With the expected fall in median house price issued by the REIV and reported by all the papers, we saw a lacklustre weekend. We know there was still a clearance rate of 84%, but of most of the auctions our advocates attended there was a decided lack of enthusiasm. Even some of the agents were a little unsure at the lack of bidding. Most people who read the papers tend to have a knee jerk reaction whenever there is a drop in the Median house price.
This one, however, was expected. With the scaling back of the First Home Owners Grant, there are less low end property purchasers. The interest rates also affect the lower end of the market first. This has the effect of lowering the median house price decisively. If we look at the top third of suburbs in Melbourne, however, there has been significant growth and there will be for many years to come.
As interest rates climb toward the average home owner paying about 8.5% the suburbs on the outer areas of Melbourne will slow significantly and we may see another drop in the 2nd quarter median as well. Conversely, I would think there will be a small growth in the inner 20k ring of suburbs over the same time frame. If you break down the figures that have been released, whilst the house price median dropped slightly, the unit median went up.
Investors don’t need to have a huge yield (rental return and depreciation and tax benefits) to make plenty of money in property. It is all about capital growth. And there is still plenty of growth to come in the top third of suburbs in Melbourne.
If you need any assistance in purchasing a property in Melbourne, please do not hesitate to give us a call.
Ian James
Monday, April 19, 2010
Thursday, April 15, 2010
Market Comment - April 15th 2010
I don’t need to tell anyone the market is hot at the moment. But what most media commentators report about and many people in the public believe, is that the market will slow down. Therefore it is better to wait until this happens and then purchase. Unfortunately, this is incredibly unlikely to occur.
The market is in a very imbalanced state. Whilst there are plenty of properties on the market there is a far greater number of people trying to purchase. This imbalance will be in effect until there is a paradigm shift in the thought process of local and state government. We simply need to be able to house more people. We do not have enough dwellings to house our growing population.
And the answer is not to stop immigration. If we stop immigration whilst we have low unemployment and job advertisements climbing as high as they are, then we will simply fall back into recession or worse. Our economy in both Australia and this State are in excellent shape to be able to repay the massive debt the federal government has racked up in the past three years.
The answer is not raising interest rates. If Glenn Stevens continues to raise interest rates then he is simply hurting the people we need most. We need small property developers building new dwellings. We need developers building more dwellings at sites like the Camberwell Railway Station. We need more medium to high density housing.
We cannot simply house one million people somewhere out near Melton. We cannot afford the infrastructure. We cannot shut off the influx of migrants to our city because we need them to fulfil job vacancies. But we need to alleviate the speed with which property prices are rising.
Justin Madden, our embattled planning minister, may not be perfect, but he is simply being targeted as a scapegoat. Someone needs to make the tough decisions and whilst I have not looked at everything he has done, nor do I fully understand all the way some of the decisions have been made, we need a planning minister who will make development happen.
We are not looking at property prices doubling from what they are now in 10 years. We are looking at these figures in around five to six years. For those of you who have children and think they will be moving out anytime soon: think again. If the average house in Melbourne is $1M then the rent an investor needs to make the investment worthwhile is about $40,000 p.a. or nearly $770 per week. If an investor doesn’t get this sort of return then we will find slums being created. An investor will protect his dollar return before the tenants needs.
Our housing price crisis is not just going to affect those who wish to purchase a property; it will be affecting those who need to rent as well. Whilst basic human instinct is to first get food, the second survival instinct is for shelter. People will spend money on food then everything they have left on shelter.
There are two ways to avert slums and ghettos being created in Melbourne. The first, which is not very palatable, is to keep raising interest rates. This will stifle business growth, raise unemployment and therefore trigger a massive reduction in immigration. It will also cost many of us our livelihoods and our futures. But it will create a balance between supply and demand in the housing market.
Alternatively, the state and federal governments can actively and “intelligently” promote greater density development within the current boundaries of the Melbourne Metropolitan area. We need to see red tape slashed, we need to see incentives for investors to purchase investment properties such as the First Home Owners Grant for investors. We need to see grants given to developers to assist them to get finance so they can build more developments. “Mum and Dad” investors need to be given incentives to develop the “quarter acre block” they have owned for thirty years, into four townhouses. They can retire into one and the other three will be available for our growing population.
