Economic experts predict that by year end, unemployment will be over 6%. Real estate analysts say property values might take another year at least to start to rise again. Yet, this news – combined with lowered interest rates – has opened the way for some prime buying opportunities.
George Kafantaris, director of the Metropole Properties Queensland, thinks “2009 will be a year of nervousness”.
“That’s not to say all property values are dropping,” he adds, “but the reason people are selling theirs can affect the ultimate sale price.”
For example, he says, expect more distressed sales by investors hit hard by the share market. “Because of it, people are disposing of properties they wouldn’t normally sell, and buyers are uploading them at less than their market worth.”
Jonathan Rivera of PRDnationwide suggests investors should also watch the unemployment rate, which some predict to go as high as 6–8% this year.
“If it gets that high, as we have a population of 25m – that’s 1.5m people out of work,” says Rivera. “It will have negative effects on the property market as a whole, but it could have some positive ones if you’re an investor.”
With greater unemployment, fewer people will own homes – and cause a surge in the rental population.
“Unemployment will have a positive effect on yields,” says Kafantaris, “as more people will be renting – and that’s great news for landlords, to have more than enough tenants for what’s available.”
Higher-end properties fell recently, and coastal vacation homes also took a hit, as owners try to sell at reduced prices.
But Rivera says investors should avoid buying at a lower price just because it’s cheap. They should also be looking in an area with good infrastructure and population growth. “Then, if it’s a good deal, now would be the time to take it.”
Despite experts over the past year continuously predicting the downfall of Darwin’s property market, it has continued to shine. Its 12-month growth through December was far and away better than any other capital city.
According to Residex in December, median unit prices in Darwin increased 11.83% to $334,500, whereas houses went up 10.39% to $440,000. Rental yields near 6% were also the best in the country and still seem to be improving – median house rents jumped 20% from the year earlier to $480 and unit rents increased 15% to $380.
“Darwin has a very strong rental market, so if an opportunity matches your criteria, you should buy,” says Paul Wilson of We Find Houses. “But as a general comment on this market, you may get more bang for your buck in cities such as Sydney where it’s a good time to enter the market and position yourself to grow equity when the market starts to gain momentum.”
Jonathan Rivera of PRDnationwide agrees there may not be more to gain in capital value by investing in Darwin.
“It’s probably going to be quite a slow year for Darwin,” he says. “They may not see a decrease, but I don’t think there’s going to be much of an increase either.”
A lot is riding on the local economy to continue pushing strong demand in Darwin, says Rivera.
“You just have to be cautious,” he says. “If times get tough there with agriculture and other commodities, Darwin and areas like it could suffer.”
For now though, agriculture such as cattle farms seem to be performing well in the Northern Territory, boosted by falling oil prices and a lowered value on the Aussie dollar. The city might well prove the experts wrong again.
Rivera says Sydney has always been driven by interest rates and rental vacancies, and those two factors have finally come together favourably.
“I think the rental demand is still going to be quite strong in Sydney,” says Rivera. “I believe it’s slowly going to turn around there this year.”
December figures from the Real Estate Institute of New South Wales (REINSW) had rental vacancies in Sydney at 1.1%, around where it had been for much
It’s been about seven years since there was much of an upswing in Sydney, although that could change soon, say many experts. One factor is that demand in the region has been boosted by more than just incredibly low vacancy rates in recent months.
The number of home loans approved for owner-occupied housing in NSW rose 5.7% in November, according to seasonally adjusted figures from the Australian Bureau of Statistics. That compared with the national average of 1.3%. A large part of that increase no doubt came from the First Home Owner Grant boost, the number of applicants for which jumped 39% in November in NSW.
“The increases to the First Home Owner Grant as well as record-low interest rates have helped many first-timers overcome economic concerns and enter the market in numbers which will only grow in future months,” says REINSW President Steve Martin.
Paul Wilson, managing director of We Find Houses Pty Ltd, says there is no shortage of good opportunities for buyers in Sydney right now.
