A recent article published by Jon Giann1, Director at Knowledge Source, shows that while all the headlines shout that the property market in Australia is in decline, this masks the fact that the majority of the market is still growing, with some parts even going ‘gang busters’.
Before getting into the detailed analysis there are two points to make according to Jon: “Firstly we have had seven property market declines in the past 30 years, so one every four years or so. The property market moves in cycles.” Secondly, this current decline is so far, one of the “tamest cyclical downturns in history”.
The property market is divided into the following segments: ‘Top End’ – the most expensive 25% of houses, the 50% in the ‘Middle Bracket’ of prices and the 25% which are ‘Cheaper’ properties.
The graph below shows that prices in the Top End are falling. This is what has captured all of the headlines. However, the Middle bracket is still experiencing price increase, albeit at a slower pace. At the same time prices in the Cheaper segment are going strongly.
So while prices are only easing in the Top End segment, they are falling far enough, fast enough that they are pulling down the aggregate numbers and are creating all the media headlines.
Why is this happening?
We think that the key driver of the price decline in the Top End is the tightening of bank lending criteria experienced recently.
We anticipate that with the coming wave of interest only loans switching to principal and interest, we will see the price trend begin to impact on other sectors of the market.
What should you do about it?
Times of higher price volatility present increased opportunities for risk and reward for investors. Make sure you are well informed before progressing with any property decisions – whether that be to buy, sell, hold or refinance.
When the market is in decline there are often good opportunities to buy an investment property or upgrade your home. The reduction in prices at the Top End particularly provides interesting opportunities for long term investment.
1. Jon Giann, Director at Knowledge Source, Ivanhoe, Victoria.
When the time comes to sell your investment property, no one knows whether your buyer will be an Owner Occupier or another Property Investor. But we do know this: the more interested parties you have, the better the chance of receiving a great offer. And the key to having more bidders is to get more investor buyers interested.
Every Real Estate Agent will promise: “We are the local market experts and we have a secret database of buyers in your area”. Let’s be honest, the ‘secret database of buyers’ is called realestate.com.au and domain.com.au! And if Owner Occupiers are looking for their new home in the neighbourhood of your investment property, then they will find it themselves.
Real Estate Agents can’t impact the number of Owner Occupier Buyers in the market at any given time – the number who are ready to buy and who are eager to make an offer, will be about the same for any competent agent.
However, in the age of the internet, the same is NOT TRUE for investor buyers.
Investors will look at many investment properties all over Australia, via realestate.com.au and domain.com.au and will receive daily alerts whenever a new property meets their specified criteria. In fact, Investor Buyers are spoiled for choice; and that’s the problem. Any serious investor has more possible properties to consider than they can ever fully assess, let alone visit, let alone do the legwork necessary before making a bid (pest and buildings, finance pre-approval and S32 review by lawyers).
So the extent to which we can help them to do their due diligence determines whether they will submit an offer or bid for your investment property. And the more investors submitting offers/bids, the more likely you are to get the highest price.
The number of Investor Buyers interested in your property is NOT a localised activity either. They could be a local, or come from somewhere else in Melbourne, or somewhere else in Australia, or somewhere else around the world.
So how do you get the largest number of Investor Buyers willing to make an offer or a bid, to your sale?
We have worked to create a specialised package for Investor Buyers that no other agency offers. And consequently, we believe no other agency is better equipped than us to bring you the maximum number of investor buyers, thereby increasing your chance of securing the highest price.
So what is our secret sauce? Three things…
1. A comprehensive Investor Information Pack from day one of the campaign: It’s great to mention the sunlit loungeroom and the Smeg appliances. For Owner Occupier Buyers these are important features.
But for investors, they also want to know: What’s the rental history or guide? What are the outgoings? What’s the land content? What‘s the history of capital growth on this property or similar properties in this neighbourhood? What’s the maintenance cost history?
Most selling agents can’t provide more than one or two of the answers. It’s frustrating. So, when Property Investors are left to collate and analyse this data themselves, it takes weeks of work for them to even decide if they are interested in progressing to the next stages of due diligence.
Every property we sell that is likely to attract investor buyers has an accompanying 6-page Investor Information Pack available from day one of the campaign. Pages full of numbers. So, any Investor can tell immediately whether it meets their financial criteria and move onto the next stage. This dramatically increases the number of Investors who may come to bid on the property. And that’s your best guarantee of the securing the highest price.
2. A Guaranteed Rent offer: What Investor doesn’t care about how much rent they will get and whether that rent will occur on time, every month, whether the property is let or not?
Selling your property with our Guaranteed Rent contract attached, removes all the guess work and risk for the Investor Buyer. You could be selling at the exact same time as a very similar property next door, but which buyer would choose your neighbour’s over yours when yours has a Guaranteed Rent contract available and theirs doesn’t?
We provide a Guaranteed Rent certificate on all eligible investment properties (confirming the guaranteed rental amount/month), which can be used as part of the Investor Information Pack and provided to interested Investors prior to the sale.
By understanding the needs of Landlords and Property Investors, we have created these unique sales products that will attract many more buyers. More buyers, means more bidders, means higher prices.
If you’d like to learn more about any of these products or to get an appraisal of the current market value of your investment property, call Grant Lynch, Director | Sales & Auctioneer on 0408 110 011.
Every day there are stories in the press about whether we are in a property boom or bust, making the case for one or the other supported by a lot of confusing analysis on debt to income ratios, price to yield ratios and many other facts.
Interest rate cycles come and go. Negative gearing tax concession and first home buyers’ policies come and go. Apartment development booms and busts come and go. And there will be ups and downs in the short-term property market. But the long-term investment thesis for Melbourne property (especially with high land content), looks sound for as long as population growth continues. So will growth continue?
About a decade ago, I was the Parliamentary Secretary to Premiers Bracks and Brumby. On the first day of Office, when any new Government gets elected, they are greeted by the Public Service with a briefing on the ‘state’ of the State. And every incoming Government gets the same speech. It goes something like this:
“Congratulations, Premier and Ministers on your election. As the Public Service we are here to faithfully carry out your promises to the electorate without fear or favour. If we may, however, just make one thing clear … the entire Victorian economy is geared around population growth and housing construction. So, if you don’t want to create chaos and you want to get re-elected, please don’t mess with that. Are we clear? Good then, how else can we help? …”
That’s why I am confident, regardless of who wins the State election in November, that population growth is likely to continue. And that is why I personally continue to be a long-term investor in Melbourne property.
Fact: 126,000 people moved to Melbourne last year. Yes, just last year. And about that many will move here again this year. And next. That’s 1 ¼ MCG’s worth of new residents. But as they say about land “they ain’t making any more of it”.