Mr Brumby needs to act NOW! By the next election in four years it may be too late. We need to keep Melbourne as the world’s most liveable city. It will no be so within the decade. Very few people will be able to afford to live here.
Ian James
Director
JPP Buyer Advocates
The market is in a very imbalanced state. Whilst there are plenty of properties on the market there is a far greater number of people trying to purchase. This imbalance will be in effect until there is a paradigm shift in the thought process of local and state government. We simply need to be able to house more people. We do not have enough dwellings to house our growing population.
And the answer is not to stop immigration. If we stop immigration whilst we have low unemployment and job advertisements climbing as high as they are, then we will simply fall back into recession or worse. Our economy in both Australia and this State are in excellent shape to be able to repay the massive debt the federal government has racked up in the past three years.
The answer is not raising interest rates. If Glenn Stevens continues to raise interest rates then he is simply hurting the people we need most. We need small property developers building new dwellings. We need developers building more dwellings at sites like the Camberwell Railway Station. We need more medium to high density housing.
We cannot simply house one million people somewhere out near Melton. We cannot afford the infrastructure. We cannot shut off the influx of migrants to our city because we need them to fulfil job vacancies. But we need to alleviate the speed with which property prices are rising.
Justin Madden, our embattled planning minister, may not be perfect, but he is simply being targeted as a scapegoat. Someone needs to make the tough decisions and whilst I have not looked at everything he has done, nor do I fully understand all the way some of the decisions have been made, we need a planning minister who will make development happen.
We are not looking at property prices doubling from what they are now in 10 years. We are looking at these figures in around five to six years. For those of you who have children and think they will be moving out anytime soon: think again. If the average house in Melbourne is $1M then the rent an investor needs to make the investment worthwhile is about $40,000 p.a. or nearly $770 per week. If an investor doesn’t get this sort of return then we will find slums being created. An investor will protect his dollar return before the tenants needs.
Our housing price crisis is not just going to affect those who wish to purchase a property; it will be affecting those who need to rent as well. Whilst basic human instinct is to first get food, the second survival instinct is for shelter. People will spend money on food then everything they have left on shelter.
There are two ways to avert slums and ghettos being created in Melbourne. The first, which is not very palatable, is to keep raising interest rates. This will stifle business growth, raise unemployment and therefore trigger a massive reduction in immigration. It will also cost many of us our livelihoods and our futures. But it will create a balance between supply and demand in the housing market.
Alternatively, the state and federal governments can actively and “intelligently” promote greater density development within the current boundaries of the Melbourne Metropolitan area. We need to see red tape slashed, we need to see incentives for investors to purchase investment properties such as the First Home Owners Grant for investors. We need to see grants given to developers to assist them to get finance so they can build more developments. “Mum and Dad” investors need to be given incentives to develop the “quarter acre block” they have owned for thirty years, into four townhouses. They can retire into one and the other three will be available for our growing population.
Mr Brumby needs to act NOW! By the next election in four years it may be too late. We need to keep Melbourne as the world’s most liveable city. It will no be so within the decade. Very few people will be able to afford to live here.
Ian James
Director
JPP Buyer Advocates
Tuesday, April 6, 2010
Market Comment - Monday April 6th 2010
It has been a few weeks since my last comment and for this I apologise. March was the busiest month on record since I have been a buyer’s advocate. Whilst we purchased a great many homes, we have also had record enquiry rates. It seems there are a great many people who have finally worked out buying a home is an enormous financial decision and without professional advice it is fraught with dangers.
March has also showed us that the market is not “out of control.” If you are selling and your selling agent says to you “I have no idea what your property is worth” then get another agent. However, if you are buying and the selling agent says “The property is worth what someone will pay” or “we will see what happens on auction day” but they are quoting substantially below what you eventually see the property selling for, this is still not under quoting.
Of the 50 plus properties we went after during March we had better than 60% success rate. Of the properties we missed only a few went well past our expected range. This is not to say our expected range was the same as the agent’s quote range. Our ranges are based on accurate comparable sales, our years of experience in buying properties and our attention to detail. A buying advocate is there to assist the buyer; a selling agent is there to assist the seller. It is the selling agents’ contractual obligation not to assist the buyer to save money.
