17 Dec Sound News December
1. Sydney’s strongest growth in over 30 years
Sydney’s housing market is expected to reach a new record high by March, recouping the 15% loss in prices suffered during the previous 18-month downturn. In November alone prices in Sydney surged 2.7%, the highest monthly growth rate since 1988, while values in Melbourne grew 2.2%.
Prices also increased in every other capital city except Darwin, with 1.6% in Canberra, 0.8% in Brisbane, 2.3% in Hobart, 0.5% in Adelaide and even 0.4% in Perth who has been trending lower since mid-2014.
CoreLogic’s head of research Tim Lawless said since Sydney’s market had bottomed out in May, prices were up 8.2% and just 8% lower than when prices peak in July 2017.
“If we see this trajectory of growth continuing Sydney, based on the run rate of growth over the past three months, we will find a new record high in March next year,” Mr Lawless said.
“There is this urgency that we’re seeing in the market. Just speaking to a lot of real estate groups and also consumers it does seem to be that FOMO is really come back into the marketplace with a large number of property buyers competing for a very small pool of stock.”
CoreLogic Home Value Index.
2. Supermarket Yields Tighten as Investors Chase Defensive Assets
Grocery-anchored local shopping centres are considered more resistant and safer investment’s in comparison to other retail sectors that continue to face the gloom. However, an increase in demand for reliable real estate assets has compressed yields in the suburban supermarket sector.
E-commerce has heavily challenged the retail sector, but convivence retail supermarkets and neighbourhood centres have continued to succeed because of their limited exposure to online retailing.
Supermarket giant Coles and Woolworths have been divesting their underlying real-estate as they compete for dominance in the grocery market. Coles is currently at the tail end of its property divestment strategy having sold at least $300 million of neighbourhood shopping centres in the last two years.
Coles will be spending over a billion dollars over the next 6 years fitting out huge, of-the-art automated warehouses in Sydney and Brisbane as a way to counteract the arrival of German supermarket giant Kaufland and US warehouse retailer Costco.
In Melbourne’s south-east a freestanding, internally refurbished, 2,854sq m regional Coles supermarket sold at $15.3m on a 3.4% yield, tightest yield for a retail asset so far this year. Previous record yield for retail asset was Woolworths Middle Brighton which sold for $32 million on a 3.8% yield in 2016.
The deal brokered CBRE’s Mark Wizel said “Standalone supermarkets are standout performers in pretty much any market [particularly] when you add a 10×10 year lease to Coles and long-term development upside.”
“This year we have seen yields hover around 5.5% following an average closer to 4.5% over 2018 but this result unambiguously indicates demand for this product remains very strong.”
3. The RBA leaves rates on hold at 0.75% at December meeting
Earlier this month ahead of the RBA’s December meeting, there was only a 5% chance of a cut to the cash rate as there have been three 25 basis point cuts in 2019. RBA Governor Philip Lowe said while there have already been significant cuts this year, the board was monitoring the situation closely.
“Given these effects of lower interest rates and the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting while it continues to monitor developments, including in the labour market,” Governor Lowe said.
“The Board also agreed that due to both global and domestic factors, it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target.
“The Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”
Lowe also suggested the Australian economy has “reached a gentle turning point,” and that there was hope of improved consumer sentiment on the back of rebounding property prices.
“The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and a brighter outlook for the resources sector should all support growth.”
4. Melbourne Property Market Update
Melbourne’s house prices have recovered over half of their losses during the recent property downturn, recovering 6%. Values were up 2.3% in October, making it the largest month on month change since 2009.
House prices in Melbourne rose 2.4% over the last month (+5.7% over the last quarter) while unit prices rose 2.0% (+5% over the last quarter.)
Following Sound Property’s 15 Key Investment Drivers the Melbourne housing market is progressively improving:
- The average selling time of a home is 32 days (33 days a year ago);
- Vendors are discounting their properties an average of 4.4% to affect a sale (4.9% a year ago); and
- 15.9% fewer properties sold in the last 12 months compared to the previous year.
Melbourne’s property market has been very fragmented, values in the inner and middle-ring suburbs have been picking up while the outer suburbs are yet to see substantial growth. Overall property values have been underpinned by job growth and Australia’s strongest population growth, with a likely increase of 10% in the next 4 years.
5. Urgent attention required before 31 December 2019 for trusts holding NSW residential property
Under recent changes introduced in a Bill to the NSW Parliament, Trusts which can have a foreign beneficiary will be treated as a foreign person, meaning it will be subject to higher rates of Stamp Duty and Land Tax if passed.
Most Discretionary Trust Deeds have been written in broad terms of who can be a Beneficiary and will be considered foreign landholders under new provisions. The legislation will be retrospective, purchases between 21 June 2016 to present will be caught by the legislation and subject to an additional 8% stamp duty as well as subject to an additional 2% land tax over this period.
Although the Bill was not passed, and NSW Parliament has been adjourned until February 2020 the Bill will be retrospective. Hall and Wilcox private client team advise “to urgently review their discretionary trust deeds where the trust holds NSW residential property and, if necessary, seek advice about varying the terms to comply with the requirements under the Bill before 31 December 2019 to avoid their trusts being subject to the surcharges. Though this is also relevant for other jurisdictions, the limited timeframe (by 31 December 2019) is important for NSW.”
This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest. Past performance is not a reliable indicator of future performance.
