Property Depreciation Schedules - The New reality

Will investors win by investing in Brisbane pre-the Olympic Games?

THE RECENT announcement that Brisbane has a real possibility of hosting the 2032 Olympic and Paralympic Games, being named as the preferred bidder by the International Olympic Committee, may have property investors wondering if they will find themselves on the winners’ podium if they buy in this city.

Should you rush in and buy, with the idea of capitalising on future growth?

The simple answer is that the Olympic Games shouldn’t be your only reason for buying. Hosting the event could benefit the city in many ways, which could flow through the property market, but it won’t directly drive prices up.

How will Brisbane benefit?

Under the ‘New Norm’ rules of the Olympic Games, cities that win the bid for the event should have the majority of venues already existing so white elephant stadiums that will likely never be used again don’t have to be built, and hosts can focus on ‘legacy’ projects such as public transport, instead.

This is the case for Brisbane, with Queensland Premier Annastacia Palaszczuk saying the city already has 85% of the venues required for the Games, and events may not be restricted to Brisbane, but South East Queensland and even further afield in the state.

The masterplan for the Olympic Games’ bid proposed two athletes villages (one potentially at Hamilton North Shore) and a possible new stadium at Albion, as well as public transport projects.

It’s hoped that the opportunity to host will be used to bring forward infrastructure investment in Brisbane – particularly for rail and road – to cater for the city’s growing population, with the budget of $4.5 billion contributing to these projects.

This in itself will be a huge boost for Brisbane, making it more liveable and attractive. But another benefit of hosting the Games will be the economic boost through infrastructure projects, job creation and tourism.

The bottom line is that hosting the 2032 Olympics could really put Brisbane on the world stage, with the city to become instantly recognisable and a sought after destination to both travel and move to for a long time to come.

Will it lead to a property boom?

The benefits of hosting big sporting events such as the Commonwealth and Olympic Games can flow through to the property market, and in turn, give it a boost, but there isn’t evidence of a direct boost to the property market in a city hosting one of these massive sporting events.

Some studies show there is a boost in host cities’ housing markets in the years following the event being held, but it’s not conclusively due to the event itself.

“If Brisbane hosts, for many years there will be people saying ‘we want to go to Brisbane or South East Queensland, because that’s where the Olympic Games were held’, says Property Investment Professionals of Australia Chairman Peter Koulizos.

“It attracts tourists before, during and after the Games, which has got to be good for Queensland, but not to a level where you can say property markets are going to boom, because it hasn’t happened before.

“There are certainly a lot of good things, but to be able to drill down to say ‘these particular suburbs are going to do well’ is not possible – it doesn’t have that sort of benefit.

“The research doesn’t show that you should buy in a particular suburb because the stadium is next door and you’ll make money, for example.

“It’s wonderful and the Olympics will have a greater effect city wide, but it doesn’t impact property prices from a suburb level.

“It didn’t happen for the Olympic Games in Sydney, the Commonwealth Games in Brisbane, Melbourne or the Gold Coast, and globally that sort of thing doesn’t happen.”

Peter Koulizos

The reality is that Brisbane is already starting to boom, which is part of an Australia-wide trend for the property prices. The city was also overdue for growth as it has matured in recent years with billions of dollars in infrastructure projects in the pipeline that will be transformational for the city, and has seen significant population growth.

The potential promise of hosting the Olympic Games in 2032 will just increase confidence in the city’s property market, and perhaps put the city on the radar for some investors, both locally and globally.

While the Olympics may draw investors to Brisbane to buy property, investors should always stick to the fundamentals when choosing cities to buy in, and where to purchase on a suburb level in those cities.

Always ensure there will be ongoing buyer and renter demand, and that it ticks all the boxes in terms of infrastructure, amenity, proximity to employment, and accessibility.

In Brisbane, the best opportunities are close to the city and close to the river, says Koulizos, where there will always be strong demand.

If you do end up buying Brisbane make sure you order a property depreciation schedule here.

World Property Prices

Are world property prices around the globe rising or falling since COVID-19?

