Welcome to 2022! Although reports are indicating that the property market has started off in full throttle, Melbourne has been slower off the mark! January to mid-February saw a slower than average start as consumers and agents took a bit longer to commence the year after suffering covid fatigue. In the past couple of weeks, we have seen an increase in buyer enquiry, buyer activity and properties coming to the market, which is certainly welcomed news.
The start of January 2022 saw an uplift in listings at a national level with Melbourne, Sydney, Brisbane, and Perth all listing more properties this year than at the same time 12 months ago and leading the pack is New South Wales and Victoria up 24 per cent and 21 per cent respectively. However, care should be taken with these figures when it was a less than normal year last year.
Although traditionally we see an increase in stock volumes from mid-January, the higher than usual in volume increases could be attributed to varying reasons such as vendors now coming to the market after waiting out a turbulent 2021 or vendors simply being more strategic and trying to time the market before interest rates start to lift. It is also worthy to point out that this increase in volume doesn’t equate to an increase in quality A grade properties. Filtering through a long list of properties to source a quality asset, remains challenging.
A greater willingness from sellers to list their properties will mean more options for buyers and improve the imbalance between supply and demand and this should also contribute to an easing of price growth this year. Although we still expect the A grade properties to continue to perform strongly.
Data from realestate.com.au identified the largest surge at the end of 2021 around Melbourne were particularly prominent in Melbourne’s Inner East, where new listings more than tripled in January 22 compared to January 21.
With renewed enthusiasm as the border reopens, demand for Melbourne properties will soon be back on the horizon for many, including skilled workers, students and expats looking to return home. Whilst Melbourne property growth has lagged behind the rest of the nation, particularly in comparison to our sister city, Sydney, it’s expected that we see further uplift in growth this year, however, may once again be tested as economic factors such as interest rate rises and elections to come to play.
New data from realestate.com.au reveals that the biggest growth in international searching activity were concentrated in areas where housing estates were prominent such as Caroline Springs and Clyde by who we can assume are new migrants and skilled workers. Expat activity has also been on the increase with inner suburbs such as Brighton, Camberwell and Toorak, on their radar due to being within close proximity to private school options.
Another interesting observation will be how the regions fare during 2022. With further easing of restrictions and workplaces back to near normality, the working from home options for some may be short-lived. We have been of the view that the pandemic has caused many to make some rash decisions particularly when it came to moving to the regions. While being able to live and work in regional Australia has been a sensible lifestyle choice for many, with restrictions easing and cities returning to life it is feasible that some of those people that moved regionally may return to the cities and the shift away from the cities won’t be as noticeable as it has been over the last two years.
Unfortunately, as many Melbourne investors know, with the pandemic came a mass exodus which has been left across all segments of the market in Melbourne particularly in the apartment market where we still see a noticeable decrease in rental prices in order to secure a quality tenant. High density blocks and suburbs which are flooded with apartments for choice such as St Kilda are certainly feeling the pinch.
There is good news is on the horizon however as the Melbourne market is showing signs of recovery. Vacancy rates have declined to 2.4 per cent, now lower than the 2.7 per cent covid-induced rate seen in April 2020, continuing the downward trend of decreasing rates after a spike during the pandemic.
Although vacancy rates are reducing, they are yet to hit the pre-pandemic levels which hovered around 1.6 per cent in 2019 however with rental searches on the increase, this gives a good indication that we could finally see some rejuvenation of city areas particularly in the apartment market.
Interest Rate Outlook
Another hot topic flowing on from 2021 surrounding the increase of interest rates remains at the forefront of property decision making for many buyers and vendors alike. Whilst there are many speculating an increase in the coming months, a rate rise may not be as detrimental to the property sector as many are expecting.
With a rate rise it is expected that a borrower will see higher repayments, however the likelihood that the RBA will increase rates at a rapid pace is unlikely and is more likely to be gradual increases which will occur slowly over time as the RBA slowly exits its emergency policy. The most prominent downfall for borrowers will be restrictions on borrowing capacities however repayment costs for housing will remain historically low.
With many households having accumulated considerable savings since the pandemic started due to not been afforded the opportunity to spend on big ticket items such as travel, dining and leisure activities, many will be in a fortunate position to weather out immediate rate rises. Also for investors, if rents increase this will offset the rate rises.
We can see below fixed rates started creeping back up in recent months since the RBAs Term Funding Facility expired, however variable rates continued to decrease as competition among lenders remained strong. Should the Reserve Bank decide to not raise rates we expect that the bank may decide to increase their variable rates independently of the RBA.
The Australian housing values rose another 1.1 per cent in January as Sydney and Melbourne showed a stabilisation of growth rates. As we come out of seasonal lows, we should get a better idea of how 2022 will shape up as more transactions take place in the coming weeks.
