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CASHED-UP Melburnians keen to snatch beachfront holiday homes from struggling vendors may be in for a big disappointment.
Plunging average prices for regional seaside homes don’t tell the full story.
Valuer-General Victoria sales figures released this month by Land Victoria show median house prices rose in a third of seaside towns!
From the end of 2007 to the end of last year, prices fell in 16 of 30 coastal towns and stayed level in four others!
Hardest hit is Port Fairy with a 34.6 per cent drop from $390,000 in late 2007 to $255,000 at the end of last year. Average house prices also fell dramatically in Blairgowrie, Barwon Heads, Portarlington and Rosebud West.
Anne Murphy of Stockdale & Leggo says Port Fairy sales results during the summer were the best in the eight years she’s been there, saying the big drop in the median house price for Port Fairy is not because property values have fallen. Instead, figures have been skewed by tightly held, top-end properties being kept off the market.
“We’ve been recommending they delay selling because demand isn’t strong.”
People have owned houses here for 30 to 50 years. They’re kept in the family and passed down. Unless unforeseen circumstances such as a divorce occur, why sell in this market if you don’t have to?”
But Murphy says those Port Fairy vendors who are on the market are more realistic than in previous years.
“We’re not expecting a good summer season with the economy the way it is, but we’ve had extremely good results in the number of sales and most sales were within 10 per cent of asking prices.”
“In the past 18 months in our office, there has been only one sale of a property that sold for less than the vendor paid for it!”
“Most properties here are about $450,000. You won’t get much for your money under $400,000.”
That hasn’t stopped holiday-home hunters prowling Port Fairy.
“We’ve had people come in looking for that bargain,” “I don’t have any bargains but there are realistically priced properties and motivated vendors who will negotiate.”
A historic fishing port that is now a popular holiday and retirement town famed for its annual folk festival, Port Fairy is about 290km west of Melbourne.
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What will happen if rates go up? In today’s low-interest-rate environment one of the common questions property investors ask is, “What happens if we buy now and interest rates skyrocket, like back in the 1980’s?”
An understandable concern and today’s historically low interest rates can’t be sustained forever because at some point the economy will begin recovering, inflation will grow and rates will rise!
That’s part and parcel of the economy’s cyclical nature.
When rates do rise it’s doubtful they’ll hit the dizzying heights of the late 1980s. The major lenders certainly don’t think so; they’re setting their 10year fixed rates about 7per cent.
With vast resources and access to the world’s top economic minds, it’s highly unlikely that major lenders will make the wrong call about the future direction of interest rates.
But for argument’s sake that they do and rates climb back to the heady levels of 20 years ago.
If interest rates go up that far it’s a sign that business and consumer confidence is high. When rates go up so does inflation. And when inflation rises, so do property values. Yes, your holding costs will be higher because of higher interest rates but as an investor you will benefit on three fronts.
High rental returns
First-home buyers won’t be active because property is less affordable in a high-interest-rate environment. This will keep them in the rental market, put pressure on the available rental accommodation and drive up asking rents. The higher the interest rates, the higher the investment yield.
Negative gearing benefits
If your expenditure on the property exceeds your rental income, you’ll be able to soften the impact and increase your cash flow by claiming the difference as a tax deduction.
Substantial sale proceeds
If you can’t afford to hold the property you can sell it. While this isn’t an ideal scenario, your property will have grown substantially in value during the time of high inflation so you’ll be better off than when you purchased it and that is the aim of investing!
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MELBOURNE‘s auction market had its highest clearance rate over the weekend since the end of the property boom in December 2007.
Of the 452 properties up for auction, 83 per cent sold and 77 properties were passed in!
But the number of properties for auction was 126 fewer than at the same time last year!
The CEO of Real Estate Institute of Victoria attributed the high clearance rate to the extension of the first-home buyer’s grant which was announced in last week’s federal Budget, combined with low interest rates and an increase in investor numbers.
“It’s off a low base. There were not a lot of auctions,” Mr Raimondo said.
“The part of the market which is performing really well is priced at or below the medium of about $410,000.
“In the last 12 months that’s stayed very stable.”
Mr Raimondo expects the strong clearance rate to continue.
