IT’S Australia’s most godless suburb.
More than 55 per cent of people in the small Victorian community of Tankerton have no religious affiliation, the highest for any suburb in the country, according to the 2011 census.
Located on French Island, 60km southeast of Melbourne, the suburb with a 3921 postcode may have experienced a severe crisis of faith since the last national stocktake in 2006, with a more than 13 per cent jump in those who ticked the “no religion” box.
Tankerton was not alone though, with SA’s Salisbury South (54 per cent) and WA’s Gascoyne River (52 per cent) having more than half their inhabitants with no religious identification. The Victorian suburbs of Sherbrooke and Fitzroy North were also not far behind with 48 per centt and 46 per cent respectively.
You can see where your suburb fits in by typing the postcode into our interactive graphic
These suburbs pinpoint what has been a general trend of Australians losing their faith in recent years, with 22 per cent (close to 4.8 million) now saying they have no affiliation whatsoever.
The figure was 18 per cent in 2006 and has continually shrunk since 96 per cent of people identified themselves as Christian in 1911.
Even Baulkham Hills in NSW, home to the headquarters of the Hillsong Church, recorded a five per cent drop (68 per cent) in people declaring as Christian. The number of people with no religious affiliation grew by nearly three per cent (14.8 per cent).
A suburb-by-suburb breakdown of census data also shows a battle between the nation’s east coast and west coast for the title of wealthiest suburb and the nation’s capital laying claim to the most educated people.
Sydney’s lower north shore suburb of Mosman just pipped Cottesloe in Perth for the money bags crown, with families earning an average of $2,838 and $2,823 a week respectively.
Woollahra ($2,781) and Hunters Hill ($2,763) in Sydney and Nedlands ($2,748) and Mosman Park ($2,555) in WA were next on the list, followed by Hamilton ($2,470) in Queensland and Victoria’s Windsor ($2,269).
And Canberrans will be quietly admiring their degrees after the suburbs of Acton and Mitchell recorded 86 per cent of people educated to a Year 12 level or above — the highest number in the nation. Toowong (82 per cent) in Queensland, Nedlands (82 per cent) in WA and Gordon (81 per cent) in NSW also scored highly.
You can find out all the information on your suburb – including income levels, ages, ancestry, languages, religion, education and internet use – and compare it to the last census by using our interactive graphic.
HOMEOWNERS and businesses could be in line for a financial windfall with big lenders under increasing pressure to cut interest rates as funding costs fall.
New research from comparison website RateCity shows the banks are shortchanging homeowners by almost $1000 a year by pocketing a significant portion of the rate reductions since the RBA cutting cycle began in November 2011.
After years of the majors blaming “higher global funding costs” for failing to pass on official interest rate cuts in full there is growing evidence the big banks are paying less to borrow.
Leading business figures say that after two years of bolstering their bottom line it is time that banks started cutting.
“In the current circumstances with global funding costs easing, the banking industry should look to reduce rates outside of the normal cycle,” Australian Chamber of Commerce and Industry chief executive Peter Anderson said.
The fall in global funding costs has allowed Commonwealth Bank this month to borrow $2 billion at a much lower cost than a similar deal last year.
In January last year the CBA borrowed $3.5 billion over five years at a cost of 1.75 per cent above the bank swap rate.
In a similar deal this year the cost had fallen to the bank swap rate plus only 0.5 per cent.
Westpac has also been able to borrow in the same market at increasingly affordable rates.
ING Direct – which has passed on the last two RBA cuts in full – yesterday said it had been able to do so because funding was cheaper.
“More specifically the cost of new wholesale money dropped significantly over the year and the cost … continues to decline,” chief financial officer Glenn Baker said.
But Bank of America Merrill Lynch chief economist Saul Eslake warned the banks are walking a fine line between the interests of depositors and borrowers.
“Bank funding costs are only part of the equation and banks will be very conscious that they won’t want to see the increase in deposits corrode away,” he said.
“And the RBA also takes into account the SVR (standard variable rate) when it moves interest rates.”
Mr Eslake is tipping one more rate cut this year to take official levels to 2.75 per cent.
Economists are divided over whether the RBA will cut rates next month as the global economic outlook seems to be brightening.
But data released yesterday showing a flat property sector and job advertisements dropping to a three-year low has raised concerns that last year’s rate cutting has failed to stimulate spending.
The big four banks yesterday refused to comment on whether they will pass on future RBA rate cuts in full.
But the National Australia Bank yesterday confirmed the bank’s pledge to have the lowest standard variable rate has not been extended into this year.
The Australian Bureau of Statistics (ABS) released housing finance data for May earlier this week. The data showed that over the month total owner occupier finance commitments fell by -1.2% with refinance commitments (-2.0%) falling by a larger amount than new loan commitments (-0.8%). Compared to volumes in May 2011, both refinance commitments (7.5%) and new loan commitments (2.8%) have increased.
Of course owner occupier loan volumes tell only a portion of the story and it is important to look at the value of loan commitments which separates the data into both owner occupier commitments and investor commitments. The total value of finance commitments rose by 0.2% for owner occupiers with refinances falling by -1.5% and new loans up 1.0%. The total value of investor finance commitments fell by -4.6% over the month. Compared to the value of loans in May 2011, owner occupier refinance commitments have risen by 6.7%, owner occupier new loans are flat (0.0%) and investment loans have fallen by -2.0%.
