29 August 2019

Sound News August

1. Top 10 regions for growth

According to Terry Ryder, Australia has many rising markets, with positive market sentiment appearing as a result of the Reserve Bank cutting interest rates to historic lows this year, APRA removing 7% interest rate buffer on mortgage lending, and negative gearing left unchanged.

Based on Ryder’s latest Hotspotting Price Predictor Index, they uncovered their Top 10 National Hotspots. Featured on this list are the regions of North Brisbane & Sunshine Coast where Sound Property have been focused on for investment. The areas contain many of the 15 Key Investment Drivers required for strength and resilience in prices, despite declines in greater Sydney and Melbourne.

Being a middle-market area with attainable median prices in the $600,000- $700,000 range, the North Brisbane precinct has been an active part of Brisbane’s markets ongoing capital growth. This middle-ring area has 10 suburbs with rising sales demand, including McDowall and Everton Park.

Despite high-profile Gold Coast falling market, the Sunshine Coast continues to be the strongest of the Queensland markets, both in terms of rising sales activity and price growth. Sunshine Coast suburbs with 15%+ capital growth include Eumundi (28 per cent), Sunshine Beach (15 per cent), Twin Waters (15 per cent) and Wurtulla (15 per cent).

2. Cromwell seals 400 George St Brisbane in record $524m deal

Cromwell Property Group purchased 800 George Street, a 35- level tower in Brisbane’s North Quarter precinct. The $524.75m purchase comes as the Brisbane commercial property market continues to improve with vacancy dropping to 11.9%.

The property, with a total net lettable area of 43,978sq m spanning office, retail and childcare, has a 4.9-year WALE and 99.8 per cent occupancy rate, leased by blue-chip corporate, state and Commonwealth government tenants

ASX- listed Cromwell’s  chief executive Paul Weightman plans to sell down existing funds such as the sale of it’s 50% share in Sydney’s Northpoint Tower to be used to fund opportunities inline with their ‘Invest to Manage’ Strategy. “As well as accretive value-add development opportunities in the existing Australian balance sheet portfolio.”

Brisbane’s office sales grew to a value of $2.35b in 2018, an increase of 60% according to Colliers International.

3. WA’s apartment sales still weak

Perth’s residential conditions, particularly apartments, remain in the doldrums. Developer Finbar achieved a slight improvement in sales revenue for year to June but suffered weaker profits compared to the prior year.

Its net profit, fell to $11 million, lower than $14 million last year, amid a lower share of profits from completed joint venture projects such as the Aire apartments at 647 Murray Street.

“We are still operating in a very challenging local market where sales activity remains subdued and reacts almost daily to economic news that impacts on local confidence levels,” Finbar managing director Darren Pateman said.

Lot sale cancellation rates in Perth have come down to a high 30%, lower than the high 40% at the end of the mining boom. This push is predominantly driven by the owner-occupiers, as both local and foreign investors have turned to other markets.

Owner-occupier demand has seen some improvements, aided by low interest rate and WA’s government low deposit home loan program Keystart. That being said Perth still has a long way to go to achieve the long term sale cancellation average of 16%.

Perth’s property market hasn’t necessarily turned around but there are definitely signs of activity, however, unless population growth rises higher than 1% annually, the market will likely remain soft.

4. Investors warned to avoid capital growth black zones

A property investor’s goal is to achieve solid long-term capital growth and rental yields. At Sound Property we warn investors who buy in new greenfield housing estates due to the potential for poor capital growth prospects caused by oversupply and insufficient demand.

These ‘capital growth black zones’ as recently defined by the Financial Review are generally located on the outskirts of capital cities, touted as the next growth corridor where the population is forecast to surge due to new infrastructure into the area.

Select Residential Property research director Jeremy Sheppard said ‘As a general rule, investors should avoid markets where there are a large number of new developments,’ as ‘Supply is the enemy of investors seeking capital growth’.

Marsden Park in Sydney’s west is one of the worst cases of oversupply, forecasted to have a 40% increase each year until 2021 according to the Blacktown Council. This kind of oversupply allows for affordable entry prices, but reasonable growth likely won’t be seen for another decade.

5. What happens to the property market in a recession?

Property prices seem to have begun to edge back up, but there’s a lingering fear of a recession on the horizon, how would it affect Australia’s property market?

To answer that we need to look back at history, from 1990-1991 where Australia notched two consecutive quarters of negative GDP growth. Nationwide, the market had been flat or falling even before the start of the recession. The flat spot continued for a while, however began to bend back up before the recession had ended.

This shows the relationship between house prices and economic growth is not direct and simple.

When you separate out the various housing markets around the country, an even more complex picture emerges. One in Western Australia, where house prices sank dramatically as the mining boom receded. Or Tasmania, where prices have skyrocketed in recent years, even as the mainland press groans about house price doom and gloom.

The kind of recession we have will probably determine where is hit hardest. If it is a financial crisis, Sydney can be expected to suffer. If the price of resources collapses, Western Australia and Queensland will suffer. 

Property prices can fall outside a recession, just as they can rise during a recession, looking at the national average in isolation can hide all sorts of risks and opportunities. Instead, we encourage investors to review the 15 Key Investment Drivers for a sound investment.

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.