A FALL in property prices around Australia – and indeed the world – was expected by many due to COVID-19, but the doomsday predictions haven’t come to fruition.

There have been some falls, but in many cases prices are actually rising, and in some countries they’re booming.

What’s clear is that, on the whole, property markets around the globe have remained fairly resilient during the pandemic.

We’ll get to why soon, but first let’s look at the state of play in Australia and around the world.

What has happened to property prices in Australia?

Around the start of the pandemic some ‘experts’ in Australia were forecasting property price falls of up to 40%.

But now a housing boom is predicted for this year, with some predictions of double-digit growth.

The latest CoreLogic data shows Australian home values have now reached a fresh record high, and surpassed pre-COVID levels by 1%, with the company’s national home value index 0.7% higher than the last peak in October 2017.

Dwelling values continue to rise month-on-month, with January recording a 0.9% increase.

Knight Frank’s Head of Residential Research Australia Michelle Ciesielski says there is strong momentum building across most Australian property markets, with much of the new stock built in past years being absorbed, and a very shallow pipeline of new construction.

“As economic stimulus further eases at the end of the first quarter of 2021, this may create some small pockets of distressed selling, but thus far, as a result of the historic low interest rate environment, finance lending commitments have grown significantly with a large portion of first home buyers and investors returning to the market.”

Knight Frank Research forecasts residential prices to grow the most in Darwin (9%), Perth (8%), Brisbane (6%) and Canberra (6%) in 2021 off-the-back of resilient commodity prices and increased government activities.

Lifestyle markets are also predicted to perform well, such as Hobart (5%) and Adelaide (5%), with Australia’s two largest cities of Sydney and Melbourne expected to record 4% and 2% growth respectively by the end of 2021.   

What is happening to property prices in other countries?

Compared to some other countries, Australia’s growth in property prices is modest to date.

The most recent Knight Frank Global Residential Cities Index, which tracks movement in mainstream residential prices across 150 cities worldwide, found price growth in Australia continued to vary across the capital cities.

Australia’s residential annual price growth in the third quarter of 2020 ranged from 13.6% in Hobart with a global ranking of 8th, through to 1.2% annual growth in Perth, which ranked 116th globally, says Ciesielski.

By comparison, the capital of the Philippines, Manila, came in first, recording stellar annual growth of 35%.

“In Turkey, the cities of Izmir (28%), Ankara (27%) and Istanbul (26%) occupy second, third and fourth place respectively, with St Petersburg (19%) completing the top five,” says Ciesielski.

The Knight Frank research found four Canadian cities (Ottawa, Halifax, Montreal and Hamilton) also now sit in the top 20 rankings for residential price growth with growth of 10%-plus. US cities are also rising up the rankings, with Phoenix, Seattle and San Diego making it into the top 20.

The Global Residential Cities Index found annual residential price growth globally was on the way up, rising 4.7% in Q3 2020, up from 4.1% the previous quarter.

Ciesielski says there are many regional variations playing out, which is likely to continue as the pandemic continues and vaccinations are distributed at varying rates.

“As an example, 18 cities registered double-digit annual growth from the third quarter of 2019 to the third quarter of 2020, whilst 23 cities registered price declines,” she says.

“In total, 15 per cent of cities saw prices decline in the year to the third quarter of 2020 with cities in India, Spain and the UAE well represented.”

Prices in just two countries – Rio De Janeiro and Madrid – remained flat, while the rest recorded price growth.

Why haven’t world property prices plummeted?

Record low interest rates, huge fiscal stimulus measures and the release of pent up (largely domestic, due to border closures) demand in the third quarter are behind the uptick in price growth globally, according to Knight Frank’s Global Residential Cities Index report.

Property prices have been resilient in many countries given the record low interest rate environment attracting investors, explains Ciesielski.

“Unlike the global financial crisis where it was economic-led, significant economic stimulus measures have been deployed swiftly to counter-balance the rise in unemployment and support businesses to get through this health pandemic,” she says.

“Many cities, including those in Australia, have experienced a tapering off of new supply being built in recent years, so the housing market is also dealing with pent-up demand from prior to the pandemic.”