“The market will take off when people start to flock in to buy the hot deals that have been sitting under their noses for 12 months,” he declares. “I don’t know how long it will take, but my suggestion is – don’t sit around waiting. If you can get finance and you’re ready to invest, start the project right away – and take advantage of the lower interest rates. Start paddling now – and the wave will really carry you to new levels of success.”
Suburb spotlight: Crows Nest (units) Located just a short train or bus ride from the CBD, Crows Nest has shown some strong growth in demand in the past year.
The North Shore suburb has seen something of a transformation lately, and it’s pulling in a younger crowd of residents to the area drawn by its convenience and charm.
“Over the past five years, the area has reinvented itself from a shopping strip and low-rise commercial area to a ‘hub’ with great restaurants and lifestyle retail experiences,” says Colliers International NSW residential state director Murray Wood. “The 10-minute commute to the CBD via train or bus and the five minutes to North Sydney has seen much demand from the sub-35 age group as both tenants and owner-occupiers.”
There’s a wide range of unique ethnic restaurants lining its streets and plenty of pubs as well. Yet it’s a quieter lifestyle here than south across the harbour, which makes it a more attractive place to live.
“Developers have seen values firm and site values rise for residential development,” says Wood. “It’s a very strong mid- to long-term hold, with
very good demand from investors and owner-occupiers.”
The median house price in Crows Nest is just under $1m, but there are some lower-priced options to be found as well. The median unit price in November was $418,000, with a 5% rental yield, according to RP Data.
Coming off a strong 2008 in which it outperformed Sydney, 2009 could be just as solid for Melbourne.
“I think Melbourne held up very well in 2008 compared to what some other cities were doing, and I think 2009 will be very much in the same vein,” says Monique Sasson Wakelin, director of the Melbourne-based Wakelin Property Advisory.
She believes that much more activity in the lower end of the market will characterise this year – by which she means below $600,000.
While Sydney has led the way in increasing sales for first homebuyers, Melbourne has also seen a significant increase. Wakelin says First Home Buyer Grant applications in November for Victoria totalled 1,428, second only to Sydney’s 2,076.
Investors who stick to property “in the proximity of the CBD without being in it” will do well, says Wakelin. While the suburbs further out might have a lower price and better value for the property available, the area just outside Melbourne is where she sees the most capital growth moving forward.
“Melbourne looks the best-placed of all major cities for median price performance in 2009,” she says. “It has the strongest net migration, leads the major cities in auction clearances and lowest average days on the market for properties, and was second in median price performance.”
In addition, the rental market is also expected to be strong in Melbourne. Acquisition costs are down, interest rates are down and rental incomes are very firm with strong demand still there.
“In a very short time, the gearing for investors is going to be very favourable,” she adds.
Rivera has a more tempered view on Melbourne, but doesn’t see any major price drop in the coming months.
“Melbourne is still going to do quite well, but maybe not as well as it did in 2008,” he says. “They have great infrastructure in terms of public transportation, and that really makes a difference in the property values (holding strong).”
Suburb spotlight: Coburg (houses)
In the Melbourne suburb of Coburg – just 8km north of the CBD – the once declining population is set for growth again very soon.
“Over the next decade, Coburg is
set to undergo extensive urban renewal after Moreland City Council confirmed the release of 12 hectares of state- and council-owned land in the centre of it,” says David Grima, Colliers International Victoria research analyst.
Known as the Coburg Initiative, some of the country’s biggest developers have submitted expressions of interest to undertake the redevelopment.
“The Coburg Initiative is estimated to be worth $1bn and includes a revamp of the town centre and railway station, as well as the construction of 1,500 new dwellings and 65,000m2 of additional retail and commercial floor space,” says Grima.
Part of the plan even includes sinking the railway station underground to allow for development of housing and shops above it.
The project is expected to boost Coburg’s 2006 population of 23,722 to about 30,000 by 2021.
The suburb is already known for its convenient location to the city, as well as its proximity to Melbourne University down Sydney Road past Brunswick, not to mention it numerous parks and reserves nearby.
The suburb is culturally diverse and has an above-average number of residents born overseas, the majority of whom are from Italy, Greece and Lebanon, according to the Australian Bureau of Statistics.
The middle to inner suburbs of Brisbane are set for the most growth in the coming year, say property experts.
