themcgrathreport autumn update 2013
over view There are signs of a national property market turnaround in 2013, with strengthening economic conditions overseas and plenty of positive domestic factors, including falling mortgage rates, improving business and consumer confidence, low unemployment, low inflation and growing rental yields. East Coast property prices are improving, with a noticeable uptick in demand and sales across many key areas. People are sensing that the bottom has passed and interest rates are too good to ignore. There’s even new activity at the upper end, which has been stagnant for several years. Sydney is the frontrunner among the capital cities in recovery. RP Data has Sydney house prices up 3.4% and apartments up 3.7% for the year to January. There are also encouraging signs in Brisbane, where house prices have risen 2.2% and apartments are up 3.2%. It’s important to remember that Australia is a collection of markets, not a single moveable feast. At this stage, I’m tipping a solid 5%-10% growth rate across the major east coast markets this year. In a recovery, confidence is key. The GFC had an impact on Australians’ confidence and while the property market has presented fantastic opportunities for some time, many have been slow to respond, preferring to wait until the market has ‘found its bottom’. This now appears to be changing with the Westpac-Melbourne Institute Consumer Sentiment Index at or above the 100 equilibrium for three consecutive months after 14 out of 16 months below it. Economically, we are finally seeing some good news out of the US and Europe which appears under control for now. An impressive 25% increase in
the ASX All Ords since June 2012 has provided a much-needed shot in the arm for Australian investors and will be a strong catalyst for growth in the more expensive price brackets. Interest rate cuts are also having a positive effect, with consumer confidence and spending up and continuing strength at the lower end of the property market. Further rate cuts by the banks have brought the average three-year fixed loan to its cheapest level in two decades, according to RateCity. We are now seeing fixed three year rates at under 5%. Corporate Australia is also responding, with the NAB business index rising from -9 in November to +3 in January. With the upcoming Federal Election, most experts are tipping a Coalition victory and this should provide an even greater confidence boost for business and consumers. Much has been made of the end of the mining boom, but there’s still plenty of benefits to come as we transition from an investment to production phase. China remains on an upwards surge with an 8% anticipated growth rate this year (and beyond) and we will benefit more than any other country. Jobs are crucial to a stable property market and unemployment remains low at 5.4%. Inflation is at the bottom of the RBA’s 2-3% comfort band at 2.2%. ABS data shows household wealth actually increased by 18.4% over the past 12 months, making us the wealthiest we’ve been in five years. A key indicator of an improving market is rising home loan applications. Australia’s largest mortgage broker, AFG, processed 24% more in new loans in January compared to January 2012 – a big jump. Between 35-50% of
new loans in NSW and QLD are going to investors, who are driving a major restructure of our property market as first home buyers retreat. The investor trifecta of cheap money, rising rents and price growth is bringing them back in droves. Cash and term deposits are far less attractive and there’s continuing strong interest in purchasing via selfmanaged super funds.
The All Ords recently broke through the important psychological benchmark of 5,000 and this may herald the start of the prestige property recovery. We began seeing increased enquiry in the $2M-$5M bracket last quarter and this suggests buyers are back in research and preparation mode. It may not be until the second half of the year but I believe we’ll see price rises for luxury homes in 2013.
First home purchasing has dropped dramatically to 4.1% in NSW and 5.3% in QLD, well off AFG’s long term average of 15%. While the loss of the grants are a blow, rock bottom interest rates and rising rents still present a compelling reason to buy. In fact, an RP Data report shows it’s actually cheaper to buy than rent in 58 Brisbane suburbs and 48 Sydney suburbs, based on a P & I loan of 5.65%.
This year will be the turnaround year. Those who get in first will reap significant rewards as they ride the wave of price growth from the bottom. As prices continue to rise, we’ll see a surge of confidence and ‘fear of missing out’, which will stimulate continued investment over the next 3-5 year cycle. John McGrath, CEO McGrath Estate Agents
Median house and apartment prices
source R P Data
$244 K $330 K $320 K
median unit price
median house price
$351K $450 K
$423 K $505 K $399 K
$495 K $431 K
$534 K $425 K
$589 K $410 K
$575 K $489 K
HIGHEST GROWTH Houses KIRRIBILLI 39%
CABARITA 25% WOLLSTONECRAFT 23% CHIPPENDALE 21% Apartments NORTH WILLOUGHBY
LEWISHAM 23% MILLERS POINT
BERALA 21% BALGOWLAH 20%
highest number of sales Houses CASTLE HILL
BLACKTOWN 459 BAULKHAM HILLS
Apartments DEE WHY
PARRAMATTA 426 CRONULLA 384 BANKSTOWN 367 LIVERPOOL 350
Sydney is once again proving an incredible capacity to lead a national recovery and stimulate surrounding markets. The primary trends are increasing investors, particularly those buying through SMSFs; fewer first home buyers and the slow return of downsizers and retirees. Last year, activity was strongest in the sub-$1M but we expect greater competition in the middle to upper end markets this year. Clearance rates are strengthening and more people are attending opens, with 80+ groups in some cases in the Inner West and one home in St George attracting 101 groups at a single open. People seem to want to ‘get on with it’ after hesitating in 2012.