Housing finance data further breaks the owner occupier data into loans to first home buyers. Over the month, first home buyer loan volumes rose by 28.9% with first time buyers now accounting for 17.8% of the owner occupier market. Over the year the number of first time buyer loans has risen by 15.9% however, reflective of the weak housing market conditions, the average loan size has fallen by -1.2%.
Westpac and the Melbourne Institute released the results of their monthly consumer sentiment survey this week. The consumer sentiment index rose by 3.7% over the month to 99.1 points. Although sentiment improved, the reading below 100 points indicates that respondents were still more pessimistic than optimistic. Each individual component of the index rose over the month however, respondents were only more optimistic than pessimistic about it being a good time to buy a major household item with all other components sitting below 100 points.
The number of newly advertised properties for sale increased slightly over the last week, the first increase in seven weeks. Despite the rise, new listings remain lower than at the same time last year (-4.6% lower nationally and -8.0% lower across the combined capital cities). The total number of homes being advertised for sale has also recorded a modest increase over the week and listing numbers remain at higher levels than at the same time last year. Over the last week there were a total of 301,414 properties listed for sale across the nation. Total listings are 9.6% higher than at the same time last year nationally and 8.2% higher across the combined capital cities. Read more about the listings trends in this week’s main Property Pulse article.
The number of newly advertised rental properties increased last week across the nation and at a capital city level. Total listings also increased nationally and across the capital cities over the week. RP Data is currently tracking a total of 90,235 properties advertised for rent across the nation and 60,871 properties across the combined capital cities. The number of properties currently advertised for rent is 2.7% higher than at the same time last year across the nation and 6.8% higher across the combined capital cities.
Where does all the enquiry come from when you are selling your property, some think the internet and some think the newspapers, for more information on this check out where our buyer enquiry and purchasers come from by clicking the links below, also take some time to listen to what is happening to news print by clicking the web link below.
MANY renters are buying their first home rather than fork out for exorbitant rent, new research shows.
First home buyers are dipping their toe back into the market while prices and interest rates are low.
New research has revealed they are more confident about buying a house now than they were six months ago.
Rising rents is one of the key factors that has first-time buyers considering if it is time to take the plunge.
Latest CBA/Mortgage & Finance Association of Australian research has found that current high rents mean two-thirds of first-time home buyers were re-evaluating the trade-off between renting and buying.
It found about 17.2 per cent of first-home buyers were planning to enter the housing market sometime in the next 12 months.
But almost 70 per cent say they are still holding back due to the fear of servicing higher debt mixed with a fear of future job redundancies.
About two-thirds of first-home buyers believe rentals are too expensive, and about 40 per cent feel they are caught in a rental trap, according to Commonwealth Bank executive general manager of third party banking, Kathy Cummings.
She says in many cases it is cheaper to buy than rent and first-home buyers appear to be working productively towards raising the required deposit to get into property.
Emma Raphael of Place at Camp Hill in Brisbane says that is what many of her recent clients have been telling her.
She has worked in real estate for almost 12 years and says lately she has seen an increase in potential buyers in the Generation Y group.
“But while I think they are being a little bit cautious, I think confidence is definitely being restored,” she says.
She believes many have come out looking following interest rate drops and predictions of more.
She says rising rents is also something many are telling her is encouraging them to investigate the market.
“The mind set has shifted – they are prepared to forgo going out to dinner once a week, they reckon it is a pretty good sacrifice to make,” Ms Raphael says.
Lachlan Walker of Place Advisory says potential Gen-Y buyers seem to be researching the market. “That is starting to happen now, we’ve got a lot of people coming out to open homes, a younger demographic attending open homes and offices. Those committing is still fairly minimal,” he says.
Mr Walker says rising rents and dropping vacancy rates are leading to more considering entering the property market for the first time.
“That is definitely driving the propensity to buy I suppose, because when you are spending $550 to $600 a week on your rent it becomes more feasible to purchase that property for $450,000,” he says.
“Yes, you have to sacrifice because (when renting) we want everything at our fingertips, want to be close to town, infrastructure and amenity. That has got to be sacrificed – you have to go a bit further out.”
According to RP Data research analyst Cameron Kusher weaker market conditions across most capital cities means there are opportunities to find bargains.
Home values dropped 1.4 per cent across all capital cities in May and are now down by more than 5 per cent on a year ago, according to RP Data figures released today.
Melbourne was the worst performing city, with residential property values falling 2.7 per cent last month and more than 8 per cent over the year.
Sydney, which has proven resilient to the market downturn, also posted a decline. In May, the city’s home values were down 1.2 per cent, resulting in a 3.6 per cent drop over the year.
The Brisbane market is showing signs of improving after two years of lacklustre values. Until recently the river city’s home prices were falling most across Australian capital cities but last month they dipped just 0.3 per cent.
Adelaide bucked the trend and outperformed all other capitals with 1.2 per cent rise in May.
Perth had a decline of 1.7 per cent, Darwin 2.4, Canberra 1.5 and Hobart 1.2.
