Good momentum continues to flow through the industry as agents, buyer’s advocates included continue to scramble to make tight inspection times and shortened campaign schedules. A property scheduled for auction which proves to be popular and let’s face it, the majority are, will in most instances sell earlier than anticipated to a keen buyer wanting to secure the property outpacing other buyers lagging in speed and decision.
We are seeing overall volumes in stock on the increase although not at a level where we can say with confidence that the playing field is once again balanced. The scales are still very much tipped to vendors but the frenzy at which buyers are competing is starting to wane. Whether this be a case of fatigue, budget restraints or affordability constraints, we welcome this change of pace.
The heat may gradually be coming off the property market however some extraordinary sale results are still been achieved, particularly in the family home and downsizer markets where demand still exceeds supply and where houses continue to outperform units although at a slowing rate. This is due to buyers now looking at making a move back to higher density living due to affordability and we expect that the unit market including older style deco apartments start to gain value.
The easing of restrictions and our new found freedoms will play its part in alleviating some of the panic buying seen over the last months as many buyers will take stock of their property purchase endeavours and put more focus on getting back to forms of normality such as work, social gatherings, interstate travel and preparing for the upcoming holiday period.
This will in turn give more serious buyers a better opportunity to purchase property with relative ease and far less competition making the most of the opportunities presented to them as opposed to buyers who decide to hang up their hats until the new year anticipating an increase in volume. This small window of opportunity from now to Christmas to take advantage of this decrease in activity will pay dividends as we expect the start of 2022 to be just as robust once it kicks off with renewed buyer appetite and an increase in buyers, new and old.
New listings have increased 28.2% nationally in the four weeks to mid-October equating to more than 45,000 new properties added to the market. Good news for home buyers as Greater Melbourne’s quota was made up of 6142 new listings in total meaning more stock to choose from. However, this increase is predominantly stronger in the Mornington Peninsula area and concentrated to the less desirable markets for owner occupiers, such as the unit segment and across high investor concentrated markets across Melbourne. Also investors with compromised properties see this as an ideal time to sell as well as those who have had long term investments.
It is worth noting that the Mornington Peninsula region has been one of the highest-growth markets in the country, where dwelling values have risen 35.3% in the 12 months to September 21.
This month the Australian Prudential Regulation Authority (APRA) announced changes to the serviceability buffer it expects the banks to apply when assessing home loan applications as a means of slowing down the market.
This serviceability factor ensures or rather offers the bank more confidence that borrowers could still service a mortgage if interest rates were to rise. The lenders will now be expected to apply a serviceability buffer of 3 percentage points, rather than the previous buffer of 2.5 percentage points as of the 1st November 2021.
For example, a borrower being offered a mortgage rate of 2.8% will have a maximum loan size determined by their ability to service a loan with an interest rate of at least 5.8% shaving off tens of thousands of dollars from a borrower’s borrowing capacity.
With more than one in five new loans approved in the June quarter were at more than six times the borrowers’ income, banks will again be paying closer attention and lending to borrowers who can afford the level of debt they are taking on.
The question remains, will this have the desired effect and how much of an impact will it have on the market? We suspect that it will help take the heat off however not cause property values to fall and the most affected will be first home buyers who already have a limited borrowing capacity due to lack of equity which anyone who holds a property right now has benefited from the upswing in property values.
The Fall Of The Rental Yield
Rental yields at a national level have had a downturn with the most significant levels of reduction being in Melbourne and Sydney, two of the most COVID-19 affected markets. The border closures to international students and expat renters have taken their toll as
Melbourne has now become the cheapest city in which you can now rent a house. House rental yields fell by 0.4 per cent over the three months to September and 4.3 per cent over the year giving tenants the upper hands in rent negotiations to date, although we expect this to be short- lived as Australia opens back up to international travellers and expats.
According to Domain chief of research and economics Nicola Powell, although rents are still well below what they were pre-pandemic, the inner area of Melbourne’s house and unit rents are rising marginally and indicating that we may have reached the bottom end of the rental market and that the worst has passed for landlords.
Similarly, the Domain Rent Report indicates vacancy rates have continued to decline, suggesting the empty pool of rentals will continue to shrink and prices will not stay this low for very long. Unit rents have started to rise nationally for the first time since the start of the pandemic and after five consecutive quarters of falling rents, there has been a major turnaround which will come as welcomed news to landlords.
