Heard the expression “a rising tide lifts all boats”?
That’s more or less what’s happening in the Aussie property market right now. There are factors that are driving the entire market – record low interest rates, aggressive buying from overseas, tsunamis of easy money sloshing round the globe.
These things will have an impact on every property market in the country. But that’s not to say that individual markets will have the same experience. Some will move from stable to booming. Some will go from bad to not-so-bad. Some might even get worse, if local factors dominate the national trends.
So I’ve been wondering a bit lately about what markets will be shifting into boom gear. We’ve all heard about the boom in Sydney. The newspapers are full of it. But where else?
This graph caught my eye the other day. It comes from the ANZ survey of property professionals. I think by that they just mean real estate agents. I don’t remember getting a call. Maybe it’s in my spam box.
Anyway, the take-home message should be familiar to us now. Across the country, property industry confidence is strong, and the best it’s been in years.
That’s what the series of bars at the end tells us. – the national results.
But what piqued my interest was the state-by-state break-downs. There’s a few things we all knew about. Like the boom in NSW. Confidence there has spiked, as Sydney drops it into overdrive.
And then there’s the moderation of confidence in WA and the NT. Conditions seem to have eased a bit over the past year or so, but are still holding at very healthy levels.
And things have only eased because things were so out of control before. Look at the NT in June 2012. When asked about the property outlook, agents were ticking the box that said: “Wetting myself with excitement.”
So agents may have stopped hyper-ventilating, but they’re still feeling up beat.
But this is all old news. What really struck me was the sudden party-vibe going round Queensland real estate agents.
The vibe has been pretty sombre over the past year or so, then suddenly bam, they’re breaking out the champagne glasses. Confidence has made a huge jump in the most recent survey, from 115 to over 140 on the index.
And suddenly real estate agents in Brisbane are as pumped as they are in Sydney.
But hang on. Sydney is in the middle of a boom. Does that mean Brisbane is too?
Well, why don’t we take a look, my dear Watson.
To start with, one of the first things that gave us fore-warning of the boom in Sydney was Auction clearance rates. Weekend after weekend, they’re still giving 90% a nudge.
Brisbane clearance rates are only hitting towards 50%. But then, auctions have never been that popular a way to sell a house in Brisbane, and auctions rarely clear that well there.
So when you remember that Brisbane averaged around 35 percent through 2010, the jump up towards 50% is impressive, and in line with the jump in Sydney.
And anecdotally, auctions are attracting a lot of attention. Local auctioneer Jason Andrew has said that his average crowd sizes are up, from around 18 previously, to around 40 in recent weeks.
So there’s clear signs that the market is hotting up.
There’s early signs of heat in the price data too. RP Data report property values were up 1.7 percent in the September quarter. While that’s only 2.5 percent higher than a year ago, if it keeps up that pace, we’re looking at around 10 percent year on year. It’s starting to look pretty healthy.
But probably a key reason why there’s a fair bit of upside to the Brisbane outlook, is that Brisbane is still a fair way of its peak. RP Data report that house prices are still 10 percent lower than they were back in November 2009, and have been under-performing the national market since.
BIS Shrapnel reckon that there was a widely-held perception that the Brisbane market was over-priced and over-supplied, and this together with a lower rate of net migration and softer economic conditions created a recipe for a disappointing property market.
However, BIS Shrapnel also reckon that’s Brisbane prices have over-corrected, and they’re now looking for a bit of bounce back. As they note, there’s been a level of under-building in recent years, and the rental market is starting to pick up.
Probably the chart that gets closest to the heart of this for my money is this one here from RP Data. It compares house prices to rents over the past 5 years.
It’s a pretty stark difference. While house prices have been falling (3.3% since December 2007), rents have continued to increase. Rents are now up 27% over this period, creating a yawning gap between rent and value growth.
This can’t go on forever. Sooner or later, this will pull yield-hunting investors back into the market, as well as renters who now find that it’s cheaper to buy than rent.