The falls defy interest rate cuts last month and November last year as the RBA moves to put the accelerator on the economy.
RP Data’s research director Tim Lawless said the market had not responded at all to the rate cuts.
Much of the weakness in real estate values was in detached housing rather than apartments, he said
“It is clear that the market is becoming increasingly price-point driven with stronger performances across more affordable markets,” Mr Lawless said.
“Unit values across the combined capitals increased in May and are up by 1.3 per cent over the first five months of the year, the data shows.”
Mr Lawless expects the market to remain soft overall until consumer confidence improves.
Rismark managing director Ben Skilbeck says a positive to take away from the soft housing market is that housing affordability is showing a marked improvement.
“The combination of interest rate reductions, declining home values and disposable income growth has significantly improved affordability,” Mr Skilbeck said.
“Since dwelling values peaked in November 2010, they are down by 7.6 per cent, the RBA cash rate has fallen to 3.75 per cent and disposable income per household has increased by more than 5 per cent.”
Weak consumer sentiment remains the main barrier to the recovery in dwelling values, he said.
Another hurdle for the property market is the large number of properties currently being advertised for sale.
Based on RP Data estimates, there were approximately 308,500 homes advertised for sale across Australia
during May which is almost 9 per cent more than at this time last year.
THE Reserve Bank must keep cutting interest rates to stop the housing sector sliding into recession, according to the nation’s leading property industry group.
Despite a dramatic rebound in sales of new homes last month, spearheaded by Victorians, the Housing Industry Association is calling for a concerted federal and state campaign to stop a longer-term slump.
Industry experts warned Victorians were only flocking into the market for new homes ahead of the looming expiry of the First Home Bonus program.
The State Government scheme ends on July 1.
After hitting an 11-year low in March, the HIA survey showed new home sales climbed 6.9 per cent last month, seasonally adjusted.
The lobby group polls Australia’s largest 100 builders for the monthly report.
In Victoria, sales of detached homes soared 17.2 per cent in April, compared with March, as buyers rushed to capitalise on the grants scheme.
Economists warned it was a “false dawn” and demand in Victoria remained weak.
“It is just a temporary bounce in Victoria and it will slip back again after the bonus goes,” said HIA chief economist Harley Dale.
Under the grants scheme, the State Government pays $13,000 to first-time buyers of new houses, and a further $6500 to people who buy in regional areas.
After June, buyers that were eligible for grants totalling $26,500 will only receive the Federal Government’s $7000 first-home buyers payment.
CommSec chief economist Craig James said the building sector needed some “fundamental solutions” and reforms.
Otherwise a recession in the house building sector would reverberate across the economy, Mr James said.
He said a rate cut would “only do so much in stimulating activity” and the Federal Government need to call a home building summit.
“It is clear that home building is weak, well below the averages over the past five years,” Mr James said.
According to betting on futures markets, there is a 63 per cent chance that the RBA board will cut the official interest rate by 25 basis points when it meets next week, to 3.5 per cent.
TD Securities head of research Annette Beacher said the RBA was likely to pause and wait for the effect of this month’s 50-point cut to flow through the economy.
Dr Dale said the housing sector was so weak, it could suffer a recession – broadly defined as two consecutive quarters of contraction – this year.
He implored the central bank to continue cutting rates next week but warned they were “not a panacea” for the industry.
More than a week after the other majors announced their rate cuts, ANZ has finally moved on rates.
Earlier today at the major’s monthly rate review meeting, ANZ announced it would cut 37 basis points from its standard variable rate.
Effective from 18 May, ANZ will boast a new variable rate of 7.05 per cent – slightly more expensive than NAB at 6.99 per cent and CBA at 7.01 per cent.
ANZ chief executive Australia Philip Chronican said the RBA’s decision to reduce the cash rate had impacted domestic funding sources giving the bank scope to reduce lending rates.
“We continue to work hard to ensure we are competitive despite sustained funding pressure driven by the high rates we are paying to our 2.9 million deposit customers relative to the Reserve Bank’s cash rate and the ongoing volatility in wholesale money markets,” Mr Chronican said.
Many homeowners owe more on their mortgage than their house is worth. They are in negative equity.
However, many don’t realise it or the fact that selling their home – or refinancing and consolidating debts – isn’t possible.
Many homeowners have a completely unrealistic idea about how much their home is currently worth, according to Deborah Southon, executive director of debt consolidation agency Fox Symes.
“What we are seeing right now is people coming in and saying our house is worth $450,000, for example, but when we get a professional valuation it is in the three hundreds,” Ms Southon said.
“Homeowners always think their house is worth more than it really is. They say things like ‘I did this renovation and I added that’, but they can be very wrong and it can make refinancing impossible.”
Fox Symes is Australia’s largest debt solutions company.
Ms Southon specialises in helping people with unmanageable debts to consolidate their unsecured debts into a refinanced mortgage or enter into debt agreements with creditors to pay off their debts at an affordable rate.
“What we have been seeing lately are people who can’t refinance or even sell their homes to get on top of their debts, because their mortgages are so high compared with their value of their home,” she said.
“Queensland is suffering from this more than other states.