Ciesielski notes that growth in Australian residential prices was gaining traction at the start of 2020, heading into the pandemic, with pent-up buyer demand following a tightened lending regime and a shallow number of listings coming to the market.

“This gave Australia the best chance to endure several lockdowns, with most disruption easing by the ideal spring selling season and significant government economic stimulus boosting buyer confidence.”

Will property boom in 2021?

AS WE reach the end of the year it seems Australia’s property market has been heating up, with greater sentiment, activity and price growth.

The latest CoreLogic figures show the market continued its recovery in November, with prices rising for the second month in a row. Dwelling values rose by 0.8% over November and 0.4% in October, following five months of falls resulting in a total 2.1% drop in values between April and September.

The question is now, what will happen in 2021? Will the market strengthen, or will it resume a downward trajectory when some of the COVID assistance packages come to an end?

All signs point towards growth

CoreLogic’s Head of Research, Tim Lawless, says Australian home values could surpass pre-COVID levels early next year if the current growth rate continues.

Housing values already hit record levels in Brisbane, Adelaide, Hobart and Canberra in November.

While some commentators are still hesitant, many experts believe the price growth we have seen at the end of 2020 is predicted to continue into next year.

Some forecasts for growth rates are more bullish than others, but Hotspotting.com.au founder Terry Ryder predicts a national property boom next year.

He says Australia’s real estate market has “done brilliantly” this year considering COVID-19, and has completely defied earlier forecasts of price falls.

“In March and April, economists and media headlines were telling us to expect a collapse in property prices,” he says.

“Some were forecasting a 15 to 20 per cent fall, and the worst case scenario was a 30 per cent drop, but we haven’t seen that, and I don’t think we were ever going to see that.

“Most locations across Australia have continued to show price growth month by month, with Sydney and Melbourne the exception, but they are often the exception to the national rule.

“Even those markets are now starting to get positive numbers, but most other capital cities and regions have had growth right through.

“I think we’re coming into a national property boom. I think next year is going to be incredibly strong economically and in real estate.

“We’re really going to be having the first genuine nationwide property boom since the start of the century.

The market hasn’t had double digit growth since the start of the 2000s, he says, and in 2017 Sydney and Melbourne were really the only cities to boom.

“But next year we’re going to see all the capital cities and most of the majority regional centres having strong growth,” adds Ryder.

SQM Research is also forecasting strong annual growth of up to 12% in most capital cities next year, with Perth leading the forecast with predicted growth of between 8% and 12%.

Meanwhile many of the banks have backflipped on their doomsday predictions for price falls, and revised their house price forecasts for 2021 upwards.

Westpac, for instance, predicted a 10% fall in prices between April 2020 and June 2021, but is now forecasting a 5% fall, with prices to rise by 15% in the two years from June 2021.

NAB, which predicted falls of between 10% and 15%, is expecting prices to rise by 5% and 6% respectively across the board in 2021 and 2022, while ANZ predicts price rises of around 9% across the capital cities next year, revised upwards from a fall of 10%.

All signs point towards growth

So what’s underpinning Australian real estate prices now and moving forward into 2021?

There are many factors, including a shortage of stock, with the resulting buyer competition for available properties pushing prices up.

“Properties are selling so quickly; what’s available is getting snapped up,” says Ryder. “People are offering strong prices to snap property up in the face of competition.

“It’s a vendor’s market but there are relatively few taking the opportunity, which is one of the factors keeping prices strong, but not the only one.”

Low interest rates is another factor, as well as the economy. Ryder explains that Australia was in and out of recession quickly, and the economy is strong, with unemployment failing to reach the highs predicted, and currently sitting at around 7 per cent.

Many have predicted the market may feel the worst pain when government and lender assistance packages come to an end, but Ryder says that’s not going to come to fruition – if it was going to happen, it would have already, he says.

It’s business as usual in most parts of Australia, notes Ryder, with the majority of the country getting the virus under control very quickly.

