We are nearly halfway through the year so it is a good juncture to reflect on the year to date and what we can expect going forward.
So far in 2024 the Melbourne property market has been characterized by many sub markets whereby certain price points, property types and areas have been booming while others have been stagnant or even declining. Melbourne has been fairly unique in an Australian context due to the long hangover from covid and a local government that has a debt problem and has used its property levers to generate further income. This has put further pressures on households and investors.
As we have written in previous newsletters, certain areas of Melbourne are starting to look very cheap relative to other Australian states. We have also been fielding more interstate and overseas enquiries. This indicates to us that the Melbourne market is lagging other states on the property cycle and it could be due for a boost over the coming years.
Going forward the predictions have been fairly moderate with the banks predicting an increase over the next 12 months between 2% – 5%, however if Melbourne is to be priced in line with its infrastructure and attractiveness as an international destination alongside Sydney the growth should be more significant, particularly over the next few years.
There can be no denying that Melbourne continues to experience strong demand driven by population growth and limited housing supply. This imbalance is expected to support price increases despite higher interest rates. Also high public sector spending on infrastructure is driving up costs for materials and labour, which limits new housing supply and increases competition for existing properties
From an investor perspective, there are some great buys at the moment as a number of landlords have chosen to exit the market, giving rise to some quality stock at a reasonable price point. Investor sentiment is currently cautious due to high interest rates and limited incentives, but when the wheel turns, those that were brave enough to invest now will be the beneficiaries. The rental market also remains tight with vacancy rates below 1% which should lead to further rent increases of 7-10% in the next 6-12 months.
Economic factors are also starting to swing in favour of buyers with the big four banks generally in agreement that interest rates may have peaked around 4.35% and might start to decrease in early 2025, providing some relief to mortgage holders. This is predicated of course on the ‘sticky’ inflation numbers coming down.
Overall, while the Melbourne property remains on an upward trajectory due to strong demand and limited supply, for potential buyers and investors, this means navigating a competitive market with the potential for strong capital growth over the next few years.
In this months newsletter we provide our usual insights and updates as well as our tip for the month on why it is important to take care with auto valuations.
Insights
Source: Corelogic 2024
The smaller capitals have emerged from relatively soft conditions, with both Hobart and ACT recording three months of consistent, albeit mild, rises in home values.
“We aren’t seeing any signs of heat coming out of the Perth housing market just yet, in fact the quarterly pace of growth, at 6.0%, is approaching the cyclical highs seen during the pandemic when interest rates were at rock bottom.
Other highlights from the CoreLogic Monthly Housing Chart Pack include:
- CoreLogic estimates the combined value of residential real estate rose to $10.6 trillion at the end of April.
- The monthly change in national home values held steady at 0.6% for the third consecutive month, taking the three month change in values to 1.8%
- Over the three months to April, lower quartile dwelling values (3.0%) rose at more than twice the pace of upper quartile values (1.1%), with growth conditions continuing to be skewed toward the more affordable section of the market.
- New listings trends have seen a slight uptick in recent weeks due in part to the earlier than usual Easter, with the four week count of new listings coming in 18.3% above this time last year and 13.7% higher than the previous five-year average.
- Across the capitals, the change in total listing levels relative to last year is quite diverse, ranging from 10.6% in Melbourne to -24.9% in Perth, which helps explain some of the divergence seen in capital growth.
- CoreLogic estimates that 38,317 homes were sold in April, taking the rolling annual count to 505,153. Compared to this time last year, annual national estimates are up 7.3%, with capital city sales volumes up 9.2% and combined regional sales up 3.9
- The national median time on market dropped slightly in April (31 days), with declines in the combined regions (44 days) counteracting a marginal increase in the capitals (27 days).
- Vendor discounting rates compressed slightly across the combined regional market over the three months to April, taking the national median vendor discounting rate to -3.5%— the lowest national discounting rate since the three months to May 2022 (-3.3%).
- The 12-month change in national rental values has held relatively steady over the past three months, with rents rising 8.5% over the year to April. Underneath the headline figure, the pace of growth in regional and house rents has accelerated in recent months, while growth in unit and capital city rents has eased.