“What we have been doing for people in this situation is trying to use debt agreements as a kind of moratorium on repayments for eight or nine months to allow homeowners to sell their home in an orderly fashion, but creditors are not very accommodating of that kind of arrangement.
“Some home loans are just so huge now, and couples are paying out 60 to 70 per cent of their income just on mortgage repayments.
“The biggest I have seen lately was a couple paying $850 per week in mortgage repayments from a combined income of $1100 per week.
“Now that seems like a good weekly income, but they just couldn’t keep up the repayments, which were over 75 per cent of their pay.”
In Brisbane, for example, property prices fell 6.8 per cent last year and are almost 9 per cent below their peak, according to RPData/Rismark.
“People who bought three years ago are behind right now and unless they have knocked a lot off their mortgage, they are not going to be able to refinance,” said Dion Lemming, of Aussie Home Loans, Mermaid Beach.
“For an average three-bedroom house, a $50,000 renovation might mean your property is only just worth the same now as three years ago.
“Vendors are saying ‘I’ve spent $50,000 on renovations, my house should be worth more now than when I bought a few years ago’, but generally that isn’t the case.
“And without a substantial `reno’, houses are worth less, much less now than three years ago.”
Ms Lemming said borrowers who were taking out a mortgage worth 95 per cent of the value of the home should not expect to be able to refinance anytime in the foreseeable future.
“The issues with refinancing are that homeowners have expectations that are just unrealistic,” Ms Lemming said.
“If you bought a home, or especially a unit, in the past three years, you are behind right now.”
Despite the growing negative equity problem, lenders are increasing the size of loans they will approve.
The highest loan-to-valuation (LVR) ratio allowed by a lender is 98 per cent, with mortgage insurance, from Teacher’s Credit Union.
ANZ, Westpac, Queenslanders Credit Union and Credit Union Australia all offer 97 per cent LVR home loans, according to data supplied by InfoChoice.
Almost all lenders offer 95 per cent LVR home loans.
“We are doing heaps of 95 per cent loans now,” said Ms Lemming.
“Just about all first homebuyers are borrowing 95 per cent now.
“For a little while there, after the global financial crisis, lenders dropped back their loans to 90 per cent, but they are all now back to lending at 95 per cent.
“However, for refinancers, no one is going above 90 per cent and ANZ are only going to 90 per cent for their own customers.”
Ms Lemming said house prices were following unit prices down.
“But unless you are earning really good money, say mining money, and you can knock a lot off the mortgage in the first few years, you should consider that you won’t be able to refinance any time soon.”
Home Prices; Performance of Manufacturing
• In a world-first, RP Data and Rismark today commenced publishing ‘daily’ home value index results reflecting the current state of the housing market. Investors will soon be able to trade all three major asset classes on a daily basis.
• RP Data- Rismark Home prices rise: Capital city home prices rose by 0.8 per cent in February after falling by 1 per cent in January, according to RP Data-Rismark. Dwelling prices were down 4.4 per cent over the year.
• Total returns on capital city residential property were down 0.4 per cent on a year earlier.
• Manufacturing expands for the thirdconsecutive month: The Performance of Manufacturing index (PMI) eased by 0.3 points to 51.3 in February. Any reading above 50 indicates that the manufacturing sector is expanding.
• China’s PMI rose from 50.5 to 51.0 in February beating expectations for a rise to 50.9.
What does it all mean?
• The world first new daily house price index is certainly an exciting product. Not only does it accurately provide daily data on changes in home prices but in the future it will give investors the opportunity to reweight their portfolios across all asset classes – cash, equities and now property.
• The lift in house prices in February is encouraging. Across Australia house prices rose by 0.8 per cent and while that may not sound like much it is the biggest monthly increase in property prices in 19 months and a welcome turn from the sustained weakness recorded last year. In addition prices rose in six of the eight capital cities – highlighting the underlying strength in residential property.
• It is clear that the sector is crawling off a low base however the fundamentals for housing remain solid and while the sector is likely to remain in a period of consolidation in the near term, there may be light at the end of the tunnel. The recent cut in interest rates will continue to support activity.
• Importantly not only has there been a modest pickup in activity across the sector, but rental vacancy rates remain strong. In fact total returns on residential property were effectively flat in the year to February despite the significant weakness in other asset classes like shares.
• Australian manufacturing expanded for the third consecutive month. And while that may not sound like a big deal it has been a while between drinks for the sector. In fact manufacturing contracted for nine out of the 12 months last year, as the sector had to contend with an array of headwinds.
• Importantly the key sub-indices of new orders, production and exports recorded healthy gains. In fact export orders surged to the highest levels in almost four years. Clearly it is only one month’s data but the improvement is encouraging.
• Looking forward it is unlikely the manufactures will be getting too far ahead of themselves despite the modest turnaround in fortunes. While two interest rate cuts have provided a boost to domestic spending and production, the high Aussie dollar is still making life difficult for exporters, whilst domestic demand remains soft and more competitive – due to cheaper foreign imports.
• Interestingly the Chinese manufacturing data points to a sector that is showing modest signs of recovering. The latest result was a little bit more upbeat, and in particular there was a pickup in new export orders. Over past few months activity levels have come off the boil but the additional stimulus provided by Chinese policymakers and improving global conditions bode well for growth over the medium term.
