We’ve seen since the middle of 2021 the rate of property price growth slow, and at a national level, May 2022 was no exception. May also gave us the first interest rise to the cash rate since 2010 with the second at the start of June. From here, as we see interest rates continue to climb, and depending on how aggressive the RBA are with these rises, we are likely to see further uncertainty in the market limiting capital growth.
While many households are yet to feel the impact, it is anticipated that as interest rates continue to rise, many will start to feel the bite as these are coupled with all time high inflation and increased costs of living. Reserve Bank of Australia Governor, Philip Lowe has warned that both interest rates and inflation will continue to climb higher this year however not to the extent being predicted by the economists at the major banks nor that the country will end up in a recession.
The last two years have enabled households to accumulate more than $200 billion in additional savings and in turn has now helped cushion the first initial rate rises for many. The ones who would be feeling the pinch here are the buyers who have purchased B or C grade properties in the last eighteen months at the peak of the market and those who have overextended themselves.
Although the annual price growth has significantly declined in recent months, compared to the plunge of 1990s recession where values nosedived close to 40 per cent with interest rates sitting at approximately 17 per cent, we are still in a good position if we are to compare, even if the cash rate reaches the 4 per cent predictions.
Winter Blues
Typical of winter, listing numbers are on the decline and as agents take time off and we head into another round of school holidays, limited supply is cushioning any market falls.
Melbourne recorded a monthly fall of 0.3 per cent in May, a far cry from the huge predictions we are hearing about, nevertheless according to realestate.com.au data is the highest rate since April 2020. The regions also saw a fall of 0.3 per cent, the biggest since May 2019.
Sellers have had the upper hand for the last two plus years, but the balance has tilted somewhat as buyers regain the upper hand in negotiations and many vendors having to reign in their expectations. With properties staying on the market for longer, buyers are now being provided with more thinking time and options without the pressures of having to move as quickly or be as bullish with their offers.
A change in tide is underway, overall, however we expect the demand for quality listings to remain steady, especially for quality family homes which remain a scarce commodity as many new listings coming to the market now are typically compromised by way of location or condition.
There are certainly mixed results both at auctions and private sales which indicate that while uncertainty mounts, good quality properties that hit the market continue to do extremely well. The level of buyer enquiry, inspection numbers and competition come game day remain strong for these properties. The issues lie with properties that are compromised as the previously sought after renovator delights take much longer to transact.
What we are also seeing is a rise in properties being sold as private sales, primarily off market listings at often inflated asking prices. Only about 5 per cent of these ‘off market’ opportunities we would consider as good purchases as the majority are simply a ploy by vendors and agents to extract top dollar wherever possible. Expressions of interest are also making a comeback as are properties being sold prior to auction depending on the location, style of property and buyer demand.
Agents change tact during uncertain times and use any means necessary to sell a property to a buyer at a maximum amount, particularly if they feel that they have a buyer or situation which can be easily manipulated. These uncertain times call for experience as understanding these various methods of sale and added negotiating pressures from agents imposed on buyers will become harder to navigate.
Case in point was a property sold via a private sale in Skye which sold for more than $200,000 above the quoted range. This was most likely a situation whereby a buyer was willing to pay more than others. Under this situation the agent would prefer to sell outside of the auction process as it is less transparent.
Reality Bites
Would be vendors and buyers are faced with some tough decisions in the coming months as to whether to take the plunge or wait for the market to stabilise and have a bit clarity on what is happening. It comes as no surprise that many on both sides of property transactions are feeling a little uncertain during this transition phase.
Adding fuel to the fire are banking regulations set to tighten with ANZ and NAB announcing that they are cutting back on new lending to borrowers with a higher debt to income ratio (DTI) as they prepare for the impact of rising rates.
ANZ from June 6th will no longer accept applications from borrowers with total debts more than 7.5 times their income, previously they were prepared to accept applications with a DTI of up to 9 times. A similar move by NAB has been adopted as they reduce their DTI limit from 9 times to 8 times. It’s interesting to note that although these new conditions are being categorised as responsible lending measures, The Australian Prudential Regulation Authority (APRA) regards DTI of 6 and over as high risk.
Moving forward we can expect to see buyers, particularly first home buyers struggle to meet the market this time not because of competition but rather because of a trimmed down budget due to reduced borrowing capacity.
Insights
Property prices continue to lose steam as interest rates mount. Melbourne, Sydney and Hobart have hit their first quarter of negative territory since the extended lockdowns of 2020. While values are still rising across all other states, a recorded 0.6 per cent growth is the lowest reading since October 2020.
Although the monthly growth rates remain higher in other states, the trend rate of growth is easing with Adelaide at 1.9% growth in April, followed by Brisbane (1.7%), Canberra (1.3%) and Perth (1.1%). We may have also seen the peak in regional areas as signs of slow down are becoming evident however expect that regional markets will be somewhat insulated from a material downturn due to an ongoing imbalance between supply and demand. Advertise stock levels remain extremely low compared to capital cities.
