The No B.S. 2017 Property Market Outlook
Here are the key factors influencing the market in 2017 without the B.S. I hope you enjoy reading it, as much as I had making it.
Chinese interest in Australian homes fell in the third quarter of 2016, which is understandable after Australian banks started increasingly scrutinising overseas buyers. This increased scrutiny has resulted in an additional 4 per cent stamp duty surcharge on foreign ownership, as well as a requirement for potential buyers to prove their residency.
The Chinese government also contributed to the reduction of investment in Australia by attempting to slow the money leaving the country. This actually had the opposite effect, however, as people now believe if they don’t get their money out of China as soon as possible, it will be stuck there.
Nothing can stop the Chinese from getting a good deal, and Australia is still one of the most attractive and safe countries to invest into. Where there is a will, there is a way and they have found it. Now, they are using cash, private lenders and foreign banks, as well as purchasing cheaper homes.
Despite new restrictions imposed by the Australian government, Chinese interest in real estate investment has never waned – it simply took a few months for them to discover how to get around the limitations. This explains the stagnation in the third quarter of 2016, however, according to Juwai.com, Chinese investment is now back at a healthy 34 per cent.
It seems there is nothing that will stop the Chinese who want to invest overseas –proven by the fact that more than $15 billion worth of property was purchased by overseas buyers (including China) in the first half of 2016.
Interest rates (RBA and banks)
What do we think is going to happen with interest rates in 2017?
We agree that interest rates make a difference, but it’s not the main thing we focus on when predicting the market. When it comes to interest rates, there are two things to watch – The Reserve Bank of Australia’s (RBA) cash rate and the banks’ interest rates.
Banks no longer follow the RBA and are relatively self-governed these days, which means the RBA is no longer biased towards easing policy. We believe this means it is likely that rates will go up in late 2017. The RBA is happier with low household debt, tighter lending restrictions, investor demand and lower volumes.
Banks, on the other hand, are looking at how they can get away with putting up interest rates and say they are suffering from too much ‘margin squeeze’. We believe this will, therefore, result in a continuing trend of a gap between the RBA and bank rates.
It is likely that rates will go up in late 2017 or early 2018, which means now is a great time to buy and lock in a five-year fixed rate.
Tighter lending and bank crackdown
Banks are tightening lending to all types of buyers, especially Chinese investors, due to the Australian Prudential Regulation Authority’s (APRA) resolution to cap all investor lending at 10 per cent. To achieve this, some of the banks’ self-imposed rules are:
- Not counting self-employed foreign income
- Scrutinising the source of income
- Increasing the size of deposits
- Reducing loan-to-value ratios for temporary citizens
- Reducing income paid in $AU weighting for loans from 80 per cent to 70 per cent for overseas buyers
- Increasing their assessment rates
- Decreasing bank valuations
As the banks come down harder on all borrowers, it can have a detrimental effect on the market, because it means that buyers who were just scraping in to get a loan will most likely not be able to get one now, unless their financial position improves.
This certainly makes our job a lot harder, because as more sale contracts fall through with unstable buyers we are having to sell to the buyer with the best financial position, which is not necessarily the buyer with the highest price.
Further to this, the big banks are also being investigated for cartel behaviour, as they are forced by APRA to keep more capital in the vault per loan, including some of the most profitable in the world.
With the banks being carefully watched, healthy capital buffers now in place and tighter lending being enforced, we believe the market can ride out most financial hiccups for the foreseeable future.
Stock levels up and taking longer to sell
At the moment, we are seeing a dilemma in the market – homeowners are calculating the cost of selling and it is getting higher. Things such as stamp duty, bracket creep and marketing costs from domain.com.au and realestate.com have grown to dizzying heights.
Owners are looking at their position and thinking, ‘for the amount I spend on stamp duty, I could renovate to a near-new condition’. They also look at the market and see that there are not many homes available, which leads them to believe that if they sell, they may not be able to find the home they want. Many are, therefore, choosing to buy a home first before placing their current home on the market and this process can take some time.
This sentiment is showing up at auctions and in sales, as they have reduced compared to one year ago. New developments are helping where there is low supply, however, not everyone wants to buy off the plan, which can result in the property being on the market for a longer period of time. New developments are also slowing down, which is adding to a lack of supply and when combined with a growing population, it will continue to put pressure on prices.