People are now confident and spending, and there has been no massive economic hit. In fact, he says some parts of the economy have thrived because of COVID-19 and some property markets were directly pumped up because of it, with some regional economies turbocharged by it.

Recent data has found consumer confidence in Australia has hit a 10-year high, with the most recent Westpac-Melbourne Institute Index of Consumer Sentiment lifting by 4.1% to 112 in December, up from 107.7 in November.

Some forecasts of property price crashes pointed to falling overseas migration in Australia, but Ryder says this demand is now being replaced by expats coming home in “droves”.

The fast-tracking of infrastructure in Australia to aid the economic recovery will also be a big boost for the property market by boosting economic activity and jobs, as well as improving the appeal of specific locations, adds Ryder.

“Nothing bumps up property markets like infrastructure spending; it’s going to be huge for the property market,” he says.

“That factor is almost going to guarantee that across Australia there is going to be a real estate boom in 2021.”

Should You Buy a Property as an Investment

When it comes to deciding what to do with your hard earned savings, the choice between investment opportunities can be difficult. There are a number of factors that might convince a potential investor to invest in one opportunity over another. 

In particular, property as an investment is something that has been extremely profitable for a number of people. With this being said, in deciding whether or not you should buy property as an investment, you should consider various factors. 

The Risk Involved in an Investment in Property

An important factor in determining which investment suits your needs is the amount of risk you are willing to take. While some investors are extreme risk takers and like to put more of their investment towards something volatile such as cryptocurrency, others are more risk averse, and prefer to accept a lower return on investment with known risks as opposed to unknown risks. 

In comparison to other investment opportunities such as crypto and shares, investing in property is relatively safe. With this being said, it doesn’t mean that there is not the potential for you to lose your investment. When considering the 2020 pandemic in particular, risk surrounding property is somewhat higher than it would otherwise be. 

Volatility due to the pandemic has meant that Australian housing prices have dropped, open houses and auctions have been halted, and rent reductions have occurred. This might mean that you are tempted to invest, in anticipation of future price rises, however the pandemic also means that future price changes are uncertain.

Being Prepared to Pay it Off

One of the biggest considerations to make in deciding to buy a property as an investment is in terms of whether you are prepared to make the necessary repayments. These will likely take a significant chunk out of your regular income, while other investments do not require the same commitment. 

Rent money will obviously contribute to these repayments, however it won’t cover them entirely. Plus, in the event of a vacancy (which is likely to happen at some point), you’ll be covering these repayments entirely. 

If you are planning on putting down a deposit and making repayments on a property, you’ll want to know how much you will be paying on the mortgage – calculate it here.

Investing in a Property to Maintain Your Lifestyle 

In many situations, investing in a property is often an alternative to buying a first home. If this is the case, this decision will involve a lot of thought in itself. However, a significant factor that increases the appeal of investing in a property is that it can allow you to maintain your current lifestyle. 

Purchasing a property in an area you want to live in might be out of your financial means – if you want to live in a trendy area with parks, amenities, cafes, shops and entertainment, the cost of the property will be higher. Investing in a property can solve this problem as you can choose to invest in an area that is cheaper or more rural, and then continue to rent in the area you want to live in. 

Don’t Overlook Maintenance, Upkeep and Management Requirements

Another factor that makes buying an investment property an involved process is the maintenance and upkeep involved. 

This starts with the tenants – choosing the right tenants can be a difficult process, and one that is often ongoing. The right tenants need to take care of the home properly, be a positive contribution to the neighbourhood (you don’t want to be receiving complaints from neighbors), and make payments in a timely manner. Finding the perfect tenant is easier said than done, and depending on how long they plan on living in your property, you might be screening the next occupants sooner than you would like. 

Regardless of the tenants, there are going to be maintenance requirements. Even the perfect occupants will come into some sort of maintenance requirement, whether it is to do with plumbing, the kitchen, or the general structure and quality of the property. Having to determine whether this is the fault of the tenants or not is another problem in itself, but ultimately you may end up having to pay for these maintenance costs. 

