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.

  1. China

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.

  1. 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.

Interest rates (RBA and banks)

  1. 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.

  1. 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.

  1. Clear­ance rates

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.

  1. 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.

Sub-markets

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.

Sydney mar­ket

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.

the property clock of Herron Todd White

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.

Here is a map showing you development approvals blacktwon

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.

  1. Units

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.

Rental mar­ket

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.

  1. Over­heat­ing

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 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.

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