What do the figures show?
House price prices
• The RP Data-Rismark Hedonic Australian Home Value index of capital city home prices rose by 0.8 per cent in February to be 2.4 per cent lower than a year ago.
• Home prices in regional markets (40 per cent of homes by number) rose by 0.2 per cent February to stand 2.3 per cent lower over the year.
• Dwelling prices rose most in Darwin (up 5.0 per cent in February), Hobart (up 2.2 per cent), Canberra (up 1.9 per cent), Melbourne (up 1.8 per cent), Adelaide (up 1.0 per cent), and Sydney (up 0.8 per cent). Prices fell in just two cities; Perth (down 1.8 per cent) and Brisbane (down 0.1 per cent).
• Home prices are lower than a year ago across all capital cities except for Canberra (up 0.4 per cent). Prices fell most in Hobart (down 8.3 per cent, followed by Brisbane (down 7.6 per cent), Melbourne (down 5.4 per cent), Darwin (down 5.1 per cent), Perth (down 4.6 per cent), Adelaide (down 3.7 per cent), and Sydney (down 2.7 per cent).
• Total returns on capital city residential property were down 0.4 per cent on a year earlier.
• Across capital cities house prices were down 4.5 per cent on a year earlier with unit prices down 3.5 per cent. The average Australian house price was $580,412 and the average unit price was $456,699.
Performance of Manufacturing
• The Performance of Manufacturing index fell by 0.3 points to 51.3 in February. A reading above 50.0 indicates that the sector is expanding. It was the third consecutive month that the PMI has been above 50.
• Of the components, production rose from 50.7 to 51.7; employment fell from 51.0 to 50.0; and new orders rose from 49.9 to 51.7. Even more importantly exports orders rose from 49.4 to 59.7 – a near four year high.
• Average selling prices contracted at a slower pace with the index of selling prices rising from 46.9 to 48.2 and average wages eased from 60.7 to 57.
• The index of capacity use fell from 75.5 to 73.2 in February.
What is the importance of the economic data?
• The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database covering more than 312,000 sales during 2011. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.
• The monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Quarterly results are measured comparing end months rather than averaging each month in the quarter. For example, the first quarter of 2011 index results compared the end of March index with the end of December index.
What are the implications for interest rates and investors?
• If you had been thinking about purchasing an investment property, now is the time to get your homework and paper work in order. The job market is healthy, housing markets are considered to be under-supplied and rates have been cut twice in recent months. Certainly other asset markets don’t offer the same attraction as residential property. But as always it is a case of researching your prospects as conditions differ significantly across the country.
• The data today doesn’t alter our view on next week’s board meeting. CommSec expects the Reserve Bank to keep interest rate on hold.
Source: Savanth Sebastian Economist CommSec
REIV CEO Enzo Raimondo said that demand in the local residential market improved marginally from the previous quarter, as did housing affordability, due to the two interest rate cuts; however, transaction numbers were significantly lower than for the same time the previous year.
“REIV data confirmed that, overall, the median house price has not changed over the last six months; the key factors driving the current market are a combination of lower consumer confidence, a slowing state economy and an increase in supply.”
Feedback from REIV Members during the December quarter was that buyers are not as willing to buy and sellers are not as anxious to sell as they hold out for an improvement in conditions.
“As we head into 2012, there is no doubt that housing affordability has improved with the combination of lower house prices and two interest rate reductions.
“The strongest growth in demand was found in Kew, Prahran, Kensington, Mornington, Port Melbourne, Balwyn North, Blackburn, Wantirna South, West Footscray and Mount Waverley; however, most of these suburbs recovered ground lost in the September quarter.
“In contrast to the last few quarters, there was very little difference in the performance of the auction and private sale markets. Houses sold at auction recorded a median of $700,000, an increase of 1.4 per cent, while those sold at private sale recorded a 0.7 per cent increase to $478,444.
“The performance of the unit and apartment market mirrored that of houses, with the median price increasing by 1.1 per cent to $455,000. The strongest demand was recorded in North Melbourne, Armadale and West Footscray.
“The median price of a house in regional Victoria rose by 0.8 per cent to $312,500. Of the three main regional centres, demand was highest in Bendigo, where the median house price increased by 6.3 per cent to $294,000. In Ballarat the increase was 3.6 per cent to $290,000 and in Geelong there was a drop of 2.3 per cent to $380,000.
“The REIV does not predict any significant change in the market during the March quarter as it is generally the quarter with the least activity, however we are starting to see signs that the market may have bottomed in 2011and, if there are improvements in economic conditions, we may see an improvement in transaction activity from the second quarter of this year,” Mr Raimondo concluded.
There’s still money to be made out of property if you are careful and hard-headed, writes Annette Sampson.
It has been the wealth strategy of a generation. Buy a home. Look after it, improve it, upgrade it. And if cash flow allows, gear up to your eyeballs to buy more property for other people to live in. For the baby boomers and for many from generations X and Y, it has been an easy path to success.
But the prospect of lower rates of capital growth and possibly even falls, if the doomsayers are right and the global economy takes another big turn for the worse, has changed the outlook for property investment.
