Published on MSN Money
For all the talk of a slowdown, the property market is still booming. Auction numbers are up across the board, as vendors from Adelaide to Brisbane put their homes up for sale.
Buyers are out in force this spring, the strongest season of the year, despite house price growth halving in Sydney and Melbourne between June and September.
In every city in which auctions play a significant role in home sales – Sydney, Melbourne, Brisbane, Canberra and Adelaide – auction numbers have been higher in each of the last three months than at the same time last year.
But what does the slowdown mean for buyers?
“Anything that has a negative sentiment, or if there’s negative media, presents an opportunity for buyers,” says buyer’s agent Rich Harvey, the principal of Sydney consultancy Propertybuyer.
“If there’s negative sentiment, it translates into vendors having to readjust their expectations on what they’re going to achieve in this market.”
That’s not the case everywhere. Different markets have their own dynamics. But as November, and the second half of the spring season gets going, many potential buyers face the same pressures – to reach a deal and a settlement that will allow them to be in their new home in time for the new school year.
It’s the case in Brisbane, where the median house price growth is a pedestrian 0.8 per cent.
“There’s a bit of a rush from buyers at the moment,” says Meighan Hetherington, director of Brisbane-based Property Pursuit Buyers Agents. “We are seeing multiple offers pushing prices up above what the data would tell us is reasonable value.”
In Canberra, by contrast, it hasn’t yet reached a furious pace. This is despite the market picking up – detached house prices rose 2.3 per cent in the September quarter, up from 0.2 per cent in June.
“The smart money is buying now, while there’s not that panic button among buyers, which gets crazy,” says Claire Corby of Capital Buyers Agency.
Adelaide is in a similar position. Buyers still have time to get in ahead of the rush, says Tim Thredgold of real estate agency Toop & Toop?.
“In about three weeks’ time I reckon [people will be saying] ‘Wow, maybe nothing else is going to come on the market, but if it does, we’re going to be out chasing it,'” Thredgold says.
So what should buyers do? First, do your homework.
“Make sure your finances are in order, make sure you can come in and drop an unconditional offer – rather than not having done your homework and find someone else gets it at the same price, or even less, because they’re unconditional,” Thredgold says. “That happens.”
Be aware of the way the market works, too. It’s common in Queensland (where auctions only account for an estimated seven per cent of sales) for buyers to insert a clause in a sales contract that allows for bank and building inspections. That’s different from other states, where prospective buyers do so before making an offer.
“You do have to be able to take the step and enter into a contract with the right clauses that allow the right level of inspection once that’s under your control,” Hetherington says. “If something comes up that isn’t right, you can terminate the contract and get your deposit back.”
In Sydney, where auctions are more popular, the slowdown is creating opportunities, Harvey says.
“A lot of agents tell us they used to have 10 bidders and 50, 60 groups going through,” he says. “Now they have 10 to 20 groups coming through and two to three bidders. You never know your luck in a big city.”
As the pre-Christmas home stretch approaches, market dynamics change. Many people who purchased earlier in spring will by November be trying to sell their own properties by the settlement date they have on their own purchases.
That desperation to sell can give buyers a good deal, says Paul Osborne, the head of Melbourne buyer’s consultancy Secret Agent.
“Purchasers have a very good chance before Christmas, where a few owners are quite nervous about holding out for another two months,” he says. “A buyer can be very cheeky about where their offer is, where they haven’t had that privilege for some time.”
Like Harvey, Osborne sees a positive for buyers in the news articles about a slowing market.
“I think we’ll actually see a significant amount of stock right at the end of the year,” he says.
Not everything will be up for a fire sale, however. Some properties will always be in strong demand. Osborne says good-quality family homes in suburbs with good schools are unlikely to see any let-up in demand, nor are investment apartments in inner suburbs such as Carlton and North Melbourne close to universities and hospitals.