Source: Core Logic
Property Management Update
The 12-month change in national rental values has held relatively steady over the past three months, with rents rising 8.5% over the year to April. Underneath the headline figure, the pace of growth in regional and house rents has accelerated in recent months, while growth in unit and capital city rents has eased.
Gross rental yields continued to expand in April to 3.75%—the highest national result since October 2019 (3.77%). While gross yields have seen a significant improvement from record lows recorded in January 2022 (3.16%), it’s likely that highly leveraged investors’ net yields continue to be weighed down by high interest rates.
Preparing Your Investment Property for Winter: Essential Tips
As the winter months are slowly approaching, we must start to prepare for the colder weather. Effective winter preparation not only protects the property but also ensures renters safety and satisfaction. Here are some key tips:
1. Heating System Maintenance
Before the cold sets in, it’s crucial to inspect and service all heating systems. This includes:
Arrange for a professional trade to check heaters are working correctly and if there are any issues to get this fixed. Trades can also perform routine maintenance/servicing to ensure efficient operation.
Check and improve insulation around pipes and in attics to prevent heat loss and reduce heating costs for renters.
2. Roof and Gutter Inspection
After Autumn, we find that gutters and roofs can be blocked up from leaves which can cause damage to roofs and gutters. Prevent problems by:
Roof Inspection: Have a professional inspect the roof for loose shingles or potential leaks.
Gutter Cleaning: Clean gutters and downspouts to ensure proper drainage and prevent roof leaks.
3. Renter Communication
Effective communication between renters and property managers is crucial for maintaining the quality and safety of your investment properties.
Minor issues, such as a small leak or a faulty appliance, can escalate into major problems if left unaddressed. For example, a tiny leak can lead to significant water damage, mould growth, and structural issues over time. Prompt reporting allows property managers to address these problems early, saving time and money on extensive repairs.
4. Energy Efficiency
Winter is a great time to focus on energy efficiency improvements.
Window Sealing: Check for drafts and seal windows and doors to keep heat inside.
Lighting: Switch to energy-efficient LED lighting in common areas to reduce electricity usage.
Considering switching from gas to electric. This transition can offer several benefits, including improved energy efficiency, enhanced safety, and potential cost savings for renters.
By taking these proactive steps, you can ensure your investment properties are well-prepared for winter. This not only helps in maintaining the property’s value and reducing maintenance costs but also enhances renters’ satisfaction and safety. Winter preparation is an investment in the property’s longevity and the well-being of its residents.
Please feel free to contact our property management team for more information or service recommendations. We pride ourselves on our honest open communication and the strong relationships we build with our rental providers and renters alike.
If you are unhappy with the level of service you are receiving from your current Property Manager, have a chat to Liz or Rachel It may be time for a change. If you would like a confidential chat, please contact us (03) 9818 4499.
We hope you stay warm and safe this winter!
Property Purchases
We have had some great results for our clients in 2024. Below are a couple of examples.
Home Buyer – Strathmore
After inspecting this property for the first time, BA knew the competition would be fierce. Trying to put a stop to this, BA offered a very enticing pre-auction (in the prescribed form) to the Vendor. $100,000 above the top end of the agents quoted range. Initially, the agent came back to us wanting another $50k to put the property on the market. BA will not be manipulated like that, as there is no emotion involved. The agent eventually saw logic and placed the property on the market at the offer price, bringing the auction date forward via a zoom auction. Three parties contested this one, commencing at BA’s original offer. The final two parties fighting this one out, were ourselves and a local selling agent bidding for himself. Clearly, with industry knowledge and experience both parties knew the property was worth a hell of a lot more that the selling agents quote, with BA securing the keys for $2500 more than the under bidder, setting the real market value.
Home Buyer – Mooroolbark
We purchased this property for our clients in a hotly contested area and market where it was not unusual for homes to sell after their 1st or 2nd open. So it was crucial when we found a property that fit the criteria that we were able to move quickly. This property was in a perfect position and offered good accommodation and land. After a couple of opens an offer was made by another party but we were able to move quickly to jump the que and have it tied up within 24 hours before other parties had time to get themselves in order. A great outcome.