Early indications on the ground give a clearer picture that although there is some element of uncertainty, increased activity at open for inspections, buyer enquiry and clearance rates of 81% last weekend show renewed buyer enthusiasm.
According to the CoreLogic Home Value Index report, houses continue to recorder higher rates of growth than units with national housing value up by 1.3 per cent in January compared to 0.3 per cent in unit values.
Melbourne’s median house value surpassed the $1 million dollars for the first time in January.
Melbourne dwelling fell 0.2 per cent in January however this can be attributed to seasonal lows as January is typically the quietest month for home sales and sluggish start to 2022 compared to other capital cities.
Auction clearance rates have recovered since the January lull, however in December 2021 we saw an average clearance rate of 80.3 per cent. The pace is quickly picking up as February results to be reported next month will show more a more accurate picture of how we are faring with sales activity. It is fair to say that with a recorded clearance rate of 81% for week ending 20th February 22, the outlook looks more promising than the doom and gloom reports of another property downturn we are so accustomed to hearing now.
Property Management Update
The year has kicked off and there is no slowing down for our Property Management team.
It is fabulous to be able to hold open homes and see so many prospective renters out there looking for their new home. Our team are focusing on leasing our available properties to the right renter at the right price as quickly as possible – we are monitoring the market and ensuring our rental providers are provided with honest advice so we can focus on minimising vacancy in between tenancies. We are seeing that some suburbs and properties are much easier to lease than others. Hopefully with international travel returning, prospective renters will start heading our way looking for a home to rent.
Our team continue to ensure legislation and minimum standards are being maintained and actioned as needed. We have a terrific group of trusted trades who continue to support and carry out maintenance in a very timely manner.
Below are 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. The legalities and your responsibilities as an investment property owner may at times become costly, so it is imperative that you are adequately insured. 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 as quickly as possible during the renter selection process. We provide you with as much information as possible so you can best assess each application.
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 overestimate the weekly rent:
Times are tough for many 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 and after 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).
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 24+ 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.
The challenging market conditions continue just as we continue to deliver great results for our clients. Here are a few below:
Home purchase – Diamond Creek
A special brief and client indeed. Secured by private negotiations by using strong agent relationships guaranteed the purchase of this oversized units for our first home buyer clients who were patient enough to wait for their perfect first home. We followed the process and negotiated a great deal well below full asking price and within our client’s budget.
Investment purchase – Cowes
As a result of contracting Covid19 and being in isolation, this one was negotiated by Buyers Advocate from a far. With a quoted price range, a buying process different to other franchised offices in metro and lack of urgency in their market, this one took a while to get over the line. With an initial offer to purchase made in the middle of the agents quoted price range and inline with our valuation, we were countered with a higher figure.
We did not budge on our price and instead focused on our terms. Buyers Advocate was aware that we were asking for a pretty-lengthy settlement period, a month longer than the owners were wanting. We counter offered to pay a further $8,500 as this would be the holding cost to the Vendor for that extra month. This was our final offer. Purchase successful and over $100,000 lower than the vendors counter offer.
Vendor Advocacy – Nunawading
This was the fourth time these clients have come to Buyers Advocate with their property related issue. Buyers Advocate helped them with the sale of their home that we bought for them just over a year ago to the day. Listing the property with a thorough market leader in the field, we took it to market with 34 groups through on the first Saturday open.
Auction day saw a crowd of about 60 people, 6 bidders where a final result of $50k over our client’s reserve.
Tip Of The Month: Do you need title insurance?
As a home buyer it is important to ensure that at the time of purchase building insurance is also obtained for the purchased property and in fact is a requirement of the lender to do so as part of the loan process.
Another type of insurance referred to as Title Insurance and protects purchasers and existing owners of residential property against risks that could cause stress and financial loss in the future. These risks may not always be discovered before settlement and can be categorised as ‘known’ or ‘unknown’ risks.
What are ‘known’ and ‘unknown’ risks?
‘Unknown risks’ are risks that are not identified during the Conveyancing transaction before settlement but that may arise during property ownership and cause financial loss to the owner. ‘Known risks’ are any defects in title that are disclosed by the vendor or otherwise discovered by the purchaser prior to settlement (eg. Building works completed without council approval).
What does a Title Insurance policy typically provide coverage for?
A typical policy protects against risks including:
- illegal building works / structures
- mortgage or title fraud after settlement
- incorrect signature of a document
- forgery, fraud, duress, incompetency, incapacity or impersonation prior to settlement
- defective registration of a document
- lack of rights of access or use of services
- breach of covenants
- survey cover for boundary issues
- encroachment by or on to the insured property
- lack of zoning certificates
- title being vested in someone other than the insured