have a particular impact on downsizers. Would-be downsizers and retirees lost substantial savings in the GFC and since then, many have put off their next property move and stayed in work, hoping to see their portfolios replenished in years to come. That’s happening now, with surging stock prices and low interest rates bringing many downsizers back into the game. Offshore buyers will be a key factor in the prestige recovery. Australia has established itself as a desirable safe haven and our proximity to Asia makes us even more appealing to the growing Chinese aristocracy.
At the lower end of the market, the retreat of first home buyers is giving investors more room; while at the upper end, new activity is being driven by the sharemarket, downsizers and the Chinese.
The introduction of the ‘significant investor visa’, which enables fast-tracked residency for those who invest more than $5M in business, government bonds or managed funds, will no doubt have a flow-on effect to harbourside/beachside property and new apartments.
Prestige property prices are still 10%-plus off their 2007 peaks and deleveraged buyers are in an excellent position to take advantage of this. As shares continue to rise, so does individual wealth, and I believe this will
New capital spending will also assist the broader Sydney market, with projects such as the Inner West Light Rail extension and the North West Rail Link likely to stimulate price growth and yields.
John McGrath’s top suburb picks: Erskineville (and surrounds): Adjacent to the thriving King Street retail precinct and where all the smart money that can no longer afford Surry Hills is going. The University and Hospital also create a strong rental demand for investments in the area. St Ives: Leafy North Shore area where $1M still buys you a great family home that would be $1.6M in the trendier east. Believe me when I say that it’s hard to go past this area for great family living with its own village. Forestville: One of a few forgotten suburbs wedged between the popular surfside beaches in the north and the leafy North Shore. But it lacks nothing except awareness as it ticks all the boxes for great lifestyle and capital growth.
LOWEST DAYS ON MARKET Houses YARRAWARRAH 30 ST PETERS
HEATHCOTE 35 KAREELA 35 CONSTITUTION HILL
Apartments PICNIC POINT
WEST PENNANT HILLS
BELFIELD 24 HURLSTONE PARK
HigHest Rental Yield Houses TREGEAR 7.2% EMERTON 7.1% WILLMOT 7.0% WHALAN 6.9% BIDWILL 6.9% Apartments BELLA VISTA
6.8% source R P Data
HIGHEST GROWTH Houses NORTH BOOVAL
CHELMER 22% BROOKFIELD 18% KURWONGBAH 18% Apartments BARDON 29% CLONTARF 24% LUTWYCHE 23% EVERTON PARK
highest number of sales Houses FOREST LAKE
KALLANGUR 269 DECEPTION BAY
NARANGBA 257 Apartments BRISBANE CITY
Brisbane is becoming an increasingly aspirational place to live and an important centre for Australian business. Its sophisticated lifestyle and warm climate makes it appealing for families and retirees alike. While the region has just experienced its second flood in as many years, Queenslanders are resilient and I believe the property market will continue to grow. Strong employment and population growth coupled with a supply shortage and rising rents are driving the market recovery. Buyers lacked confidence in 2012 but this changed somewhat in the last quarter, with a noticeable increase in buyer enquiry particularly for properties under $1M within 5km of the CBD. Sales activity is improving across all price points this year so I’m cautiously optimistic on price growth for 2013. Overall, I believe this year will serve as a platform for much stronger growth in 2014 and 2015. Today, buyers are taking advantage of great value in prime inner city suburbs. Sub-$500,000 apartments and townhouses in Toowong, St Lucia and Paddington are popular, offering strong yields with low vacancy rates.