“If you look at Brisbane, it’s going
to be all about the middle-ring areas this year,” says Jonathan Rivera of PRDnationwide. “Especially those
areas that haven’t been renovated and are set for some renewal – as well as the ones close to transport and still
George Kafantaris, director of the Metropole Properties Queensland, agrees that the properties near the city and still in a lower price range will perform the best for investors. In fact, he expects many of these suburbs to get a boost once some new infrastructure is added.
“Brisbane is undergoing major transport works right now,” he says. “It’s the most activity I’ve seen in 10 years.”
That development has considerably transformed how these suburbs will be perceived, says Rivera.
“We’re going to see a densification of these middle-ring areas,” he says. “There’s a movement towards creating compact urban communities in these places that have always been traditionally considered suburbia.”
But with all the growth that’s occurring, buyers should beware of purchasing in an area that could be affected by it negatively – with heavy traffic and noise, for instance – or by spoiling the view, says Kafantaris.
“Be aware of the busways and tunnels and how they affect your suburb,” he explains. “It can have a positive impact and a negative one. It can cut your travel time to the city, but the last thing you want is to be looking out at a busway.”
In the Brisbane area, investors should avoid the top-end properties, which are oversupplied and there is little demand for them at the moment.
While the Gen Y buyers will be seeking affordable first homes, the Baby Boomers are looking to downsize this year, says Rivera.
“They don’t want to take out another mortgage,” he says. “That’s why I think the middle ring will do better.”
Suburb spotlight: Annerley (units)
South of Brisbane by about 5km, Annerley is a more affordable option for those looking to live somewhere close to the city.
Residents can commute easily with access to the motorway, railway and even CityCat ferry.
“It remains at an affordable level and retains steady growth,” says Aaron Maskrey, PRDnationwide Queensland research analyst.
RP Data November figures show houses grew by 9.8% over the previous year to reach a median of $560,000 and units rose by 7.66% to $344,500. Over the past three years, houses and units have both increased in median value by about 45%.
“Improvements in transportation linking the city to the south side will increase the demand for properties in Annerley,” says Maskrey. “And most importantly, it is still within 5km of the CBD.”
The suburb is known in Brisbane for a solid mix of character housing and antique stores, along with modern townhouses and businesses.
The peaceful Toohey Forest is also nearby – popular with walkers who seek an escape from the sprawling urban surroundings. There’s also a superb view of the city from Mount Gravatt. Since much of the city is elevated, many homes have excellent outlooks as well.
As with the other states, Canberra could be in line for some strong rental yields as investors have shied away from buying in the market lately.
According to Residex, Canberra was the only capital not to show any increase in rent for units from December 2007 to December 2008, sticking at a median of $390. However, that could soon change, as demand rises. The city already has an average rental yield on units of 5.48%, behind only Sydney and Darwin of the capital cities.
“Canberra has a strong rental market,” says Paul Wilson of We Find Houses. “The slowing of growth isn’t a concern as it is only a short-term blip.”
That slowing of growth is definitely noticeable, but Canberra remains a lot more stable than some of the other capitals. Residex numbers in December show Canberra house prices rose 0.85% from the year earlier to a median of $456,500, compared to a rise of 13.6% in 2007. Units were similar, showing
a rise of 5.7% to a median of $371,000 in 2008, compared to 11.4% the year before.
Those milder gains in 2008, as well as other factors, should indicate an even slower 2009, but there could be some good long-term investments still available. This is true, too, especially of those with good rental yields, or in the more affordable range – which has benefited from the growing number of first homebuyers lately.
“Investors should not buy unless they have a medium- to long-term strategy,” says Wilson. “Properties around universities, the CBD and hospital locations all present a ready availability of tenants.”
Suburb spotlight: Duffy (houses)
Devastated by a deadly bushfire in 2003 that destroyed some 200 homes, Duffy has only recently started to recover and rise from the ashes. While the memories of the inferno have faded for many in Canberra, the effects can still be seen in Duffy home prices.
