Blog - First National Metro | Real Estate Agents in West End QLD 4101

Buying

Jun 21, 2023

Will rising rates stop house prices rising?

Despite conjecture that rising interest rates will dampen Australia’s property market, evidence to date suggests these increases have had little cooling effect. Even during the typically quieter King’s Birthday Long Weekend, preliminary figures show house prices could be on the upswing for the fourth consecutive month. Despite a constrained supply over the public holiday, auction clearance rates remained robust at over 70%. This buoyant activity, evidenced by substantial bidder involvement, underscores the vibrancy of the auction market. Compared to November last year, when the average number of bids at auctions stood at two, current figures show buyers are making nearly three bids at auctions in Sydney, Melbourne and Brisbane. In Adelaide, the number of bids is closer to four. While many buyers and home sellers expect June’s rate hike might have marginally dented buyer and seller confidence, there has been a marked lift in clearance rates, which were just 54% at this time last year. Even amid recession rumours, the ongoing uptick in the market remains a contentious point for investors. Although prices continue to rise, the increments remain relatively modest, with a 0.8% increase in March, 0.7% in April, and 1.4% in May. Our estate agents are observing considerable anxiety as a result of persistently high inflation and cost-of-living pressures. Yet, in many locales, we are witnessing small but definite lifts in prices. Naturally, there’s an age-old debate between people who believe rate hikes will soften prices and those who argue that surging immigration and limited supply will sustain price escalation. To find the most likely truth, we can really only look to Australia’s historic property market performance during periods of rising rates. If we look back to the 1970s, 1980s and 1990s, house prices – broadly speaking – continued an upward trajectory despite rising rates, and we see some similar contributing factors today. Even when interest rates rose to in excess of 18 per cent in the 1980s, house prices kept rising. Through that period, factors underpinning rising Australian house prices were: Population Growth: Australia experienced substantial population growth in these decades, partly driven by immigration. This growth in population increased the demand for housing, thus putting upward pressure on prices. Urbanisation: During these years, Australia saw a significant trend towards urbanisation, with more people moving into cities for work and lifestyle opportunities. This increased demand for housing in urban areas and subsequently pushed prices up. Income Growth: Over these decades, Australia saw considerable growth in real incomes. As people's purchasing power improved, they were able to afford higher property prices. Financial Deregulation: In the mid-1980s, Australia underwent financial deregulation, which included easing of restrictions on foreign banks, thereby increasing competition. This led to a greater availability of credit, which made it easier for people to secure mortgages and increased demand for housing. Tax Policies: Australian tax policies, such as the capital gains tax exemption for the primary residence and negative gearing, have been supportive of property investment. These policies increased the attractiveness of property as an investment, thereby pushing up demand and prices. Limited Supply: Finally, the supply of new houses did not keep pace with demand, especially in popular urban areas. Land release policies, planning regulations, and the physical constraints of building in established cities restricted the supply of new homes, thereby putting upward pressure on prices. Another reason that rate hikes don’t necessarily mean falling house prices is that rising rates perpetuate the broader supply freeze in the property market. Each rate increase complicates the construction of new houses, leading to fewer new builds and increased demand for existing properties. Commonwealth Bank, the country's largest mortgage lender, has maintained its market forecasts in the wake of the recent rate increase. The CBA's predictions are optimistic, forecasting a 3% average house price rise this year and a 5% increase next year. This creates a challenging predicament for the Reserve Bank of Australia as rate increases continue to exacerbate the current supply-demand imbalance. This pressure impacts home buyers and renters, yet also provides an opportunity for investors prepared to navigate the turbulent market. For investors, the issue lies in the sudden surge in mortgage rates, with homeowners facing rates above 6% and investor rates exceeding 7%. Whatever your view as to the property market outlook, most Australians would agree we’ve seen fundamentally strong housing market conditions over the past 25 years. Since 1993, median house and apartment process have risen 412 per cent and 316 per cent respectively. Wage growth hasn’t kept pace with property prices this time, and cost-of-living pressures are being felt acutely across the country, but our country’s chronic undersupply of housing continues to underpin stable and rising house prices, and most likely will continue to do so for the foreseeable future.