Home Buyer – Camberwell
We purchased this great townhouse for a lovely family who had been in the market for several months. Like most buyers they were getting tired of looking and feeling the pressure to buy quickly. We had missed out on a couple of properties and had monitored many others only to see all of them going well in excess of their reserve prices. We were able to manage these clients emotions and to remain focused on their criteria and bigger picture. We instilled our confidence that we were getting closer to the auction that does not shoot the lights out. We had been looking at properties with a budget of $2M but were able to secure this one for $1.51M. It requires some updating but it is in the prefect position for our cllients (we competed for another similar property that also required a renovation that sold for $400k over reserve). A great outcome that shows the importance of being patient, managing your emotions and keeping focused.
Home Buyer – Williamstown
This assignment was like no other! “Absolutely eye opening!”
Williamstown was the location, the need was a flat, single level two-bedroom place with LUG!
Initially, BA said “ok, but this isn’t going to be easy, but it should be possible”.
So, the service began, picking the client up from his home, breaking down his wheelchair to put in the boot of BA’s car….chair set up to get him out of the car, for the first property, it’s a no. Eight properties later, still a no.
Another 7 properties later, and BA thought, “Yep, it’s possible”. In conjunction with the Transport Accident Commission, we made an offer on a place pre-auction and had it wrapped up with no other buyer competition, in the mix. A great result!
Home Buyer- Strathmore
The 2nd purchase in Strathmore, this one was secured in a very similar manner on the same day. After a very strong offer prior to Auction, strong in relation to the quote but weak in relation to the property’s real worth, this one was also contested by three other parties. Bidding commenced at BA’s original offer, fighting it out with a downsizer couple, to eventually win the keys well within our clients budget.
Vendor Advocacy Service
Did you know we offer a vendor advocacy service to assist clients achieve the best result in selling their home. The service facilitates the sale of your property in conjunction with a sales agency. All fees, sales methods, and campaign are negotiated in consultation with you.
Starting with independent advice on the property value, we will also;
- Help select only the most competent, senior and professional agency team to represent you
- Advise on the different methods of sale and marketing campaign
- Advise on any offers that are received and also attend the auction whilst the selling agent conducts the auction
- At all times provide you with complete independent advice and manage the campaign with the upmost professionalism
Once the campaign is underway Buyers Advocate will assist with the communications with the agent and provide a sounding board for any questions or issues you may have during the campaign.
Tip Of The Month:
Take care with Auto Property Valuations
Automated property valuations often provided by online tools and algorithms, can be a convenient and quick way to estimate the value of a property. However, there are several reasons why it’s important to approach these valuations with caution:
Accuracy and Reliability: Automated valuation models (AVMs) rely on available data, which may not always be comprehensive or up-to-date. Missing or outdated information can lead to inaccurate valuations.
Simplistic Models: Many AVMs use basic algorithms that might not account for unique property features, recent renovations, or specific neighborhood characteristics.
Local Market Variations: Real estate markets vary significantly from one region to another. Automated valuations might not accurately reflect local market conditions, trends, or nuances.
They may not take into account proximity to amenities, or school district quality.
Property Characteristics:Special features like historical significance, high-end finishes, or unique architecture are often not considered in automated valuations.
Condition: AVMs typically do not account for the current condition of the property, which can significantly impact its value. Recent renovations will also have a large impact.
Market Dynamics-:Automated tools might not quickly adapt to rapid changes in supply and demand, such as those caused by economic shifts or natural disasters. Seasonal variations are also often not captured.
Comparable Sales (Comps): Automated valuations often use comparable sales data to estimate value, but they may choose properties that are not truly comparable due to differences in size, age, or condition.
Data Quality Issues: Errors in public records or MLS data, such as incorrect property details, can skew automated valuations.
Regulatory and Legal Factors: Zoning Laws or local regulations that affect property values might not be reflected in automated valuations. Also legal contract issues can also have an impact.
Lack of Personal Insight: Real estate agents and professional appraisers provide insights based on experience, intuition, and firsthand knowledge of the local market, which automated systems lack.
Emotional and Subjective Factors: Buyers’ emotional responses to a property and subjective factors like curb appeal or interior design style are not accounted for in automated valuations.
While automated property valuations can be a useful starting point, they should not be solely relied upon for making important real estate decisions. It’s essential to complement them with professional appraisals, local market analysis, and input from real estate experts. This comprehensive approach ensures a more accurate and nuanced understanding of a property’s true value.
