The latest property market update from Residex founder John Edwards should bring Christmas cheer to real estate investors.
Read on as he explains that while rents are down there is capital growth in most capital cities and things are looking better than they have for a number of years.
The property market has been very patchy for most of the last 12 months.
At the end of October 2013, Melbourne and Sydney continued to lead the nation in capital growth while Canberra, Adelaide and Hobart recorded no real growth (growth above inflation).
The capital growth outcome for Australia’s capital cities can be seen in Table 1.
There were a number of significant milestones achieved during the year.
The most notable being that the median value of houses in Sydney is now nudging the $750,000 mark.
Other milestones include the Melbourne house median value passing the $600,000 mark and the Perth market regaining all of its lost value since the peak of its cycle in March 2008 ($520,930). The Perth median house value is now $521,000.
The relatively high rate of growth in Sydney over the last 12 months was not anticipated by market analysts. Residex models predicted growth, but not to this magnitude.
The achievements in the unit market have been far less impressive.
Growth rates for the last 12 months have been much more moderate.
The least impressive result was achieved in Melbourne, which is as expected considering it has a stock surplus that is likely to be in the thousands.
However, the Melbourne market has not gone into a “tail spin”. This outcome is a testament to good management by the large developers who dominate this market and are releasing stock to the market in an apparent planned way.
Table 2 presents rental data to the end of October 2013.
The rental year change difference in the house and land market and the unit market is significant.
Rentals in the unit market have fallen while this is not the case in the house and land market.
In fact, even though there has been considerable capital growth in house and land values in Sydney and Melbourne, rentals have increased.
The outcome points to underlying market conditions.
There has potentially been too much media focus on the growth in dwelling prices and not enough focus on the individual market segments.
This may have created some misunderstandings about market activity. The rental outcome suggests that there is a potential oversupply of unit stock in most markets, which is likely to be correct as this is where the majority of development activity is taking place.
However, it also indicates that there is first home owner activity in the unit market. Tenants are taking advantage of lower interest rates and lower price growth rates and moving into home ownership via unit purchases.
For me, another very interesting situation is surfacing – renovation properties are highly sought after at auction and are most fiercely fought over by prospective buyers. This at least appears to be the case in Sydney, where this property type is attracting significant premiums.
I often phone the selling agent following the auction of a ‘renovator’s dream’ property to find out what price it achieved. Each time I seem to be met with the same answer – “A great auction result was achieve, it sold over the reserve”.
This aspect has also become evident in the properties selected for Fantasy Real Estate.
Each week, I select three properties and I generally aim to pick at least one renovation property in the group. Game players then have to try and identify the price the selected properties will achieve at auction.
Correct answers generate cash prizes. So far, the process has made it clear that currently:
- The upper end of the market has become softer with fewer high cost properties selling at auction.
- Mid-range properties ($600,000 and less) are keenly sought after and most often achieve a sale.
- Renovation opportunities always sell and they sell for much more than the reserve price.
Renovation properties are attracting investors, who have the capacity to bid values up and are prepared to pay a premium to make a profit from the renovation process. This area of the market was once the domain of the first home owner, however first home buyers now have no chance in this segment.
As the Christmas holiday period is fast approaching, I hope you have an enjoyable and relaxing time while contemplating your next investment property. Remember, the worst investment is to buy a property on holidays at your holiday destination.
Don’t do it!
The holiday destination will be very different once the holiday season is over. If you really want a property in that area, go back after the holiday period and negotiate a deal. You will do much better.
Here is the complete statistics table for the October 2013 update.
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