tenants are practising what the rest of us are practising – thrift.  If rents rise too much, tenants will leave.

I am into quotes today – “a bird in the hand is worth two in the bush”.  That is especially true if it is now costing you less to hold the bird than it would trying to find another one to replace it.

Headline rents are likely to remain subdued until landlords force the issue.  And that, for mine, is unlikely whilst rates remain low (and costs aren’t rising) & tenants remain happy to share.

 

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Michael Matusik

About

Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


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