Finally, you have to deal with the management of the property in general- this means taking the time to deal with the processes involved in finding tenants, performing upkeep, keeping neighbours happy, and more. On the other hand, you could enlist the help of a professional property manager – this is a more costly but convenient option, and will depend on your timetable, income and personal preference. 

If you do buy an investment property, be sure to get a depreciation schedule prepared.

Stamp Duty Changes for NSW?

AFTER MANY months of speculation, the New South Wales Government has revealed its plan to overhaul stamp duty in the state.

What is it all about?

The measure, announced as part of the 2020-21 NSW Budget handed down on Tuesday, will be open for public consultation until March so the community can have a say. Following that, the changes could potentially be implemented from mid next year.

Rather than completely scrapping stamp duty, the Government plans to make it optional for future transactions, so buyers in NSW can choose whether they want to pay a large upfront property tax or an alternative tax in the form of a smaller annual land tax when they buy a home. Land Tax Stamp Duty

The current stamp duty concessions for first homebuyers in the state would instead be provided via a $25,000 grant.

If buyers opt for the annual land tax, the proposed model provides that owner-occupiers would pay a lower rate than investors.

For those who already own a home and are not buying another, there will be no change.

Why make changes to stamp duty?

Stamp duty is the tax buyers pay when they purchase a property and is a huge upfront cost – for a median-priced property in Sydney of $860,955, stamp duty is $34,372.80, but it can also be much more.

By removing this large upfront cost for buyers, you remove a barrier for those looking to enter the market, as well as those looking to move – either by upgrading or downsizing.

That means, as NSW Treasurer Dominic Perrottet has said, that the removal of stamp duty could help many more people – ie. first homebuyers – to realise the great Australian dream of owning their own home sooner.

It will, however, also lead to a more efficient use of housing as it will incentivise people to move into appropriately-sized housing, close to schools and workplaces, rather than staying where they are.

It is also designed to assist in the post-COVID economic recovery, with projections it will inject more than $11 billion into the NSW economy in just the first four years and boost the NSW Gross State Product by 1.7% over the long term.

The proposed changes come as the state has recorded a $16 billion budget deficit, with predictions it will only get worse in coming years.

How significant are these proposed changes?

The proposal to overhaul stamp duty in NSW is a huge change to the property tax system, with the current model having been in place since Federation. The ACT is the only state or territory in Australia so far to have taken steps towards abolishing stamp duty.

Mr Perrottet has pointed out how archaic the tax is, being centuries old, and the importance of modernising the tax system.

Indeed, the abolition of stamp duty is something many prominent economists have been advocating for many years. There has been renewed vigour for the tax’s removal this year as we have faced the pandemic and it was mooted as a way to make major structural tax reforms to support Australia’s economic recovery.

In response to the announcement about stamp duty reform in NSW, Real Estate Institute of NSW CEO Tim McKibbin says it is a long overdue move.

“Stamp duty is an inefficient, inequitable tax that distorts market activity. Not only does it discourage people from moving, especially downsizers who would otherwise free up housing stock, it also limits the additional expenditure homebuyers could otherwise engage in,” he said.

“While there is no such thing as a good tax, some are better than others. When tax becomes a consideration of a transaction and not a consequence, it’s a very bad tax.

“People in NSW have elected not to pay stamp duty by not buying property. On this basis, we welcome the news that stamp duty will finally be phased out in NSW.”

Where to from here?

There will be more clarity – and of course commentary – on the proposed changes to stamp duty in NSW over the coming weeks, with certainty to come following the outcome of the public consultation, when the final tax model will be revealed.

While the REINSW supports stamp duty changes, it has also expressed its lack of support for the replacement of one property tax with another property tax. Stamp Duty Reform NSW

“The question should be asked why the property industry, which contributes so significantly to the state’s economy, must shoulder a disproportionate amount of the state’s tax burden,” says McKibbin.

“A land tax may be more broadly-based than stamp duty, but it still only applies to property. Investors in shares, for instance, pay no comparable tax.”

There is no doubt the proposed stamp duty changes will be hotly debated over the coming months. We will keep you informed on the latest news.