“The next two weeks we expect to see just under 1300 auctions, which is a very high number of auctions at this time of the year.
“I expect the clearance rate to remain high until the 30th of September (when the full first-home owner’s boost will be phased out).”
Flat and apartment clearances were also strong: 90 per cent of 136 properties at auction sold.
The latest residential land report from the Housing Industry Association revealed Melbourne’s median land price grew 0.7 per cent in the December quarter to a record $152,000.
The HIA-RP Data residential land report showed the price of land in Melbourne was up 4.8 per cent over the year.
The median land price in regional Victoria fell 2.8 per cent in the December quarter to $97,250, the lowest price since mid-2007.
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Home buyers are flocking back to variable rate mortgages which now account for 91% of the residential lending market, their highest proportion in four months.
Mortgage broker Mortgage Choice reported in April, basic variable mortgages accounted for 48.15 per cent of all home loans approved – up nearly one per cent from March, while standard variable mortgages comprised 42.77 per cent of the market, down 1.47 per cent from March.
Basic variable loans generally have fewer loan features than a standard variable loan.
Fixed rate loans accounted for four per cent of all approvals up a percentage point from a month earlier.
Basic variable loans have been the most popular loan type for four months after overtaking standard variable for the first time in January 2009!
Rates charged on variable home loans move in line with interest rates as set by the Reserve Bank of Australia (which has successively cut its overnight cash rate since September last year to a 49-year low.
And despite interest rates being at their lowest in decades, the sensitive global and domestic economic climate is having a strong influence over loan product preferences.
Consumer conservatism with rates and fees continues to win out against loan flexibility and extra features.
Line of credit loans in April, popular with property investors, posted a fall of five per cent from the previous month.
Commitments for owner-occupied housing rose 4.9 per cent in March, seasonally adjusted, to 59,793, Australian Bureau of Statistics data showed this month.
Total housing finance by value rose by 6.7 per cent in March, seasonally adjusted, to $20.688 billion, the latest month in which data was available.
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MELBOURNE‘s auction market had its highest clearance rate on the weekend since the end of the property boom in December 2007.
Of the 452 properties up for auction, 83 per cent sold and 77 properties were passed in!
But the number of properties for auction was 126 fewer than at the same time last year!
The CEO of Real Estate Institute of Victoria attributed the high clearance rate to the extension of the first-home buyers grant which was announced in last week’s federal Budget, combined with low interest rates and an increase in investor numbers.
“It is off a low base. There were not a lot of auctions,” Mr Raimondo said.
“The part of the market which is performing really well is priced at or below the medium of about $410,000.
“In the last 12 months that has stayed very stable.”
Mr Raimondo expects the strong clearance rate to continue.
“The next two weeks we expect to see just under 1300 auctions, which is a very high number of auctions at this time of the year.
“I expect the clearance rate to remain high until the 30th of September (when the full first-home owner’s boost will be phased out).”
Flat and apartment clearances were also strong: 90 per cent of 136 properties at auction sold.
The latest residential land report from the Housing Industry Association revealed Melbourne’s median land price grew 0.7 per cent in the December quarter to a record $152,000.
The HIA-RP Data residential land report showed the price of land in Melbourne was up 4.8 per cent over the year.
The median land price in regional Victoria fell 2.8 per cent in the December quarter to $97,250, the lowest price since mid-2007.
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The value of commercial building permits in Victoria increased in the March quarter, despite there being a fall in the state’s building industry overall.
Building Commissioner Tony Arnel says that when compared to the same period in 2008, the value of building permits in the state has decreased by 11 per cent to reach below $4.2 billion!
Looking at the data for building use, commercial building permits is the only building use category to increase, up eight per cent to $793 million!
Hospital and healthcare recorded the biggest fall in the quarter dropping 55%, industrial fell by 46%, public buildings by 4%, retail by nearly 27%, residential by 17% and domestic by 3%!
According to Mr. Arnel, North Central is the only Victorian region that experienced an increase in the value of permits issued.
It had nearly a 23 per cent increase when compared to the same period in 2008.
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Melbourne’s outer suburb vacancy rates have improved from 0.7 per cent to 1.8 per cent in the past six months, according to the Real Estate Institute of Victoria’s April vacancy rates.