6 years is a pretty long time in terms of property corrections, and my thought is that this has to be coming to an end.
And it looks like I’m not the only one. Real estate agents across Brisbane seem to be agreeing with me.
There seems to be a widely-held view that the correction is over, and prices are going to bounce back – supported of course by record low interest rates and EZ money.
And, as I’ve noted in other places, Brisbane and SEQ have been attracting some serious attention from Chinese buyers.
So here’s my tip. Over the next 6 months, the papers will start filling up with headlines about the boom in Brisbane.
You heard it here first.
Mickey says
adelaide 🙂
Sin Fong Chan says
Buying is one thing, the eventual leasing out the property or realisation of capital growth are the real tests for the hyped up auction rate. If these sold properties are for owner occupies, then many non-profit making factors don’t really enter into the equation. However if these are for investment purposes, rental losses or holding costs exceeding the capital gain in the long run will prove that history just repeats every few years.
The world economy landscape is very different now compared with recorded history. The table of good fortune can turn very quickly, from boom to bust, and the cycle repeats but in different areas.
ernie white says
i bought a property on chevron island ( surfers ) in 2009, since then value down $50,000 an rents up $10 in 4 years, ha. im with veterans affairs an dont pay tax so carnt claim anything an have to pay shortfall myself…..am i impressed with gueensland, ha…..pissed off would be the word.
Ken. says
Ernie, If you bought a property on Chevron Island, (Surfers,) you would have paid a pretty penny for it and your so called $50,000 loss is a pittance. Lucky for you, you are of mature age and won’t be throwing yourself out the window of a 20 story building, like they did in 1929. Well, hopefully you have learned something from the past and know that even the stock market always rises above the last/previous high. Remember, there are other people in this world that know this too, so be patient and stop your winging. Same goes for anyone else who thinks we are on an other planet and the past has stopped repeating it self. Cheers, Ken.
dean says
Statistics..damn statistics.
Seriously, find me a Investor who has upped their rents in Qld by 27% in the last 6 yrs post GFC.. Everyone i know, including myself, is just happy to have good tenants, and has not upset the apple cart by pushing to extract more capital from them and risking vacancies. Honestly, my rental income has increased in no more than 2 to 3% in that period. Admittedly, i have great long term tenants and I believe im a good landlord too.. (and i think this relationship fundamental to success in investment properties)… I like to make it that my tenants have it soo good they dont want to leave. However, across the board, i do not believe rents have increased that much at all.
At the same time find me an investor in Qld whose property has only gone down 3.3% in the last 6 yrs, post the crash. My properties value decreased at least 50k in the bust…closer to 10% or more.
Jon, this is spurious data at best. Whilst Ernies example above is on the Gold Coast, where properties have struggled more than most, his is not a rare event. My property is inner city fringe , Brisbane.
I would like to hear more here from Investors in Qld property and their experiences over the last half decade or so.
I am certainly happy, as an investor, to hear the hype over Brisvegas and Qld but take it all with a pinch of the old proverbial.
The market fundamentals are to me still extremely sensitive and as Sin Fong says above, the world economic landscape has changed dramatically. My point i made many blogs ago about us being in a period of “discontinuous change” still stands i think. The past will not always prepare us for the future. We live in a brave new world.
My sparring partner on this blog, good ol Ken, will probably be crowing about now based upon Jons predictions, and I look forward to eating my words ol fella…but as the parameters of our bet are way away from realisation, i suggest that he hold his boasting for some time yet.
Con Argiros says
Hi Dean i am with you, purchased a unit in Redcillfe in 2005 for $325k & now 8 years later its still work $325k !! Awesome result !! Should have bought in Sydney & probalby would have doubled my money by now !! Sydney is now no longer affordable so we all look elsewhere & Brisbane gives more bang for your buck !! But unlike Sydney, Brisbane still has heaps of land in all directions, so vlaues will stay down for many years to come !! If you can but near Brisbane with 15km’s with station & major shops you will at least have tenants until the growth eventuates ( be prepared to wait a long time ) !!