“But equally there will be the other side of the coin … properties that may have been passed in through November will be open to quite a decent discount on the reserve price to get a transaction,” he says.
Christmas is coming, and that may just bring good tidings to buyers.
“We’re not in a buyers’ market yet in Sydney and we’re a way off. It’s still in the sellers’ favour, but the markets have swung back towards the buyer,” Harvey says.
Should I buy now or wait for prices to fall?
SYDNEY
The Sydney residential market has been hot for the last 24 months but is tapering off.
Prices have risen 20 per cent in the last 12 months but are set for a much cooler 4 to 9 per cent in 2016, SQM Research’s Louis Christopher says.
“The market is now 40 per cent overvalued…the reality is there are still more buyers than sellers and a trigger for the next major downturn has not yet materialised,” he adds.
Auction clearance rates have fallen to just under 70 per cent from 90 per cent, according to Corelogic RP Data.
“Some areas in the west have already been falling in the last two months,” Starr Partners’ Ramin Rahimi says.
Sydney’s eastern and northern suburbs have not seen any significant cooling in prices even with less buyers on the market, property agents say.
Investors looking to save could be better off waiting until 2016 and 2017 when prices may fall. Macquarie Bank predicts a
7.5 per cent price fall from March 2016.
Real estate veteran John McGrath recommends investing in the second CBD, Parramatta.
“Pockets of value still exist in [university suburb] Kensington, Curl Curl on the Northern Beaches and The Rocks, where the NSW government is selling heritage terraced houses,” McGrath adds. – Su-Lin Tan
MELBOURNE
Property prices will continue to rise in Melbourne next year, albeit at a slower rate, so buyers who find something they like and can afford it should act now, says Andrew Wilson, senior economist for Fairfax-owned Domain Group.
Wilson anticipates prices will rise about 5-7 per cent in Melbourne in 2016. “It’s the best market at the moment in Australia,” he adds.
But there are clear disparities between the performance of houses and units, with the former showing price growth of
15.6 per cent over the year to September, compared with just
2.4 per cent for units due to rising levels of supply.
Wilson says buyers looking for better growth opportunities should consider the western and northern middle ring suburbs, which have been subdued for a couple of years and are now in catch-up mode.
“They offer reasonable yields of around 4.5 per cent and prospects for capital growth,” he says.
For units, he suggests investors look at low-rise developments in inner ring suburbs like Prahran and Collingwood, where the prospects of more downsizing Baby Boomers is driving up demand.
“Stay away from the CBD or city fringe – unless you are willing to take a much longer-term view,” Wilson says. – Larry Schlesinger
BRISBANE/GOLD COAST
Brisbane and the Gold Coast still offer some good value in terms of houses but investors need to be aware of a potential oversupply in the apartment markets.
Transaction numbers are lifting across both cities, indicating more buyers are taking advantage of the relatively affordable housing stock compared with Sydney and Melbourne and higher yields.
RE/MAX Advantage franchise owner Tandi Gill has seen plenty of interest from buyers this year.
“We have noticed a significant shift in investor inquiries coming from Sydney and other interstate areas interested in Bayside and the greater Brisbane region,” she adds.
Brisbane dwelling values increased 1.4 per cent in September but just 4.6 per cent in the last 12 months according to CoreLogic RP Data. The affordable end of the market is where there have been strong improvements but Brisbane is seeing huge apartment supply which could start to alter results.
The Gold Coast has seen steady activity in the established housing market but the big gains are anticipated in the apartment market where big new developments are under construction after a five-year lull. Prices per square metre have lifted but are still a long way behind the boom of 2007. – Matthew Cranston
PERTH
With Perth house prices falling as the former resources boom town is inundated with “for sale” signs, is it time to buy?
There are now 15,645 houses, units and parcels of land on the market, according to reiwa.com.au. Most property experts believe equilibrium is achieved in Perth’s residential market when there are about 12,000 properties on the market, which means it is a buyer’s market.