Home owners and investors will need to be smarter about property. Solid rental yields, buying the right property at the right price and less dependence on gearing will be the key to making money. The days of certain returns made by gearing up and hitching a ride on the market boom are gone. At least for now.
THE OUTLOOK FOR PROPERTY
In November, The Economist magazine said Australian housing prices were still 38 per cent overvalued when compared with incomes and a hefty 53 per cent when compared with rents. Household debt levels in Australia exceeded those in the US at the peak of the boom, which makes us highly vulnerable to falling prices if the worst case of a second crisis – worse than that of 2008-09 – happens.
In December, ratings agency Moody’s said Australian house prices were unsustainable and last month a leading US real estate analyst, Jordan Wirsz, predicted Australian house prices could fall by as much as 60 per cent.
Last week, the Demographia International Housing Affordability Survey found Australia was one of the least affordable countries in which to buy a home. The median house price in capital cities was 6.7 times the median annual household income – with only Hong Kong being more expensive. Sydney was the least affordable city in Australia, with a median house price 9.2 times the average annual household income.
Many commentators say prices might be fully valued, or overvalued, but a crash is not the only way the market can correct itself. The head of property and financial system research at ANZ, Paul Braddick, says talk of a big crash assumes a doomsday scenario for the economy. While not impossible, he says it’s unlikely.
”Our base case is that the labour market will remain soft for the next six months but will start to pick up again in 2012-13,” he says. ”It won’t be a boom in any sense but [the economy] should bottom and start to pick up again.
”But there are risks and that does overlay sentiment. There’s a fear of the unknown and if Europe does implode, how will that affect us? As we saw in 2008 at the height of the global financial crisis, if overseas conditions get worrying enough, the Reserve Bank will react. In 2008-09, it lowered interest rates and boosted the housing market, though that was also helped by the new first-home owner boost and changes to the foreign investment rules, which are less likely to reappear this time.”
Given that, Braddick says the most likely scenario is that house prices will fall further in the next six to 12 months but once they have found a floor, prices should start to rise in line with household incomes. He says that means longer-term growth of about 4 per cent to 5 per cent a year on average, though there will be cycles around that.
The chief economist at AMP Capital Investors, Dr Shane Oliver, says historically, prices get ”stuck in a range” for five to 10 years after they have been pushed to extremes. He says research on house prices since 1920 shows they have risen about 3 per cent a year after inflation in the longer term.
He says in the 1990s, prices were below that long-term trend but they took off in the early 2000s and are now about 25 per cent above the trend line. Though not predicting a US-style collapse, Oliver says it is hard to see prices growing at the rate they were because affordability is so poor and people are more reluctant to take on debt.
Australian Property Monitors (APM) is predicting national growth this year of 3 per cent to 5 per cent.
It says Brisbane, Perth and Darwin have the potential for higher growth while Melbourne, Adelaide and Hobart are likely to underperform.
POTENTIAL STUMBLING BLOCKS
The managing director of SQM Research, Louis Christopher, says buyers need to ask what would trigger a major selloff in housing and assess the likelihood of those events happening. One strong trigger (thanks to high levels of household debt) would be a return of rising interest rates. ”All it took was the cash rate to get to 4.75 per cent to cause problems in this country,” he says.
He says buyers also need to watch for signs of the banks reducing loan-to-valuation ratios. He says house prices in most big British cities fell by about 20 per cent when British lenders suddenly cut lending ratios from 100 per cent or more to 80 per cent.
”Think about it,” he says. ”If you had a $50,000 deposit and someone was willing to lend 95 per cent, you could borrow up to $950,000. But if they would only lend 80 per cent, you could borrow $200,000 and your maximum purchasing power would be cut from $1 million to $250,000. You can see the havoc that would cause in the market.”
Why would banks cut their loan ratios? Like most things, it comes back to Europe. At worst, if Europe unravelled, we would be likely to see significant bank defaults that would limit the ability of other banks to raise finance outside their own countries. Australian banks have already raised the threat of another credit squeeze.
Other risks include unemployment rising to levels in which forced sales become a problem (Christopher says SQM Research’s modelling suggests problems would occur if unemployment broke through 7 per cent) and banks lifting interest rates independently of the Reserve Bank’s changes.
Oliver says the most vulnerable are heavily geared buyers, because they are most exposed to negative equity and forced sales. RP Data recently found slightly less than 5 per cent of Australian houses were worth less than their purchase price. Queensland had the highest levels of negative equity while Victorian households had the strongest equity positions. In Melbourne, 1.9 per cent of houses were worth less than their purchase price. However, the figures did not take into account debt, especially mortgage redraws.
The research director at RP Data, Tim Lawless, says coastal lifestyle markets are also vulnerable to a downturn and have already suffered from a downturn in tourism and sea-change migrants, as well as weak demand from second-home buyers. He says many of these lifestyle markets experienced dramatic appreciation before the GFC.
He says markets that had a big run-up in prices during the most recent growth periods are now also potentially more exposed to weaker conditions. ”The Melbourne market, for example, has seen home values appreciate by almost 50 per cent since the start of 2007,” he says. ”Rental yields in Melbourne are now the lowest of any capital city and new housing supply has been much more sufficient than [in] other cities.”