The vacancy rate across Melbourne is reasonably steady having been between one and 1.4 per cent for 12 months. However it‘s significant that there’s a recorded improvement in the outer suburbs.
The improvement could be due to the number of first homebuyers that are moving from their rented accommodation into their own home with the assistance of the grants, bonus and boosts.
The March quarter median prices showed that most of the activity in the marketplace has been in the outer suburbs; for instance Craigieburn, Melton South, Hillside, Epping, Caroline Springs, Werribee and Meadow Heights – all outer suburbs of Melbourne popular with first homebuyers.
It‘s great news for renters if a by-product of the grants, bonus and boosts is an improvement in the availability of rental accommodation, however monitoring of the situation over the next few months to will tell of continual improvement..
We would consider that the rental market would be in balance once we reach a Melbourne-wide vacancy rate of three per cent.
In the last month the figures from our REIV members have shown a very minor change in the inner suburbs where the vacancy rate moved from 1.5 to 1.3 per cent and in the middle suburbs where it moved from 1.4 to 1.3 per cent.
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Property investors should plan ahead to take advantage of the next upturn in the property cycle, according to quantity surveying firm Asset Economics.
“Property booms never last and neither do property busts,” the firm says in its latest newsletter.
To take advantage of the next boom, investors really need to buy for long-term capital growth and take in account the ripple effect.
“As our next property cycle comes around, it‘ll be the most desirable, most sought-after areas that start growing first, and these are usually the most affluent areas too.”
From there, capital growth starts to “ripple outwards!!”
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551 Punt Road SOUTH YARRA
Painstakingly renovated from the ground up, this stunning home has been re-stumped and rewired with new double glazing. It features a stunning gourmet kitchen opening to a large family room at the rear which overlooks the back garden and entertaining area.
Accommodation includes three huge double bedrooms plus study ( master with ensuite) formal sitting room, all with 12 ft plus ornate Victorian ceilings!
There’s 4 open fire places perfect to fall asleep by with the winter impending, stunning new timber floor with brass inlay and ducted heating!
There’s off street parking for multiple cars including car port, as well as a double storey
cottage / studio.
This beautiful home is a stunning example of a timeless triple brick “Victorian” superbly decorated with feature gold leaf!
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It’d seem the stars are aligned: low rates, population growth, low vacancy rates, strong rents and a shortage of housing in most capitals.
Since late 2008, the number of loans to first home buyers has outweighed substantially those to existing owner-occupiers and investors as first-time buyers rush to take advantage of the increased government grant. These numbers are set to surge in the next two months after the Prime Minister indicated that the increased grant will end June 30. In previous interest-rate cycles, lending to investors and existing home buyers increased alongside that to first-home buyers.
Part of the reason is that investors are not getting the first-home-owner grant, and when you have to lay your own money down instead of the government’s, you tend to think more carefully before deciding to take the plunge. Unemployment concerns and fears about how the economy will evolve this year are also key reasons why investors are not yet entering the market.
Consumer sentiment figures released earlier this month by the Westpac-Melbourne Institute Survey found pessimists still outnumbered optimists and, with the prospect of more unemployment, that’s unlikely to change soon.
Interest rates are one of the crucial aspects investors consider. During the past month or so, several of the big banks have increased their fixed mortgage rates, even though variable rates are expected to go even lower.
Banks say it’s because of an increase in the rates in the wholesale market where they access funds. Not everyone accepts that that is the reason, but most acknowledge it’s a signal borrowing costs are near their lowest levels!!
Some economists believe fixed rates will continue to rise as banks manage their risk, and it’s just a matter of the speed at which it happens. Of course, fixed rates are not popular at the moment even with investors who traditionally use this option.
That’s not a surprise, given the cash rate is expected to fall to 2 per cent by the end of the year.
But fixed rates are a bit of a barometer of the longer term trend in interest rates, so they are worth watching. It also pays to remember that just because the Reserve Bank of Australia cuts rates, that doesn’t mean banks have to follow suit.
Only time will tell whether property buying will be better next year.
Perhaps investors are waiting for a sign that unemployment will stop rising, or for first-home buyer activity to dry up!