First home buyers have dropped away and investors from both the local area as well as Sydney and Melbourne are filling about half the void. The typical local upgrader is swapping a two bedroom workers’ cottage worth $600,000-$800,000 for a $1M-plus Queenslander. There’s not a lot of cross-town moving, as low interest rates and good value prices are enabling people to buy a larger home in inner city areas where they already live. Downsizers continue to be active, with many selling their $1M-plus family homes and buying a smaller $700,000 property with money to spare for an investment. In outlying areas, investors are driving the second and third home buyer markets. The $450,000$600,000 range was stagnant in 2012 but this is changing as more investors from Brisbane, Sydney and the Gold Coast purchase in the $300,000s. Developers are out scouting new locations and the proposed jet-capable Wellcamp Airport in Toowoomba will bring exceptional benefits.
John McGrath’s top suburb picks: Hawthorne: Undergone huge transformation with the emergence of lifestyle amenities, food markets and café culture that’s attractive to families and young professionals. Watch this space as home renovators move in. Toowong: Just 4km from CBD and less than five minutes to the St. Lucia campus, it’s attracting an investor market who want to capitalise on the demand from young professionals and students. West End: Urbane suburb with great café culture, it has that real inner-city feel. Close proximity to Southbank, there is a surge of development attracting both investors and owner-occupiers.
LOWEST DAYS ON MARKET Houses DONNYBROOK 36 DEEBING HEIGHTS
GAYTHORNE 49 MOUNT GRAVATT
Apartments STRATHPINE 31 FITZGIBBON 37 HIGHGATE HILL
WINDSOR 43 NORMAN PARK
HigHest Rental Yield Houses DINMORE
KINGSTON 6.9% GAILES 6.9% LOGAN CENTRAL
Apartments LOGAN CENTRAL
7.3% source R P Data
HIGHEST GROWTH Houses HARRISON 30% COOK 19% BONNER 13% CALWELL 12% GRIFFITH 9%
Apartments DUNLOP 38% REID 22% WANNIASSA 17% CITY 15% O’CONNOR 14%
highest number of sales Houses KAMBAH 157 MACGREGOR 137 DUNLOP 96 NGUNNAWAL 95 FORDE 95 Apartments KINGSTON 191 BRADDON 122 BELCONNEN 116 LYNEHAM 111 TURNER 106
Last year was a tough year for Canberra, with sales volumes 47% down on the five-year average, according to RP Data figures. Buyers and sellers alike were happy to sit on their hands as the market continued its correction and an oversupply became evident in the apartment sector. People were also mindful that a Federal Election was just around the corner and this always makes the locals nervous, with a huge proportion of Canberra’s population employed in the public service. Now that we have a firm poll date, locals are seeing an opportunity to buy or sell now before the inevitable slowdown mid-year. Prices remain soft-ish and people are realising the benefits of buying and selling in the same market, especially with interest rates so low. We’re seeing increased sales activity, with more people attending opens and solid prices being achieved for quality homes. Overall, house prices did improve by 2.4% in the year to January, with apartments up 6.6%, according to RP Data. The apartment market won’t
do as well in 2013 as supply is now outweighing demand and the typical buyers – investors, are wary of the potential for softening yields. There is some good news for apartment buyers who will be spoilt for choice. Savvy downsizers are taking advantage of this and the larger apartments in new developments are gaining some interest from this cashed-up sector. We expect a major slowdown in sales activity from about mid-year, with an inevitable pick-up following the election.
John McGrath’s top suburb picks: Wanniassa: A family suburb is likely to benefit from the proposed master redevelopment plan for the nearby Erindale Centre and Erindale Drive precinct. Buyers are well aware of the plans and are keen to buy now for future capital growth. O’Connor: Situated close to CBD, it offers older homes on larger-thanaverage blocks. Young couples and families are targeting O’Connor with the intention of renovating or building million dollar homes. Downer: Downer’s business park is being redeveloped and there’s the possibility of light rail link passing by the suburb to connect the CBD and Gungahlin. An area that offers great value for families and renovators and is very ‘up and coming’.