Property prices are definitely going up in Melbourne. They will for at least the next 4 years. The prices will not go up at 7% – 10%pa . The rate will be much higher. I would foresee a rate of between 9% – 13%pa. on all good property, until at least the next state election. At this point I can see one of the major election issues will be that of housing. We are growing our population, which is absolutely necessary, at a rate far outstripping housing supply. This means it does not matter whether you wish to rent or buy, there are simply not enough houses to keep our average of 2.6 people per dwelling down.
The state government needs a mandate to increase the supply of housing. And hopefully not in a woefully inept way the federal government handled the stimulus packages. The insulation debacle, the school funding mess and now the federal government wants to wade into hospital funding!!!!! The state government needs to make it easier for the subdivision of blocks within the existing metropolitan boundaries. We cannot simply extend the boundaries of Melbourne. It is not as simple as kicking some cows of some land, subdividing and building houses. We cannot afford the infrastructure needed to house half a million people 30+km West of Melbourne.
We need to do what the current planning minister, Justin Madden, is trying to do. Whilst I do not like high rise developments such as the Camberwell Station proposal, I do believe we need to encourage subdivision of larger blocks into smaller townhouse allotments. Whilst most local councils do not want to see these changes and actively oppose them, I think the state government needs to step in and do something to alleviate this situation.
Over the next few years our land within 20 – 30kms of the CBD will dramatically increase in value. This will also cause angst among those who do not have any land and can no longer afford to purchase. Within 6 years I believe the median price in Melbourne will have easily exceeded $1M and the top third of suburbs will have medians above $1.5M. If you are able to, start thinking about how your children will be able to afford to purchase their first home. You may want to think about investing in a couple of properties now.
If you are in the market for a property please feel free to call us for a no obligation first meeting.
Ian James
March has also showed us that the market is not “out of control.” If you are selling and your selling agent says to you “I have no idea what your property is worth” then get another agent. However, if you are buying and the selling agent says “The property is worth what someone will pay” or “we will see what happens on auction day” but they are quoting substantially below what you eventually see the property selling for, this is still not under quoting.
Of the 50 plus properties we went after during March we had better than 60% success rate. Of the properties we missed only a few went well past our expected range. This is not to say our expected range was the same as the agent’s quote range. Our ranges are based on accurate comparable sales, our years of experience in buying properties and our attention to detail. A buying advocate is there to assist the buyer; a selling agent is there to assist the seller. It is the selling agents’ contractual obligation not to assist the buyer to save money.
Property prices are definitely going up in Melbourne. They will for at least the next 4 years. The prices will not go up at 7% – 10%pa . The rate will be much higher. I would foresee a rate of between 9% – 13%pa. on all good property, until at least the next state election. At this point I can see one of the major election issues will be that of housing. We are growing our population, which is absolutely necessary, at a rate far outstripping housing supply. This means it does not matter whether you wish to rent or buy, there are simply not enough houses to keep our average of 2.6 people per dwelling down.
The state government needs a mandate to increase the supply of housing. And hopefully not in a woefully inept way the federal government handled the stimulus packages. The insulation debacle, the school funding mess and now the federal government wants to wade into hospital funding!!!!! The state government needs to make it easier for the subdivision of blocks within the existing metropolitan boundaries. We cannot simply extend the boundaries of Melbourne. It is not as simple as kicking some cows of some land, subdividing and building houses. We cannot afford the infrastructure needed to house half a million people 30+km West of Melbourne.
We need to do what the current planning minister, Justin Madden, is trying to do. Whilst I do not like high rise developments such as the Camberwell Station proposal, I do believe we need to encourage subdivision of larger blocks into smaller townhouse allotments. Whilst most local councils do not want to see these changes and actively oppose them, I think the state government needs to step in and do something to alleviate this situation.
Over the next few years our land within 20 – 30kms of the CBD will dramatically increase in value. This will also cause angst among those who do not have any land and can no longer afford to purchase. Within 6 years I believe the median price in Melbourne will have easily exceeded $1M and the top third of suburbs will have medians above $1.5M. If you are able to, start thinking about how your children will be able to afford to purchase their first home. You may want to think about investing in a couple of properties now.
If you are in the market for a property please feel free to call us for a no obligation first meeting.
Ian James
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