The overall cost of renting a house did not fall over the September quarter but did not rise either and Melbourne has simply fallen to last place because the cost of renting has continued to rise everywhere else.
House rents continue to hold over the quarter at $430 a week and unit rents increased $5 over the quarter for the first time since pre-pandemic March 2020 however, they remain $60 below the March 2020 high, at $370. All is not doom and gloom however as rents have grown or held over the quarter across all regions apart from units in Melbourne’s inner South.
Although Melbourne investors have been dealt a blow with lower rents, the gain in capital growth in some areas up to 20 per cent has certainly softened this blow and provided a substantial rate of capital gain and with borders soon to open up again will also see an uplift in rental demand and prices.
CoreLogic’s national home value index rose another 1.5 per cent in September, taking Australian housing values 17.6% higher over the first nine months of the year and 20.3 per cent higher over the past 12 months. The annual growth rate is now tracking at the fastest pace since the year ending June 1989.
Although growth remains positive, it’s becoming clear that the slowing of growth which has eased to 1.5 per cent is a result of higher barriers to entry for buyers and with values rising substantially faster than household incomes, raising a deposit has become very challenging for many especially first home buyers.
According to CoreLogic’s research the slowdown in first home buyers can be seen in the lending data, where the number of owner occupier first home buyer loans has fallen by -20.5% between January and July 21. The number of first home buyers taking out an investment housing loan has increased, by 45%, suggesting more first home buyers are choosing to ‘rent vest’ as a way of getting their foot in the door.
House and unit approvals peaked around April 2021. House approvals in the month of August had declined -22.1% since this recent peak but remained 26.3% higher than the decade average.
Melbourne dwelling values rose by 0.8 per cent in September with dwelling values increasing by 3.3 per cent in the quarter.
Auction clearance rates have recovered since the easing of restrictions and for the past four weeks the average national combines clearance rate being 74.3%.
There were 1,326 reported auctions in September and with 1,259 of these being sold representing a clearance rate of 94.9 per cent for the month of September 2021. Eleven suburbs across Melbourne saw a recorded 100 per cent clearance rate, led by Doncaster East, Greensborough and Preston.
At a suburb level, Glen Waverley had the greatest number of reported auctions for the month at 24 followed by Reservoir (20).
Property Management Update
As COVID restrictions start to ease in Melbourne and across Victoria, our property management team is excited to be returning to the office on November 1. We look forward to seeing our clients, contractors and colleagues as we return to “business as usual”.
We wish to pass on our sincere thanks and appreciation to you, our valued clients, for your support as we navigated the challenges of yet another lockdown.
Upon reflection, this period of time provided us with a unique opportunity to further grow and connect with our clients, strengthening our professional relationships. After all, working together through good times and challenging times, is critical to any successful partnership.
Property investing can be serious business at times. As a Rental Provider there are specific responsibilities that need to be adhered to protect you against potential costs and liabilities.
In this month’s newsletter, we would like to share our “Top Ten Tips for Surviving as an Investment Property Owner”.
1. Seek independent advice:
Seeking advice before buying or selling a property is a number one priority and it needs to be independent professional advice. Not from your family, friends, or colleagues. Knowledge is power, and the more you know about your circumstances and position when buying or selling, the better you will manage your choices and options. Our team offers an exceptional Buyer and Vendor Advocacy service, should you wish to explore this further.
2. Explore your options of which Landlord Insurance policy you choose:
Landlord Insurance is such a valuable and underrated factor in property investing. Landlord Insurance covers you for financial loss under several circumstances. This may include accidental and malicious damage to the property, renters who cannot pay their rent, renters who abandon a property, plus many more. Beware though, as not all insurance policies are the same, so you need to do your homework or seek professional advice. The legalities and your responsibilities as an investment property owner may at times become costly, so it is imperative that you are adequately insured. Please reach out if we can assist you, as we partner with EBM Insurance as our preferred suppliers.
3. Know your legal rights:
Renting laws in each state vary and are often confusing. It is essential that you know and understand the relevant legislation, regulations, and compliance matters. As your property managers, we are available to provide clarity on these matters so that you remain well informed.