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Dec 9, 2022

Housing support welcomed, but supply solutions still a WIP

The Real Estate Institute of Queensland (REIQ) has welcomed the immediate support to sustain tenancies, but says there’s still a lot of work to be done to address housing supply, in response to the Housing Summit Outcomes Report released today. REIQ CEO Antonia Mercorella said the immediate financial housing support, to be released prior to Christmas, would come as a welcome relief to the Queensland community. “The $48.5 million towards housing support, including tenancy sustainment, loans and grants, will benefit the most vulnerable in our community by helping to keep a roof over their head and reducing cost-of-living pressures over Christmas,” Ms Mercorella said. “Given we’re facing the tightest rental market in memory, we all hoped to see some immediate support come out of the Summit to provide some reprieve, so this is certainly a welcome announcement.” Ms Mercorella said the report laid-bare the complexities of the housing issues Queensland is facing. “No stakeholders at the Housing Summit were under the illusion that there would be an overnight fix to the housing crisis, but there was a clear willingness and urgency in the room to see the rubber hit the road,” she said. “This report indicates that clearly there are matters still being explored that are a work in progress and in some respects that speaks to the complexity of the housing crisis. “While we had hoped to see some more firm commitments on the supply side of the equation at this stage, we look forward to seeing further detail emerge and the ‘areas for further work’ progressed with the same sense of urgency as the Summit.” She said the REIQ saw opportunity in the audit, educational campaign, and planning reforms, but was disappointed that some of the key ideas and recommendations at the Summit had not made it into this report. “The announcement of an audit to identify state-owned land and buildings for residential use is welcomed by the REIQ, and we trust that this audit will extend to local government and Non-Government Organisations in a meaningful way,” she said. “At the Summit, we all spoke to the importance of different levels of government and the private sector working together and this is a chance for the State Government to meaningfully lead this and put this collaborative approach into action. “We appreciate that the Community Engagement and Awareness Campaign is a crucial step to ensure the community is on board with the change in housing diversity that needs to happen to support our growing community. “The campaign goes hand-in-hand with the flagged planning reforms – a widely recognised key barrier to housing supply, and we will be keenly watching this space for more detail as it progresses. “Another key theme that was raised at the Summit was Built-to-Rent models and the general consensus was that it was a sensible part of the solution, so it’s surprising that there are no new commitments surrounding this in the report. “The REIQ will also continue to advocate for initiatives that make downsizing a much easier financial decision for older Queenslanders, to significantly free up much-needed housing stock, and our view is more can be done at all levels to achieve this, and is a missed opportunity in this report.” Read more about the REIQ’s recommendations to the Housing Summit here.

Nov 25, 2022

Flip to build-to-rent projects good on many levels

Build-to-rent projects are becoming increasingly attractive to developers and investors as younger generations shift away from house ownership amid a national housing deficit. Traditional developers are also finding it tougher to get their apartment projects up as interest rates rise, which is stalling pre-sales in overstocked markets. Some are switching to the newer build-to-rent format. Development Finance Partners recently salvaged a project that was unable to meet its lenders’ pre-sales targets on a 50-apartment project in Brisbane’s Chermside. The private investor approached DFP to look at ways to refinance the project. DFP took the project to their development management partners, Highgate Management, which specialises in distressed project workouts. Highgate Management and DFP worked with the Sydney-based co-living rental specialist BNTO to completely redesign the project to yield 138 BTR apartments. Changing the project from build-to-sell to BTR resulted in the development’s approval and a new financial backer. DFP director Matt Royal said BTR was a great way for second and third tier developers to capitalise on the demand while building equity in their property portfolios, without having to meet stringent pre-sales requirements placed on them by lenders. “Under the new BTR configuration – targeting young, professional tenants – the project will deliver substantially higher returns than the 50-apartments previously approved and most importantly, as a BTR, it now stacks up as financially viable for its investors,” he said. While institutional capital from both international and domestic investors is starting to flow into Australia’s BTR sector, Mr Royal said it is only a matter of time before smaller players enter the market. “I believe the time is right given there is huge demand for rental properties in almost every metropolitan and regional centre throughout the country,” he said. In a similar vein, Melbourne-based BTR business Local is working with Blue Earth Group on a tower in South Melbourne. Local will acquire 245 Normanby Rd in a turnkey deal and the pair will develop a $280m tower. Listed developer Mirvac is a sector leader. It opened its first BTR property, Liv Indigo, two years ago at Sydney Olympic Park, and has projects in the pipeline across Sydney, Brisbane and Melbourne. Since opening Liv Indigo, Mirvac’s BTR general manager Angela Buckley said the company had been overwhelmed by the level of inquiry received. “Obviously the rental market right now is very, very strong, and I think for renters, they’re definitely seeking out alternative opportunities and build-to-rent is one of those,” she said. “One of our biggest learnings is that the reach of where people have relocated to has been far more significant than we expected.” Security of tenure is one of the biggest reasons people have decided to move into Liv apartments, Ms Buckley said. “They have a choice around how long they want to live with us for … we do give people the option, it’s really their choice as to how long they would like their lease to be,” she said. Over the past 12 months, Liv Indigo has been leased to between 95 and 98 per cent, which Ms Buckley believes to be a strong representation of interest in the BTR concept. Mirvac has almost completed its second project, Liv Munro, opposite Melbourne’s Queen Victoria Market. Amid the rising construction costs and a growing rental market, mid-size developers and builders are also entering the BTR market to avoid having to shelve projects. DFP’s Mr Royal said when a project is complete, it can be sold in one line or can be retained in whole or in part as a rental pool, creating cash flow and adding to the balance sheet to give the developer greater borrowing strength.