Are the responsible lending reforms good or bad?

IN A MOVE designed to strengthen the economic recovery from the COVID-induced recession in Australia, the Federal Government recently announced reforms to responsible lending laws.

By removing responsible lending obligations from the National Consumer Credit Protection Act 2009 (NCCP), with a few exceptions, the changes mark a move away from the ‘one size fits all’ approach to assessing loan applications, and will simplify the process.

With the onus transferring from the lender to the borrower to ensure they can afford a loan, it will essentially make it easier to get credit, which will lead to greater spending and stimulate the economy.

It’s also expected to boost demand for housing and therefore help to support house prices.

So are these reforms, expected to be implemented on April 1 next year, a good thing or a bad thing?

Who will the beneficiaries of the reforms be?

It’s intended that the economy will benefit from the reforms, which means we should all see some benefit.

But since the changes are designed to improve the accessibility of credit by removing overly stringent lending restrictions, it’s clear borrowers will be one of the main beneficiaries.

While some reforms and closer scrutiny of lenders was needed in the wake of the GFC back in 2009, Aussie Franchisee – Lane Cove Jon Somers JP says the pendulum has now swung too far the other way.

He says the lending reforms will lead to more reasonable lending criteria, with credit more accessible and loan approval times – which he’s seeing take from four hours up to around one month – hopefully reduced with less rigorous assessments required.

“At the moment I have so many clients that are strong candidates for finance but just can’t borrow what they need,” he says.

“Waiting times with some lenders are the longest that I’ve seen in 18 years of mortgage broking.”Mortgage Loan

But while it will make it easier to get credit, Somers adds it’s most unlikely anyone who is ineligible for credit will now be able to obtain it.

Steve Mickenbecker, Group Executive, Financial Services at Canstar.com.au says there is a strong case for lending reform to rebalance responsibility between the lender and borrower and to clear up uncertainty over the degree of scrutiny to be placed on loan applicants’ historical spending.

“The operation of credit in this environment and future development had become increasingly inhibited,” he says.

In addition to borrowers, lenders will benefit from the reforms with less onerous credit processes and less risk of liability, says Mickenbecker.

“The other beneficiaries are people who have been wrongly denied credit or have experienced delays as a result of compliance with the code and the presumptions made about credit.

“Some lenders, nervous about the onus of proof falling on them, will have set credit standards too conservatively.”

Mickenbecker says the reforms should eventually make credit more readily available, but the question mark will be lenders’ ability to gear up with a new credit process and their preparedness to take on expanded credit in a time of heightened risk.

Will borrowers be at greater risk now?

Somers doesn’t believe the reforms will add any risk to borrowing, with the onus now back on the borrower, because the banks will still be performing a thorough assessment.

It’s entirely fair that the onus be on the borrower, he adds.

“If you’ve done a thorough budget and allowed for contingencies, then there should be no issue.”

Mickenbecker says borrowers who struggle to assess their suitability for credit will be exposed to some risk without the protections of the current regime, but just because the onus has shifted from the lender to the borrower it doesn’t mean lenders are going to lend irresponsibly.

“Lenders have a strong interest in avoiding loans that may pose a risk,” he explains.

Borrowers have to be satisfied that they can afford a loan and if in doubt they should seek independent advice before putting forward a loan application, says Mickenbecker.

When it comes to approaching banks when the new laws kick in, it’s best to engage a professional or at least perform extensive research yourself, adds Somers.

“These changes (to lending reforms) will not impact a mortgage brokers’ ‘best interest duty’ obligations, so brokers must continue to ensure their recommendations are in your best interest.

“A good broker will spend time with their clients, educating them on the options available, as well as the merits and risks of each offering.”

Common Sense with Paul Clitheroe

With so many varying forecasts about the future direction of the property market, I thought I would ask Paul Clitheroe of Money Magazine fame for his view.

Here’s his response below:

Hi Tyron,

It is indeed an unusual time. Hope you and family are well.

My view is pretty common sense, in short form below:

Cheers

Paul Clitheroe
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Will the Doomsayers be right….this time?