WHERE THE OPPORTUNITIES ARE
In this market, most analysts say the old strategies no longer guarantee success.
Buyers will need to do their sums and ensure they are buying well rather than simply picking the next ”hot suburbs” and riding the boom.
Success will also depend on having the flexibility to decide when to sell. That means buyers will need to keep borrowings at a manageable level so they are not forced to sell at the worst possible time.
Christopher says he is loath to tip particular areas, given that any recovery might not be long-lived. But he does favour the outer ring of Sydney, particularly the western and south-western suburbs.
”We see a big movement to more affordable housing,” he says. ”Rents there have already been rising by about 5 per cent a year, infrastructure has been improving and they have the potential to outperform over the next five years. We think 7 per cent growth there is possible.
”More average and above-average income earners are moving west because they don’t want to raise a family in a unit and it makes the mortgage more manageable.”
APM forecasts growth in Sydney this year will come mostly from middle- and lower-band suburbs, supported by high rents and an undersupply of housing. In his 2012 outlook, the senior research analyst at RP Data, Cameron Kusher, also predicted Sydney might perform better than in 2011. ”Home values across Sydney have increased at an average annual rate of just 4 per cent over the past 10 years,” he says. ”Although value growth has been limited, rents have increased by 5.4 per cent for houses and by 6.4 per cent for units in 2011. Estimated sales activity as at September 2011 was 6 per cent above the five-year average. Sydney’s market continues to be hampered by an undersupply of new housing at a time when demand remains strong.
”Although we don’t expect property values to increase at a rate above inflation, we anticipate Sydney will continue to be one of the better-performed markets, especially considering that when adjusted for inflation, values remain below their 2004 peaks.”
A property adviser at Lachlan Partners, Ana Bennett, says areas along the main Sydney transport corridors ”should do well”, given the undersupply of housing – ”areas that aren’t reliant on having two cars to get to work” – though she says Melbourne is a different prospect.
”The large volume of stock coming onto the market in Melbourne is a concern,” she says.
For investment, she favours ”the groovy, funky areas with a younger demographic”, such as South Yarra, Richmond and Middle Park.
”The other opportunity is the old house on the corner block in suburbs like Cheltenham where there is the potential for multi-residences down the track,” she says. ”Investors can rent them out for five years or so with a view to either selling the site or developing themselves. People are saying they’ll build one residence for themselves and sell the second for profit.”
Braddick says buyers should be aware that states are likely to perform differently. ”NSW has the advantage of being the most undersupplied market but it’s tricky to look at particular sectors.” He says if the construction and resources sectors continue to boom, this could support the upper end of the market, while soft conditions in retail and manufacturing could dampen the middle and lower parts of the market.
”But ultimately it will come back to the ‘atmospherics’ – the number of properties on the market, current sentiment and so on,” he says. ”Over the short term there could be significant increases or falls but on average the market is unlikely to achieve much.”
A GREATER FOCUS ON YIELD
To a large extent, buying a home is a lifestyle decision and you can afford to trade off slower capital growth against the desire for a place to call your own.
But if you’re considering putting your hard-earned money to work in investment property, you’ll need to be hard-headed.
Braddick says investors in the 2000s ”got away with non-focused property buying because most prices were going up.” But with capital gains likely to play less of a role, investors will need to focus on yield for more of their return.
”You’re taking a massive gamble if you think you’ll be able to buy investment property anywhere in the country and the god of capital gains will deliver a pile of money to your doorstep,” the principal of Smart Property Adviser, Kevin Lee, says. ”The safest way to invest now is to look for a property that pays its own way. I wouldn’t say there won’t be capital gains but there’s no guarantee anyone will get the same gains as over the last 20 years.”
Lee says investors also need to get over their fixation on negative gearing, which relies on future capital gains to offset the losses made on the investment. ”To me, that’s an insane concept,” he says. Instead, investors should focus on affordable housing at prices where the rent comes closer to covering your outgoings, Lee says. ”Our clients are looking in lower
socio-economic areas where there are large populations and higher levels of affordability.”
And while not everyone shares his view on the inner suburbs, most agree that investors need to focus on properties with strong rental appeal, solid yields and the potential for a growing income.
”You need to look at the yields now and what they will be in the future,” Bennett says. ”The initial yields in the inner city may be lower but newer stock can balance that with depreciation allowances and if you get income growth, the yield will bounce back.”
Lawless says units have outperformed detached dwellings in terms of value growth in recent years.
”This is probably due to both improving demand related to price sensitivity [units are generally more affordable than houses] as well as the fact that units generally provide higher rental yields than houses. With more focus on urban renewal and higher densities around transport hubs and employment nodes, we would expect that well-located units will continue to be a popular choice for investors,” he says.
”Another tactic that is likely to remain popular among investors is buying within close proximity to the capital cities. The 10-kilometre to 15-kilometre ring should continue to provide reasonable housing demand with tight supply constraints. Public and private transport options are becoming even more important and these factors will be one of the primary drivers of long-term capital gain.”
Oliver says investors might also want to consider looking outside the residential box.