Yes clearance rates are high and auction numbers are lower than a year ago, which some would argue to be the result of a quieter market, however, the dilemma I describe above has created an unusual market.
We believe that due to low stock levels and low-interest rates, demand is actually higher. It’s just that real estate agents are not pushing for auctions because of the low stock levels. Properties can sell at a higher price and in less than four weeks, which is the length of an auction campaign, and it can be done by marketing properties to in-house buyer databases.
The trend is changing, however, with more sellers choosing auctions now due to the auction clearance rates being above 70 per cent for most of 2016.
The Australian market
We don’t normally like to talk about the ‘Australian Market’ as one single market, as it is clear that not all cities are performing in the same way and never have. We will instead, talk about the major elements affecting the Australian market as a whole.
There is no doubt that interest rates are low, the $AU is low, our lifestyle is attractive, our government, our economy, and our law are all stable, and we are going through an infrastructure boom in many areas. This means that from an outsider’s perspective, such as overseas buyers, our properties are considered great value compared to other options.
The banks have been under careful scrutiny in recent times and have faced a high degree of criticism from politicians, APRA and the RBA in 2016, which has resulted in more home buyers who can afford a loan being able to acquire one and risky customers being denied.
Many economists predict low growth for 2017, as little as 0.4 per cent nationally, however, some are predicting more than 5 per cent growth. We believe growth will be closer to this higher prediction, as Sydney is getting a new airport and will expand to 6.25 million people in 20 years. These are major development indicators and are beginning to boost national results of analysed growth.
Further to this, we can see that the top end of the market is solid, which means that sophisticated expats and overseas buyers should cash in on the low dollar and post-Global Financial Crisis gains. And, with more units and land being subdivided, we believe there will be more opportunity for home buyers and renters in 2017.
When it comes to the ‘Property Market’ or the ‘Sydney Market’, not all markets perform equally. This is why we have added a ‘Sub-market’ section in here.
The RBA believes that the hot property market will ‘self-correct’, as housing stock levels meet demand and new developments slow down. It is, therefore, confident that it doesn’t need to step in because banks are already tightening their lending.
Commentators are saying the market will grow to just under 18 per cent if we do not receive a rate cut. We also believe the Sydney market will grow, however, the exact amount remains unclear. Our educated estimate would be a roughly 8 per cent growth.
We believe detached housing will continue to be hard to get, as more people are staying and renovating instead of selling. This issue will be further compounded by population growth, with the latest figures from the NSW Department of Planning saying we will receive the majority of the 1.7 million population growth in Australia over the next 20 years.
Our advice is to have a look at the property clock of Herron Todd White (HTW). It is one of the biggest property valuation firms in Australia and produces one of the best property reports available. With more than 60 offices around Australia, it collates local feedback from its values to produce this monthly report.
Greater Parramatta market
This particular market has performed well over the last five years, which is understandable with the amount of money flowing into Parramatta. We believe as Parramatta becomes more established as Sydney’s second CBD, the infrastructure (especially the hospital upgrades) and the development it supports, will encourage even more growth.
Greater Blacktown market
As you start to look west of Parramatta to Blacktown, which is our market/sub-market, it becomes clear that there are two growth centres of Sydney. This area has enjoyed significant growth with new town planning and it is now embarking on a gentrification wave as higher-income families’ move in. A clear indication of this development surge can be seen with the local shopping centre. Just five years ago it was a ghost town, now it is a bustling metropolis.
Here is a map showing you development approvals.
Blacktown is where all levels of government are encouraging development, looking for opportunities to increase density and spending big on infrastructure. There might be a slight oversupply of rental stock on the market, however, that will eventually correct itself with the majority of population growth moving to the Blacktown area. According to our estimations, Blacktown growth will remain solid in 2017.
Toongabbie area market
As for the sub-market of Toongabbie, prices have increased due to its location between Parramatta. With its close proximity to Parramatta and a T-way that shoots straight to Parramatta’s CBD, Constitution Hill is a standout location for buyers – receiving double-digit growth. Detached homes also soared past 19 per cent this year, which is the highest in Parramatta’s council.
Girraween has also experienced solid growth of 8.55 per cent in the last 12 months. An example of one such sale that we managed was a local four-year-old home. Our tailored marketing campaign of online and local paper advertising, as well as signage and numerous other facets, attracted an enormous amount of interest at the first open home, which resulted in spirited bidding from 13 buyers. We were, therefore, able to negotiate a selling price above the owner’s expectations and above our promoted range within a week of releasing the property to the market.