But it is the speed at which the market has changed that has caught most property experts by surprise. The number of properties on the market has increased by 40 per cent over the past 12 months.
“People thought we’d hit the bottom, but it just kept going,” says Craig Kelson, of Kelson Real Estate in East Victoria Park. “Now they can’t see what is going to trigger a turnaround.”
Dale Alcock, managing director of big Perth home builder ABN Group, says there is limited downside risk to investing in Perth.
“There’s good choice, low interest rates and the cost of building is stable,” Alcock adds. “People can build some good equity in their homes quickly.” – Jonathan Barrett
ADELAIDE
Phil Harris, managing director of Harris Real Estate, expects the Adelaide market to produce capital growth of between two to three per cent over the next 12 months, similar to the overall growth rates of 2.8 per cent for the previous year.
“I just think it’s a very balanced market right now,” he adds.
He nominates north-eastern suburbs like Rostrevor, the eastern suburb of Magill and perennial inner-city favourite Norwood with its cafe and shopping strip along The Parade as suburbs likely to outperform.
He says the Adelaide market doesn’t have the highs and lows of Sydney and Melbourne, and buyers should expect steady but modest capital growth. But the popular inner-city suburbs will always attract a premium, so those who’ve done their research “wouldn’t want to sit on the fence for too long”. – Simon Evans
HOBART
A four-bedroom, two-bathroom spacious house with panoramic views of the harbour and mountains that is minutes from the centre of town for under $700,000 sets Hobart apart from most Australian capitals.
Abundant beauty and low prices are attracting much interest from mainland buyers, say local agents.
House prices over the past 12 months have been falling by about one per cent and apartments are down around five per cent, according to SQM Research.
There were 16 auctions last weekend – compared with nearly 1400 in Melbourne – and the clearance rate was about 50 per cent.
Phil King, an agent for Harcourts, says prices are strong around central Hobart but sluggish in outer suburbs.
King says mainland investors, particularly self-managed superannuation fund members, are buying because of lower prices. “We are in a sweet spot,” he adds.
Hobby farms and lifestyle properties are also selling strongly. – Duncan Hughes
CANBERRA
The Canberra market has been in the shadow of Sydney and Melbourne, with good reason.
Since Canberra’s downturn in mid-2011, the average house price of $700,000 has fallen to $600,000 and units have gone from $450,000 from $370,000.
Canberra’s housing slump was due to a large 2010 building program of units to provide relief to a tight rental market, SQM Research’s Louis Christopher says.
“It appears the worst is now behind us. Certainly the market, both for sales and rents, has stopped deteriorating,” he adds.
“Leading indicators do not suggest a market that is about to launch into recovery. Rather, they just simply suggest the market shouldn’t deteriorate further.”
Realtor John McGrath says there is value in Canberra suburbs such as Crace, popular with families, and Downer which is benefiting from the light rail.
“Lyons is a gentrifying sleeper suburb next to Curtin, where property prices are peaking off the back of extremely strong demand. Lyons used to have a poor reputation but this has changed and we’re seeing Curtin buyers expanding their search into Lyons,” he adds. – Su-Lin Tan
DARWIN
With the impending completion of major infrastructure construction projects in the Northern Territory weakening what was once the standout capital city in Australia for value, analysts expect a further decline in the city.
Over the past decade Darwin dwelling values have increased at an average 6.4 per year, the second-highest trend rate of growth in the country. Now they are trending lower at 2.5 per cent, with 3.9 per cent carved off in the last 12 months.
CoreLogic RP Data’s head of research Tim Lawless says rents are substantially down (11.6 per cent) since a year ago, and the number of homes coming on to the market has risen more than 14 per cent compared with a year ago.
“For buyers it means there is more stock to choose from, their purchase decisions don’t need to be rushed and they can negotiate hard on the contract price,” Lawless adds. – Matthew Cranston