“Many of the Duffy residents left the area and this caused a reduction of the median price in the suburb,” says Adriana Tabisz, a sales consultant with Richard Luton Properties. “The burnt- out pine forest and deterioration of the recreational environment also
had a negative effect on the median house price.”
Yet now, the suburb of about 2,000 people has started to rebuild and move on. Tabisz says she expects the median house price in Duffy to catch up steadily with the Weston Creek LGA median, which it has lagged behind since the fire.
As new trees are planted in its surroundings, the suburb is regaining its past greenery. Duffy has 12 parks covering nearly 4% of the entire two square kilometres of land.
Tabisz says the primary age group in Duffy is between 30-39 years old, reflecting the fact that the area has attracted young families recently. Locals are served by a bus route and two schools, as well as a number of shops.
“Households in Duffy are primarily couples with children and are likely to be repaying somewhere between $800 to $1,000 per month on mortgage payments,” says Tabisz.
The suburb is about 10km from Parliament House and Lake Burley Griffin, and bordered to the north by the Stromlo Forest.
Adelaide had one of the best performing years in 2008 of any capital, even despite a slowing near the end of it and in last few months.
However, it never quite took off as many had thought.
“Adelaide has been eluding me,” says Jonathan Rivera of PRDnationwide. “In 2006, I said it was going to be the next hot spot, but it just hasn’t been.”
While the Adelaide region has a strong mining sector that’s growing as well as a city that’s remained the most affordable capital on the mainland for both rents and purchases, it hasn’t had the population growth to drive demand sufficiently to prevent its values slipping lately. “Adelaide’s population has increased slightly, but it just hasn’t taken off,” says Rivera.
However, the affordability remains, and there are many experts still tipping
it to have another formidable year of positive growth.
“Its outlook in 2009 remains robust in all areas except the top end and the outer northern-suburban fringe,” says Monique Sasson Wakelin of the Wakelin Property Advisory.
Many of the top-end properties around Adelaide were either marked down significantly in recent months or they remain unsold. That’s in part why the median price in Adelaide has dropped 0.96% for houses from November to December, and 1.56% for units over the same period. The median house price at $370,000, and median unit price at $287,500, both remained lower than any other mainland capital city in December.
“The South Australian market promotes the highest rental affordability for both purchasers and renters than any other state,” says Paul Wilson of We Find Houses. “It’s still worth considering as rental demands are strong. It shows room for further growth in rental prices as South Australia offers more affordable rental opportunities for tenants.”
Suburb spotlight: Mount Barker (houses)
Some 40km east of Adelaide in a rural setting, Mount Barker is the largest town
in the Adelaide Hills. It’s a rapidly expanding area that offers residents a mere 30-minute commute back to the city.
“The area is likely to attract investors during 2009, particularly first homebuyers, due to the affordability of its housing and long-term growth potential,” says Katy Dean, Colliers International South Australian state research manager.
She says the area offers scenic views and is already drawing strong interest from developers for more growth.
“One big development offers not only energy-efficient home options, it’s also funding a major landscaping project to re-vegetate the precinct, providing plenty of recreational open space,” says Dean.
Unlike other areas around Adelaide, the demand has been quite strong in Mount Barker.The median house prices in November showed 0.88% growth over one month, 15.98% growth over 12 months, and 74.33% growth over five years.
The population has also risen, growing 2.4% in 2007 to reach 28,293 according to the District Council of Mount Barker.
Now reached by the South Eastern Freeway, there’s also another proposed freeway interchange and road upgrade coming, says Dean.
“The upgrade won’t just reduce traffic noise, it will also create further opportunity for growth in the region by improving freight and commuter movement over the long term,” she says.
Perth has performed the worst of any capital city in Australia recently, showing sinking values in both houses and units. In December, house and unit prices were down 4.59% and 2.53% respectively over the previous quarter, according to Residex.
A lot of that has to do with the market correcting itself after prices skyrocketed through 2007. Overall, in the past 10 years, Residex numbers show Perth still had the highest growth of any capital city, at 12.97% for houses and 11.78% for units. Those investors who got in early have done well.