Summary for 66 Magowar Road, Girraween:
- Asking Price: $850,000–$900,000
- Total Inspections: 35
- Days on Market: 7
- Owner’s Investment: $1,550
- Number of Offers: 13
- Sale Price: $902,000
Toongabbie and Old Toongabbie has experienced similar demand, with just under 9 per cent growth over the last 12 months. As a result of this lack of supply, it has become an excellent time for buyers. In Constitution Hill, for example, there were only 27 house sales all year and even fewer units.
The Toongabbie market will continue to be dominated by owner-occupiers and first home buyers, however, investor demand is still strong. We can see this trend trickle into 2017, with homeowners not wanting to sell out of fear of not being able to find a new house right away. We believe growth will remain steady as the area has never experienced such a shortage of stock before.
Unit rental and sales prices have been a hot topic in recent months due to the fear of oversupply. Despite the truth that there is an oversupply on the market, it is not something to be feared, it is something to plan for. With any investment, you need to look at the pros and cons, and Sydney’s property market is still very attractive. It can be a struggle to rent out units sometimes, however, once the units are rented in our area and interest rates go up, people become afraid of buying. We tend to see a solid demand when this happens.
Developers are now slowing down when it comes to building apartments and banks are being strict on lending, so you will notice a slowdown of supply once this round of units is completed. The issue is that they are all being built at once, but we can’t see that trend continuing.
Fear can influence a market, however, it can be taken advantage if you see beyond it. Don’t forget that a lot of units in our area have been bought by first home buyers and have been pre-sold. We see massive unit complexes going up inside Parramatta and they continue to be filled with people. We can’t say the same for other states.
We can see these new units filling up quicker than expected, and we think it comes down to the infrastructure boom and population increase. For example, Sydney’s population is expanding quicker than originally predicted and is due to increase to 6.25 million in the next 20 years – and we haven’t even begun to talk about the new airport!
Remember that property is more than a short-term game and many property market commentators believe that the current pace of unit development is healthy because it is supported by an infrastructure boom with transport, hospitals and jobs. If you hold on and don’t overextend your finances, you should do well out of 2017–2018 in units.
The 2016 rental market saw many agents struggling to secure good quality tenants for landlords, as supply far outweighed demand. Now, however, we are beginning to see a positive shift for 2017 for both renters and landlords. Tenants currently have a wide range of choice available, which means that properties have to be well presented and better priced to secure a tenant in a reasonable amount of time.
Previously, many landlords had to reduce the leases just to secure tenants and despite doing this, many properties still spent weeks on the market.
The sales market, however, has been increasingly strong with many tenants purchasing their first homes and more investors coming into the market.
We don’t know how long it will take for the investment stock boom to dry up, but when it does, we can see renting becoming very attractive.
Population growth isn’t slowing down anytime soon and in fact, the government recently discovered that it’s increasing faster than expected in Sydney.
We can’t see the market overheating in 2017 and the RBA concurs with this belief. It thinks that the market will be self-correcting and it is no longer looking at easing rates. Banks, on the other hand, have been increasing rates for some time and are becoming more conservative in their lending criteria. We probably won’t get more than 10 per cent growth, but we should get close enough.
Many economists, such as HSBC’s Australia and New Zealand chief economist Paul Bloxham, don’t believe in a bubble or crash, but the growth could slow even more in 2018.
We believe that there has been a shift in buyers from investors to homeowners and this is very healthy for our rental market as rental properties start to dry up.
If you would like to know how this information affects your property, please give us a call on 02 9896 2333 or click here to find out how much your property is worth.
About Jhai Mitchell
Jhai is an award winning Internet Marketing Real Estate Agent for Elders Toongabbie and Kings Langley. After running his own internet marketing business he has now set his own sites for the real estate industry. He observed that 90% of real estate agents did not know how to market themselves online. Jhai is now fixed on one goal. To teach real estate agents that they can market online so much better than they currently are.
Since then he has been consistently quoted in the Sydney Morning Herald and Real Estate Business online. He is a regular guest blogger on TheHomePage.com.au, sharing his expertise of marketing aspects for the Real Estate Industry. His biggest passions are his wife, martial arts, dogs and most of all property.