CoreLogic’s Home Value Index (HVI) showed Sydney (-1.0%) and Melbourne (-0.7%) dwelling values continued to record the most significant month-on-month falls.
Auctions
Auctions continue to be a case of hit and miss depending on price point, location and the condition of the property on offer. We are certainly noticing that at the higher end of the market, more auction pass ins are taking place as is the case with properties which are either compromised due to location or properties which require some money spent on it to bring it up to scratch.
Fewer properties are scheduled to go to auction over the next couple of weeks as is the case with most school holiday periods. The number of new listings has also fallen as agents take this time off and hold off on advertising. Melbourne has seen a fall of 23.4 per cent in expected auction volumes for the month of June.
There were 3,682 reported auctions in May 2022 with 2,588 of these sold representing a clearance rate of 70.3 per cent. We expect this number to be significantly less for the June period.
Only five suburbs across Melbourne saw a recorded 100 per cent clearance rate, led by Rowville and Brunswick East and at a suburb level, Reservoir again was first place for the highest number of auctions with 59 reported auctions followed by Craigieburn and Glen Waverley with 45 reported auctions each.
Property Management Update
EOFY – It’s that time of year again, how quick has this come around? Our team are preparing for this busy time of year amongst their day to day portfolio management.
Did you know?
Depreciation is the biggest non-cash property deduction that property investors can claim, and the second-largest deduction overall, behind loan interest.
It’s only available to investors, not owner occupiers, and allows investors to recover the cost of wear and tear to a property and its assets over time by claiming in the two categories of capital works deductions and plant and equipment depreciation.
While costing an upfront fee, a depreciation schedule can save investors tens of thousands of dollars over the lifetime of the property, but you need a tax depreciation schedule to be able to take full advantage of the breaks.
If you would like to obtain a depreciation report for your investment property, please contact either Liz or Rachel who will arrange this for you.
There are plenty of people out and about looking at their next rental property which in turn means that receiving multiple applications gives our rental providers options when selecting the right renters for their property.
While we are seeing an uplift in demand for rental properties, overall Melbourne is still lagging behind other capital cities. We are noticing a real discrepancy in demand from what is being reported via the media channels to what is actually happening on the ground, particularly in the apartment market.
A few important reminders for rental providers:
- Do you have landlord insurance? Who is your cover with? Are they the right provider for the cover you need?
- It is recommended that rental providers have gutters on their investment properties cleaned at least once per year. Keeping on top of this can prevent unwanted water leaks from occurring
- With so many legislative changes in Victoria it is imperative that your investment is kept at the highest standard possible. Maintenance will need to be done from time to time so working with your property manager to ensure that this is done when needed or recommended will ensure you property remains compliant and that you maximise your rental return. Remember that monies you spend are all tax deductable.
If you are unhappy with the level of service you are receiving from your current Property Manager, have a chat to Rachel or Liz. It may be time for a change. We pride ourselves on creating an unsurpassed property management experience for all clients.
If we can assist you in managing your investment or to arrange an assessment of your property contact us (03) 9818 4499.
Property Purchases
The changing market conditions continue to be challenging however we continue to deliver great results for our clients. Here are a few below:
Home Buyer Purchase – Templestowe
Buyers Advocate was asked to attend this hotly contested auction for this stunning four bedroom premium property in a last minute bid to try to secure our clients forever home. Off the back of a very competitive auction of four bidding parties, we secured the keys under the hammer for our very grateful clients.
Tip Of The Month: Methods of Sale
Selling property can be a very daunting process and one that costs can be quite hefty, so having a clear understanding of the process, various methods of sale and a good agent onside may mean the difference between a great or marred campaign.
Make sure you understand all the advantages and disadvantages before deciding how to sell your property and also have clear expectations on market conditions and what the market may be prepared to pay for your property, not what your expectations are on value.
In a private sale:
- Your agent will negotiate with a buyer to agree on a sale price and terms
- The contract of sale can be conditional, with your approval. This means the buyer can make the sale subject to obtaining a loan, a satisfactory building inspection report or other conditions by mutual agreement
- The buyer is entitled to a three-business day cooling-off period
At a public auction:
- The price is determined by competitive bidding between prospective buyers
- The contract is unconditional. The buyer cannot make it subject to conditions such as finance or building inspection
- You may have a better opportunity to sell by a specific date; however, there is no guarantee your property will sell on this date
- Auction conditions apply to a sale that takes place three days before or after the auction
- There is no cooling-off period
It is important that an experienced local agent be appointed for the sale as experience, years of negotiating knowledge as well as being a local agent is important in a turning market.
A good agent will be able to give you guidance on market conditions, value and also offers transparency during the campaign, be it the good, the bad and the ugly. Be wary of the agent that promises a higher sale price and/or very low fees.
Buyers Advocate provides a Vendor Advocacy service whereas we 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.
If you are thinking of selling, please reach out to us for independent advice and how we can assist you with this process at no additional costs.