Could property fall by 40%?

AS during any crisis – and even in the absence of one – the doomsayers come out in the property market. And COVID-19 is no different.

Following the pandemic we’ve seen numerous predictions about Australian property prices, including that they could fall by up to 40%.

Will it come true? Only time will tell. But we do know that despite many price fall predictions, so far they have not come to fruition – and according to the experts they are unlikely to this time.

Have previous doomsayer predictions come true?

Two names come straight to mind when we talk about doomsayers and property prices – economists Harry Dent and Steve Keen.

In 2014 American Harry Dent predicted a 30% to 50% fall and in more recent years he has forecast that prices will halve in at least Sydney and Melbourne by 2023.

Steve Keen, from Australia, predicted a 40% fall within five years last year, and a similar drop after the GFC in the late 2000s.

Will the property Doomsayers be right THIS time?

In reality over the past 10 years Australian house prices have grown in value by more than 36%, with the median capital city house price rising from $463,673 at the end of 2010 to $633,745 as at the end of August this year, according to CoreLogic figures. Since 2014 the data shows prices have risen by 16%.

So what will happen to prices in the aftermath of COVID-19?

The general consensus is that Australian property prices will fall a little in the aftermath of COVID-19. But a 40% drop is highly unlikely.

CoreLogic’s latest figures show Australian housing values were down in August by just 0.4%, with the fall only around 2% since the recent high in April. 

           “I think there is just as much chance of property prices falling by 40 per cent as there is by them increasing by 40 per cent,” says Property Investment Professionals of Australia Chairman Peter Koulizos.

            “It’s more plausible that there will be some drops but they will be minimal. I think property prices will drop five to 10 per cent – it will  be closer to 10 per cent in Victoria and around five per cent for the rest of the country.”

As has happened in the past there will be some places where property prices increase and some in which falls will be felt the most.

Those to be hit hardest are likely to be near-new properties, due to government incentives to build brand new, as well as CBD apartments, with many rented by international students, says Koulizos.

             “A typical suburban home – a detached house on a decent-sized block reasonably close to amenities – will not see much impact at all.”

Personal investment columnist Pam Walkley says she’s unsure of where property prices will head from here because we are in “unchartered territory”.

In the short term, she says, downward pressure could be put on prices if there are a lot of foreclosures following mortgage freezes, and if overseas migration slows significantly – which it is likely to do – and lessens demand.

             “While I don’t see huge price falls in the short term I don’t really see any potential for huge rises either,” she says.

             “But long term if the recession – and maybe it becomes a depression – causes governments to find ways to cut their outlays, major changes to the way property is treated tax-wise may be the catalyst for very hefty rises.

              “Will we really be able to afford generous negative gearing breaks, family homes being CGT-free and not counting the family home in the assets test to access government pensions in our parlous state?”

Ultimately prices are very likely to rise again

Koulizos has undertaken research which shows Australia has proven to be very resilient in global economic crises, with prices rising in the five years after every time.

The research found that following the GFC in 2008-2009 capital city dwelling values increased by up to 39% in the five years after. Prices also increased by up to 100.7% after the recession of 1973 to 1975, 67.7% following the downturn of 1982 and 1983 and 47.3% following the ‘recession we had to have’ in 1990-91.

Eventually, prices will rise

Koulizos says in the case of the current health crisis, government and banks are offering an economic airbag, including record low interest rates and mortgage repayment holidays, to soften the impact financially, which is an added positive.

He points out that in the 1990s recession unemployment hit 11% and interest rates were 17.5%, while this time around we have unemployment forecast to hit a high of 10% and 3.5% interest rate, which is going to “save property prices” in Australia.

He adds that the Australian property market is heavily dominated by owner-occupiers rather than investors, and selling their own home is the absolute last resort.

At the moment he says buyer demand is low but so is supply which means prices are largely holding up.

Paul Clitheroe, financial adviser and editor/founder of Money, acknowledges that interest rates will be low for a long time, but he adds that income growth for the vast majority of the working population will also be low.