LOWEST DAYS ON MARKET Houses WARAMANGA 35 GILMORE 36 HIGGINS 42 SCULLIN 43 LATHAM 44 Apartments SCULLIN 34 MACQUARIE 38 FLOREY 41 EVATT 41 THEODORE 49
HigHest Rental Yield Houses CHARNWOOD
6.0% source R P Data
nsw Many key regional markets were relatively strong in 2012, while others showed signs of improvement but not to any great extent. This year, sales are up and there’s a stronger sense of optimism in the marketplace. Similar trends to the cities include more investors, fewer first home buyers; green shoots in prestige property and renewed interest in the dormant weekender market. City investors are increasingly looking to regional areas for affordability and strong yields and this is impacting property prices. Fewer first home buyers and an increasing number of sea/tree change families choosing to ‘try before they buy’ means rents are likely to rise and vacancies will remain low. There’s been a noticeable increase in yields in many markets over the past few years. Senior executives are a growing force in regional areas. Some are seeing an opportunity to buy their retirement homes now and use them as investments or weekenders; while others are making a lifestyle change as telecommuting becomes more acceptable in today’s tech-savvy workplace. In areas such as Port Macquarie, Bowral, Byron Bay and the Central Coast, there have been a number of sales above $1M to investors/future retirees in recent months. In some markets, out of area buyer demand is now outpacing local demand – a complete reversal on 2011/12 trends. Newcastle remains a hot spot, with plenty of Sydneysiders heading north as more companies set up shop locally.
john’s top suburb picks
john’s top suburb picks
1. Bowral 2. Ocean Shores 3. Eleebana
1. Isle of Capri 2. Labrador/Arundel 3. Tugun
Houses ELLALONG 48% GILLIESTON HEIGHTS 45% LIGHTNING RIDGE 45% CAREY BAY 38% BERRIGAN 36%
Houses BIGGERA WATERS 27% LOWER BEECHMONT 14% COOLANGATTA 7% ASHMORE 6% PIMPAMA 5%
Apartments SOLDIERS POINT 50% NORTH ALBURY 49% SWANSEA 31% MERIMBULA 30% MOAMA 30%
Apartments COOMERA 31% CARRARA 7% HOPE ISLAND 5% TUGUN 4% BENOWA 3%
highest number of sales
highest number of sales
Houses PORT MACQUARIE 675 ORANGE 637 DUBBO 615 GOULBURN 463 BROKEN HILL 340
Houses UPPER COOMERA 260 HELENSVALE 216 ROBINA 196 PACIFIC PINES 191 MUDGEERABA 172
WOLLONGONG 386 PORT MACQUARIE 318 THE ENTRANCE 199 COFFS HARBOUR 180 TWEED HEADS 152
SURFERS PARADISE 829 BROADBEACH 352 SOUTHPORT 345 HOPE ISLAND 325 LABRADOR 258
LOWEST DAYS ON MARKET
LOWEST DAYS ON MARKET
MEREWETHER HEIGHTS 32 KEARNS 38 HAMILTON EAST 40 HIGHFIELDS 42 EAGLE VALE 42
TALLEBUDGERA VALLEY 46 JACOBS WELL 71 MIAMI 74 BIGGERA WATERS 76 MERRIMAC 76
BAR BEACH 28 HELENSBURGH 34 COOKS HILL 35 TARRAWANNA 40 GLENFIELD 43
CURRUMBIN 69 MIAMI 70 MUDGEERABA 82 BURLEIGH WATERS 83 TUGUN 91
HigHest Rental Yield
HigHest Rental Yield
Houses BOGGABRI BROKEN HILL WENTWORTH CONDOBOLIN WELLINGTON
12% 9% 9% 8% 8%
Houses GAVEN GILSTON BONOGIN NERANG HIGHLAND PARK
8.2% 8.1% 7.7% 7.6% 7.6%
PACIFIC PINES HIGHLAND PARK NERANG BUNDALL ELANORA
Apartments SINGLETON HEIGHTS KOORINGAL PICTON WYONG METFORD
6.1% 6.0% 5.9% 5.8% 5.5%
source R P Data
7.2% 6.7% 6.7% 6.6% 6.5% source R P Data
gold coast The Gold Coast remains one of Australia’s best value markets, but recent activity suggests the bottom of the cycle has passed. There’s a noticeable change in sentiment, with more sales occurring and higher buyer enquiry across the board. Prices are still well below their pre-GFC highs but homes are selling in a more reasonable timeframe. We may not see major price growth this year, but we’ll definitely see more sales. Coverage of the Gold Coast slump has been widespread and this has encouraged a lot of interstate interest among investors and seachangers, particularly from Sydney and Melbourne. Today, about 50% of buyers are from out of area seeking an affordable waterside property or growth investment. Investors usually buy at the lower end – typically apartments, but the opposite is true on the Gold Coast, with investors competing against local upgraders for larger family homes in canal suburbs. Waterfront houses in the low million dollar range are popular in Isle of Capri, Mermaid Waters, Benowa and Sorrento. The prestige sector is also firing up, with several $5M-plus transactions since November.
e x p e c t e x t raordinar y