”You can argue that if you’re going to buy investment property, you’d be better off looking at commercial property where the yields are higher and there is less evidence of overvaluation,” he says. ”Listed property trusts have gone back to their roots after going through a more speculative period and are offering yields of 5.5 per cent to 6 per cent, unlisted property trusts and syndicates are an option [though you have to be careful], or you can invest directly in something like a shop, warehouse or strata office.”
REPOSSESSED homes are flooding the market with properties being offered at heavy discounts – some selling for just a quarter of their previous sale prices.
Two separate studies have shown a dramatic increase in properties being put on the market by receivers in recent months. Both property investors and developers are being squeezed in the uncertain economic climate.
Almost a third of all major investment properties advertised in October and November last year came from forced sales, according to research from property valuers LandMark White.
Another study has shown receiver-initiated listings have risen by 50 per cent in some parts of Australia in the past year with homeowners forced out by crippling mortgage repayments, personal debt and the rising cost of living.
LandMark White research analyst Ross Horsley said the trend was expected to continue in 2012.
“Those months are fairly quiet in terms of big transactions so you would expect to see more forced sales this year, they are already up in January,” Mr Horsley said.
LandMark White’s Forced Sales Index analysed major investment advertisements – including commercial – for the two-month period and found 31.3 per cent of properties belonged to a mortgagee, receiver or administrator.
More than half were in Queensland – predominantly residential properties in regional areas. New South Wales had the second highest number of forced sales at 26.1 per cent – mostly industrial and commercial real estate while Victoria recorded just 7.8 per cent.
Most receiver-initiated residential properties are taken to auction at reduced prices but mortgagees usually only heavily discount properties that are overvalued, Mr Horsley said.
“The mortgagee has a legal obligation to secure a fair market price and they won’t sell it for less than the market value so if it comes in under the reserve there won’t be a sale,” he said.
We are holding a Property Investment Seminar in Berwick on Tuesday the 22nd of November. The meeting will start at 7pm sharp and will go for about an hour.
This seminar is perfect for anyone considering the purchase of an investment property in the next 12 months.
We have three guest speakers covering a number of important topics:
If you would like to join us please click the “register” button above. We’ll send you a reminder by email a few days before the seminar.
Thanks for your time and we look forward to seeing you on the night!
A MUCH-ANTICIPATED rate cut and blue skies did little to revive sluggish sales in Australia’s largest housing markets on the weekend.
Property owners and real estate agents had hoped the Melbourne Cup Day rate cut would jolt a lifeless market into action but the weekend auction clearance rates for residential properties in Sydney and Melbourne were way below expectations.
Despite healthy crowds in both cities, the auction market remains largely a spectator-only affair with about half of all homes being put to auction failing to sell under the hammer.
In Melbourne only 52 per cent of the 498 houses and apartments auctioned sold, while Sydney recorded a clearance rate of 55 per cent.
On Tuesday, the RBA cut the official cash rate by 25 basis points to 4.5 per cent, representing savings of about $50 a month for the average mortgage holder with a $300,000 loan. NAB was the only of the big four not to pass on the full rate cut.
But property pundits say it will take more than one rate cut to woo spooked buyers back into the market, with recent global and local economic uncertainty keeping them sidelined.
What does the rate cut mean for you?: Tell us below
In both Melbourne and Sydney auction clearance rates are below the long-term average. In Melbourne last weekend the clearance rate came in at 50 per cent – the lowest rate in seven years.
The city’s property market will come under further stress next weekend when a hefty 870 properties are auctioned.
Stock levels are already at record highs with about 51,000 properties for sale in Melbourne, up by more than 40 per cent on this time last year, according to property data firm SQM Research.
REIV spokesman Robert Larocca welcomed Tuesday’s rate cut, but said any positive movement in the market would not emerge until next year.
“The market is affected by the performance of the broader economy and the outlook – a key factor behind the RBA decision – is worse than it was a year ago,” Mr Larocca said.
Auction markets were similarly lacklustre in Brisbane and Adelaide on the weekend.
In Brisbane – where private treaty sales are more prevalent than auctions – Australian Property Monitors recorded a clearance rate of 36 per cent.
The clearance rate for Adelaide was 37 per cent.
Property markets in all capital cities outlook are not expected to improve within the next few months.
Wakelin Property Advisory director Richard Wakelin said the rate cut had arrived too late.
“Buyer confidence has been severely dented,” he said.
“The cut is too little too late for this year, but buyers will be breathing easier going into next year.”
One oft he cheapest sales on the weekend was a four-bedroom Deception Bay, north of Brisbane, which sold for $245,000.
Cheapest properties sold on weekend:
Three-bedroom house at Dimboola in Vic ($55,000)
Three-bedroom house at Ashmont in NSW ($130,000)
Five-bedroom house at Deniliquin in NSW ($130,000)
Four-bedroom house at Pacific Haven in Qld ($136,000)
Three-bedroom house at Taree in NSW ($152,000)
Six-bedroom house at Rose Bay in NSW ($15 million)
Four-bedroom house at Prahan in Vic ($3.1 million)
Four-bedroom house at Castle Cove in NSW ($2.9 million)
Two-bedroom house at East Melbourne in Vic ($2.8 million)
Four-bedroom unit at Cabarita in NSW ($2.5 million)