Ken. says
Hi Dean, good to see you are still in the land of the living. Could you tell us your weekly rentals. I never put mine up either. I think it’s a bit much. You never cease to amaze me by commenting so negatively all the time on something you don’t believe in. Good to see our bet is still on mate. Same to you (old fella.) By the way, old fella, my beliefs are my own and not that great man Jon’s. He is only trying to help people but you blokes are only trying to hinder people in need of this information. This is the cause of lower property prices. Look what a prime minister done to Queensland Permanent a while back, just by making a negative comment. Cheers, Ken.
Steve says
I bought a unit in Kangaroo Pt, Brisbane for $260,000 in about 1998, rent was $270/w. Recently valued at $400,000, & rent now $420/w. A lot of expenses after the floods when the carpark & bottom of the lift were inundated.
dean says
Ken, I am pleased that you believe Jon to be a great man, and am more happy that you still have your own beliefs..(however, they certainly seem to coincide with this Blogsite.) Jon encourages discussion, and i hope he just doesnt expect “yes men” , or believers to stroke his ego here. We are all individuals with our own experiences and belief systems, education and training. Sharing these things/ thoughts/ opinions should encourage investors to be wary, to explore issues thoroughly and become more worldly in their investment decisions. This is not a hindrance. Knowledge is after all, power. im sorry Ken, but Im not prepared to shoulder the idea that im the cause for the lower property prices..think theres a bit more to it than that…he he.
I sadly have friends who are sufferring from making ill informed and bad real estate purchasing decisions, and such impediments have had actually a huge impact on their lives, health and happiness. This underpins my desire to explore caution and to question Jons continual effervescence and spin. Not so long ago Jon was trumpeting the low interest rate paradigm being here for years…but i notice the blog put out today (not this one..the next) has a far more conservative although upbeat message position regarding RBA interest rate hikes. As he now cautions, “”At some point, the RBA may need to raise rates. That’s what they do. We need to build that into our planning””… a far cry from his position that interest rates are locked in position not so long ago. ..A timely back pedal and a fence sit position ..and somehow aligned with many of Jons detractors that question him sometimes. Hmmm…sorta something ive been saying for a while…None the less.
To deny that the world is in significant change is to bury ones head i believe. We are in a Global community facing global problems, and this belief that australia is somehow insulated from these malady’s is naive at best. Mind you, the world is wracked with problems because of primitive belief systems..(religion being the main one) so it does not surprise me that ignorance or the feel good “ahh, she will be right mate..were the lucky country” attitude prevails in some quarters.
Steve, regarding your apartment in Kangaroo point. Whilst your figures face value seem pretty, you have owned that property 15 yrs..(1998-2013)…did you know that if you had put your money in a 5% compounding interest account for this time you would have more than 540,000 dollars now. Without all those expenses you mentioned, (or stress i imagine with the floods and all. ) And thats only 5%..I was getting over 8% prior to the GFC. Food for thought.
If you borrowed the capital to own the apartment, how have the figures stacked up Steve.. Are you happy?
I also wonder what it was worth 2006 relative to now.
Steve..i am also interested. i would have thought a apartment in Kangaroo point would have had to pay a hefty Body corporate fee, and that such things as a flooded car park and lift well should certainly be part of the body corp responsibility, and should have been covered by its insurance?…How did they manage to wrangle more from you?..Very interested..and this would be i think an interesting case study for investors..the pit falls of such investments…
Con..good luck with Redcliffe…
Ken. says
Dean, Just one thing. To me, a yes man is someone who has no knowledge of anything, and will agree with all people, yes, even with yourself. Just because I agree with Jon’s blogs on real estate, doesn’t make me a yes man. My personal opinion of a yes man is a man with a weak mentality. For what it is worth, I would say you are after yes men to make you feel good. The same thing can be said about jealousy. If you knew me personally, you would know that I am far from a yes man and am known for telling it like it is. So lay off the shit mate and I just could have a bit more respect for you. Cheers, Ken.
dean says
Oh Ken..when ones argument is weak, one must resort to attack the man? What “…. did you want me to lay off mate?”