“Recent job losses are having further impact on confidence in the West Australian market,” says Paul Wilson of We Find Houses. “Many investors have avoided Western Australia since it hit its peak towards the end of 2005 – which had an impact on rental returns and inflated property prices. But as it continues to decline due to lack of demand for its oversupply of stock, investors may find some good buys.”
As with any property investment, it’s best to buy at the bottom of the cycle – and the question is whether Perth has reached that yet. A lot may depend
on mining job opportunities, which have underpinned many communities outside Perth.
“If the opportunities aren’t there, those communities will probably see a decline in population growth,” says Jonathan Rivera of PRDnationwide.
However, rising unemployment could also signal a jump in the number of renters and thus the market will continue rising in demand and value.
Meanwhile, the upper market for houses priced in the millions has taken a hit due to oversupply and falling demand. The Sunday Times in Perth reported in January that there were 341 properties priced from $2.5m listed on realestate.com.au in July 2008, and 652 in December.
“Expect to see the oversupply of $1m-plus homes to continue, dragging Perth’s median house price down, as with some new estates on the urban fringe,” says Monique Sasson Wakelin of the Wakelin Property Advisory.
Even some rental markets may struggle in the near future for investors, says Wilson. “To succeed in this (Perth) market, investors need to do their research to ensure they make the most of the locations that show strong demand for rentals,” says Wilson.
Suburb spotlight: Lathlain (houses)
A suburb in Perth’s inner south-east, Lathlain stands out from its neighbours with its large lot sizes and more of a residential feel.
One feature of Lathlain is that there aren’t any high-rises or cramped housing and this is due, in large part, to the local R20 zoning which requires lots be greater than 900m2 in order to build more than one residence.
“In the less affluent suburbs, they tend to carve up the land more,” says Kris McArthur, owner of McArthur Metro Real Estate – the only agency in town. “The homes are quite a substantial
Those restrictions have helped keep growth steady and limit any downward trends in value. McArthur says she’s yet to see a slide in demand for housing through the early part of 2009.
“There’s no danger of overcapitalisation here,” she says.
While the residential feel also means there are few major commercial developments other than local delis and other shops, residents don’t really mind as they are only 4km from the city.
“We’re so close that you can walk to Perth,” says McArthur. “But although it’s so close to the city, you can still have a life here.”
The large lots especially have drawn young families who like the size of the backyards for their kids.
Real estate terms
The median value is the middle price in a series of sales: half the sales are of lower value and half are higher. For example, if 15 sales are recorded and put in order from the lowest to the highest, the eighth place is the median price. Medians are used rather than average prices because they are unaffected by a few that are unusually high or low, so they are a more accurate indicator of true market activity.
Calculations of the median house price typically cover a quarter (three months) and/or a calendar year. Median value can be broken down further into upper and lower quartile, the top 25% and bottom 25% of sales.
Mean price The mean, or average, is the sum of a list of numbers divided by the total number in the list. The mean house price is calculated by adding up the value of all sales over a set period (month, year) and dividing by the total number of sales.
One problem with using mean to calculate property values is that it may not depict the typical outcome. A sale that’s significantly high or low can skew the data, strongly affecting the outcome.
Capital growth This is often used in real estate to describe the increase in the price or value of a property. For instance, the median price of a house in Coburg in the March quarter 2008 was $509,250, and a year before that it was $407,500. Therefore, the capital growth is the difference between the two, $101,750, divided by the earlier figure, $407,500, which equates to 25% over a year. Capital growth is also known as capital appreciation.
Investment return From a real estate perspective, an investment return is
very similar to the capital growth figure. It’s the percentage of change in value
of the investment over a given period
Gross rental yield This is frequently used to compare the investment return on a property. To calculate the amount, you divide the yearly rental income by the purchase price of the property. For instance, the yearly rental income on a three-bedroom house in Coburg is $18,200 and the median house price is $509,250, resulting in a gross rental yield of 3.57%.
The vacancy rate is simply the number of vacant rental properties that an agency has on its books divided by the number of rental properties they have. For instance, if an agency has 100 rental homes on its books and five are vacant, the vacancy rate is 5%.
The vacancy rate is a general measure and it may be the case that it is higher in one suburb than another. It may also differ depending on the type of property. YM
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