4. Treat it like a business:
Consider your investment property as a business and although circumstances may vary, it is always best to keep emotions in check and try not to focus on the minor details or become too emotionally attached. We are here to support you through and will offer professional support and advice from a business and asset growth perspective.
5. Make sure that you review the details of any rental applications presented to you:
Finding the right renter for an investment property is just as crucial as finding the right property. It is always advisable to act swiftly during the renter selection process. Rather than quickly approving a tenant who may not treat the property well, resulting in unnecessary stress and financial loss.
6. Maintain a professional relationship with your renters:
Property investing is a business. It is considered best practice to keep the relationship professional while maintaining a balanced, two-way communication process via your managing agent to build trust and establish a good rapport with the renters. Renters are the people who are paying the rent and taking care of the property. All parties must respect each other and work together to resolve issues as they may arise.
7. Don’t over estimate the weekly rent:
Times are tough for everyone currently. The media is reporting that the real estate market has never been better. However we need to consider that many people and businesses have been adversely financially affected during COVID. It is often better to keep a good renter who cares for the property, than lose them due to a rent increase they cannot afford.
8. Understand your maintenance responsibilities and expenses:
One of the important responsibilities includes carrying out renter’s maintenance requests promptly. Take the time to plan, budget, and put some savings aside for the unexpected (as you may need to have funds available to carry out maintenance and pay for expenses; otherwise, you may end up in breach of your agreement). We can help you to plan and budget your rental income as part of our service, please reach out anytime.
9. Have multiple funding sources:
Having (or at least researching online) extra funds can make all the difference to the growth of your investment portfolio. Strategies such as privately managed super funds, joint-equity ventures, private loans, hard-money loans, and bank financing are all options to consider as a property investor. Our experienced team can help point you in the right direction if you need advice from our referral partners in these matters.
10. We have left the best to last! YOU – the property owner:
We know that many of you have been affected and are struggling due to the impact of COVID over the past 18 months and we want you to know that we truly do care about you – as well as your properties. Please call us anytime if you feel like a chat. After all, we are in this together – for the long game.
Wishing you all the best and we look forward to seeing you, your renters and your properties in person once again – finally! To our absentee Owners, interstate and overseas, please feel most welcome to connect with the team on Zoom anytime (the next best thing to a face to face meeting, although I’m sure we are all a little “Zoom fatigued”!
The challenging market conditions continue just as we continue to deliver great results for our clients. Here are a few below:
Home purchase – Black Rock
Beautiful townhouse right near the beach. There has been no expense spared on this brand new 4 bedroom, 2 bathroom and 2 car garage home. A week prior to attending this auction we missed out on another townhouse in Beaumaris that was situated more inland. This was in a much better position and we were able to secure this for a lower price. A great result!
Home purchase – Hampton (Off market)
We were able to deal exclusively with an agent on this property as the owners were overseas and the tenants were unable to provide ongoing access to the property. This allowed us to professionally negotiate an outcome and price that gives our clients plenty of options going forward. They plan to renovate the property to create their dream home in a very popular location.
Home purchase – Fitzroy
A beautiful home in a great location. We have been looking for this client for a few months as the right options have not presented themselves in the desired location, or the prices have run well above our valuations. Our patient approach and that of our client has paid off, as they have been able to secure this property well within our valuation range. The zoom auction panned out exactly the way we would have liked and the client is extremely happy with the result.
Tip Of The Month: Should you make a pre-auction offer?
With Spring season upon us and onsite auctions also now underway, it’s important to not only formulate a bidding strategy but also to have a solid plan and understanding of the process in the event that you are going to put in a pre-auction offer.
A pre-auction offer may seem easy enough, however it is important to understand the process by which the agent will conduct the process and also to find out as much as possible about what will drive the vendor to make a decision and their motivation.
You may find yourself in a position where the agent is trying to tease you out of information specifically on how much you would pay for the property and then only to come back and advise that the vendor has decided to continue with the auction except now, they have full knowledge of your budget and also could very well advise other potentially interest parties of this to bump up the price.
Know your value, understand the agency’s process around what they do once they have received an offer that is at an acceptable level and how quickly will they come back to you or if they will allow counter offers? Remember a pre-auction offer may not be the best solution if you are unprepared or simply don’t know what to do, in which case it is best to engage a buyers advocate to negotiate on your behalf.