In the weeks ahead we’ll get more comprehensive data for all Australian cities, but already I can see that the coming months are going to present the best buying opportunities we have witnessed for some time.
The “For Sale” signs seem to be going up everywhere. In Brisbane, the number of homes coming on the market is more than 75% above last year’s total; Melbourne’s numbers are up 66%; and even in Sydney – where sellers have been frozen into inaction – numbers are still going up (by 38%).
In the weeks ahead we’ll get more comprehensive data for all Australian cities, but already I can see that the coming months are going to present the best buying opportunities we have witnessed for some time. Here’s what to expect in our three biggest cities.
There’s considerable amount of vendor stress in Melbourne, with an exceptional number of home owners seeking appraisals, largely because many investors bought property late last year or early this year and are now over-geared and need to consolidate their investments.
This is a feasible strategy in a rising market, but the intervening months have seen the market plateau, leaving investors compelled to sell one property to settle the other. Further, many investors have suffered losses in their share portfolios due to sharemarket volatility, and are now forced to sell both properties.
This increase in listing activity suggests investors will benefit from a wealth of supply throughout Melbourne’s spring market. A comparison of stock levels from RP Data for 4 February this year and six months later, on 4 August, reveals an increase in listings of more than 5000 properties, from 7679 to 12,779 respectively.
While investors should be rubbing their hands with glee at the prospect of such rich pickings, a spike in stock levels also heralds the toughest market since 1996 for vendors. In my experience over the past several weeks, about 70% of auctions have been passed in. About half of these were sold before close of business on auction day, another 10% sold within two days of the auction and a further 5% or so are languishing on the market.
I predict that clearance rates will settle at 55% to 60% in spring (they were 56.8% on 10 August, according to RP Data). This will be a function of higher stock levels and a relatively static concentration of buyers, with many deterred by numerous mitigating circumstances, including the credit squeeze, sharemarket volatility and the lending slowdown.
I am looking forward to abundant supply, where I can get a real advantage.
Smart investors won’t be spooked by a drop in the auction clearance rate. When the clearance rate drops, the media invariably has a feeding frenzy. The take home message is not to be distracted by the noise; remain focused on your long-term goals and act accordingly. Buy quality assets and don’t adopt the bargain hunter mentality.
I tend to adopt a conservative view at the best of times, but if I had to call the best time in recent years to get into Melbourne’s property market and ring the metaphorical bell, I’m ringing it now.
In Brisbane, Meighan Hetherington, the managing director of buyer’s agents Property Pursuit, says that the market has plateaued. “Buyers and sellers are waiting for greater certainty on interest rates before they move. Sellers are holding back and waiting for conditions to become more favourable and this is limiting opportunities for buyers,” she says.
“The State Government is raising the stamp duty exemption limit for first-home buyers from $350,000 to $500,000 from 1 September, which will increase capacity for some purchasers. In this sub-$500,000 market, investors are largely competing with first-home buyers, so the stamp duty reprieve and resulting increase in activity may produce a price spike. Any capacity advantage is therefore likely to be short-lived and only last eight to 12 weeks. Since many first-home buyers are holding out for the stamp duty cuts and remaining in the rental market, we are also seeing ongoing upward pressure on rents.”
Notwithstanding, figures from RP Data suggest a dramatic increase in listing numbers since August 2007, up from 4816 to 8445. Dan Molloy, the managing director of the Real Estate Institute of Queensland, says the possible impetus is that like Melbourne, some investors have had to sell hastily to liquidate property and meet margin calls in view of sharemarket falls earlier in the year. Overall, Molloy suggests supply levels have primarily increased due to the continuing stalemate between buyers and sellers causing a number of properties to sit on the market.
Molloy says: “Some agents have reported they have about 30% more stock and 30% fewer buyers than they had 12 months ago.” Limited buyer activity is also reflected in Brisbane’s emerging auction market with clearance rates of 20% to 25% – about half of what they were. “Even though auctions are a relatively new phenomenon here, properties that were passed in were selling relatively quickly thereafter, but there’s now a decline in that activity as well,” he says.
He agrees with Hetherington that there is still upward pressure on rents and, with a bit more certainty on interest rates and higher stock levels, spring will be a good time to invest. “I expect that those who have been sitting on the sidelines for the past six months will jump in again, so some of that banked-up supply should be absorbed in the coming months. I believe we’re heading towards a more balanced market, with a return to long-term averages.”
The tide is turning in Sydney, says Peter Kelaher, the managing director of PK Property Search and Negotiators, and the property market has nowhere to go but up.
He says stocks of sought after family homes, around the $1.5 million-plus bracket, located in blue ribbon areas such as the inner-east and lower North Shore, have been consistently tight. “Vendors in that sector are questioning why they would sell in a buyer’s market, with many deciding to ride it out; whereas in the lower socio-economic west suburban belt, stock is much more readily available due to increasing numbers of investors selling up in the area.”
RP Data statistics indicate that listings across Sydney have increased marginally since the beginning of 2008, with a total of 10,830 in February compared to 14,896 for August. Falling prices and rental yield increases of 8% in the past three months are a strong indication that we’ve hit the bottom of the Sydney cycle, with rental yields sitting at about 4.5% to 5% of capital value – levels not been seen for nearly 15 years.
“Once rumours of interest rates cuts started circulating, auction clearance rates jumped from about 42% to 53%, peaking at 63% in the past month or so. I believe we’ll have a good steady spring and if we get two interest rate cuts (which I think we might), that will really return some confidence to the Sydney market and we’ll see it start to move again,” Kelaher says.
He says the majority of properties passed in at auction have been selling within the hour and estimates that of the few properties passed in which fail to sell by close of business, about 80% to 90% usually sell within four weeks; with a further 10% remaining on the market and eventually being withdrawn altogether because of unrealistic vendor expectations.
“The fact that increasing numbers of agents were pushing prospective buyers to submit pre-auction offers, particularly in the week leading up to the event, is both indicative and symptomatic of slower conditions. However as more buyers are emerging there has been a dramatic decline in pre-auction negotiations.”
Kelaher echoes my earlier view when he says: “I don’t think you can ever accurately time the bottom of the market, but if I had to call it, I’d say we’re pretty much there now.”
There are rich pickings in this market. Now is the time to negotiate… and win!
This article first appeared in the Eureka Report