Contrarian viewpoints on “pro” sites dont often engender yes men support Ken…I suppose i am probably a tad masochistic really. I do expect people to get defensive when i lay alternate and conflicting opinions to that which are generally bandied about on pro real estate blogs/ web sites such as this one. Natural. So Ken, No problems.
But being popular isnt my motivation. Just saving someone some future fiscal agony based on blind optimism generated by spin doctors is actually my Goal. Of course i will never know if my viewpoints make such an impact, but my motivations are pure, and for that i am prepared to cop flak. All good. Sadly in life, sometimes being abused shows that you are having an impact.
My present project i am working on, involves highlighting the womens safety issues here in the Goan tourist village i have my summer apartment in. I am copping flak from the local govt who dont want this issue highlighted..(might detract from tourism if the truth comes out). (3 attempted rapes in the last 10 days alone!) But, the truth is the truth, and to hide from it because of fear of prosecution and abuse is not a noble thing. Bring on the abuse if i can save a woman from rape or molestation, or a naive investor from losing all.
To think and to question is not only a right, but a duty.
can you elaborate on the jealousy statement Ken?..cant see relevance here?…do you perceive me as jealous of something?
Ken. says
Dean, Will your shit never end. Sarcasm is the lowest form of wit and jealousy is a curse and rottenness to the bones. My bet still stands. You are what you say everyone else is. You started your shit so good riddance to bad rubbish. Ken.
Steve says
I don’t know what it was worth in 2006, I only happen to have an idea of its value now because recently it was valued by a bank for use as collateral. Insurance didn’t cover our flood damage, a levy was raised by the body corp. It hasn’t been clear sailing because shortly after that building was completed some more buildings were built nearby so then there were a lot of new empty units competing with my 2-3yo one. Even with a subsequent rising rent my profit has really only been nominal ie based on depreciation, building allowance etc. Income doesn’t exceed all the outgoings by much even after all this time. At least during the last 10 years it has always had a tenant and they have all been good tenants.
Tom says
Dean’s comments about 5% term deposits fail to take into account the tax one would have to pay. Without the benefit of depreciation allowances etc accruing from investment property, the returns would be abysmal. While in Property, most of the gains are on paper only and not taxable, unless you decide to sell. Generally it is then better to refinance at 80% of the new, improved value, if you need to extract cash.
dean says
Tom, yes, paper gains aint taxable until sold..but certainly taxable huh. Sure, term deposit interest is payable every year, and as such you are right, my figures are a tad dodgy. However, as i said, i was getting 8.25% for my money just prior to the GFC, so i suppose the tax on this would bring it back to in excess of a 5% return. I have friends who now have money tied up for 5 yr terms at 7% (they got in at the right time and with enuf capital to negotiate)..so i think a 5% return post tax is not too far from the ball park figure, and a fair debating point really. And Tom..this is real, accessable, useable cash. Real estate aint. It has liquidity problems. Steves response above shows that if it wasnt for good tenants the poor bloke would be in the dog box…even though the property is in a desirable location.
prudent property investor says
Good deals and opportunities are everywhere. Sydney and Melbourne are approaching that phase when most “experts” and pundits are saying things like “you can’t go wrong” and “capital growth is assured”, which is exactly what was happening in London and many US cities in 2007. Main point is things don’t always stay the same or move in one direction. It’s human nature to think that last year’s growth indicates likely next year growth. It’s not always so. If Brisbane prices and rentals have stagnated for several years, all the more reason to look there now. Think about it: if Sydney and Melbourne were to continue growing at (say) 10% per year and Brisbane did zero% each year, then it’s just a matter of time before the gap becomes compelling. And always bear in mind, despite what Jon and Dymphna etc say, that much higher interest rates could impact the market sooner than people think. I tell all the people I mentor – plan for worst case 17% by 2017.
Disclosure: I am keeping my QLD investments because they are all well managed and produce positive cash flow.