                     “Add JobSeeker winding back, COVID in all probability being with us for longer than we hope, banks wanting to get repayments on loans sooner than later…. you would not need to be Albert Einstein to figure downward pressure on prices,” he says.

                       Right now the market is generally holding due to huge government support, very low interest rates, banks deferring loan repayment and things such as the ability to access $10,000 from Super… not to mention a majority are in front with mortgage repayments”, he says.

                       “But jobs will disappear and may take a long time to come back, government support will reduce and in many cases people’s reserves will dry up.

                        While forced supply will put downward pressure on prices, Clitheroe says with time buyers can be quite confident that a growing population and eventual recovery will see property continue to be a solid investment.

                        Despite the COVID-19 crisis restricting immigration and the trend towards youngsters delaying having a family, Australia’s population still grows, he says, with the average prediction for population of around 35 million in a bit over 30 years. This means demand for housing will grow going forward.”

Paul Clitheroe’s 5 top tips for navigating the current property market:

    1. Don’t hurry; forced supply is likely to increase putting downward pressure on prices.
    2. With time, buyers can be quite confident that a growing population and eventual recovery will see property continue to be a solid investment.
    3. Be realistic about the level of personal debt and your own job security. Being forced out of your property by a job loss could be ugly in this climate.
    4. Buy where a growing population puts pressure on prices. Buy near public transport, schools, hospitals, parks and a decent cup of coffee.
    5. Do not believe anything an agent tells you. They are not your friend, they work for the seller only. Do your own research.

The future of office buildings…

Is the office as we know it dead?

MUCH has been said about the future of workplaces since COVID-19 forced some major changes to office life as we know it,  kicking flexible work practices into gear.

At this stage, no one really knows how offices will look in the future as uncertainty still abounds, but we do know that workplaces will undergo (potentially lasting) change.

Health and safety will be a huge factor, with social distancing requirements and even temperature testing being introduced in some buildings, but flexible working arrangements will also determine how future offices will look.

I look into my crystal ball at the end of this blog

COVID-19 Handshake

How will workplaces change?

COVID-19 has necessitated the most transformational shift for work in perhaps a century, says McCrindle Communications Director Ashley Fell, who just released a new book about this topic in conjunction with Mark McCrindle called Work Wellbeing: Leading thriving teams in rapidly changing times.

“The most notable was when almost overnight the office-bound workforce globally relocated to their homes,” she says.

“The digital transformation of our organisations was achieved not through management strategy or a new technology solution, by the realities of this virus.

“For the first time in modern history working from home became the norm and even ushered in the three-letter acronym to describe it: WFH. And it is here to stay.”

In the future it is likely we will see our office spaces change to accommodate more flexible working styles and less people in them all the time, says Fell, with most workers in this knowledge economy having more of a regular opportunity to work a day or two from home.

“Our national survey amid the COVID-19 crisis showed that 69% said they were as, if not more, productive when working from home than they were at their office.

“It also showed that far from being a temporary response to a global pandemic, 78% said that working from home will become the new normal.”

Workplaces will also change to become COVID-safe, enabling social distancing and safety and health measures.

Property Council Chief Executive Ken Morrison says the Property Council has worked closely with Safe Work Australia on guidelines for office buildings, including how to manage lifts, common areas of buildings and change room facilities for cyclists and people running or walking to work.

“There is now comprehensive advice available to help building managers and businesses to make their workplaces COVID-safe. Our members have been proactively addressing these issues to provide a COVID-safe environment for their tenants and their workers.

“As people are able to return to their offices, we believe they will do so in increasing numbers depending on their local public health restrictions.”

Offices are here to stay

With more people working from home it is likely we will see less demand for full utilisation of office spaces that has been the norm over the last few decades, says Fell. But that doesn’t mean offices will be gone entirely.

“The office will still be important in the future, but likely for collaboration, creativity and social interaction – the parts of work that are harder to achieve when workers work remotely.”

While there are some who say COVID-19 is the death of the CBD or the office building, says Morrison, and we may see some tenants provide more of their people with flexible working arrangements, at the same time they may also need more space in their offices to accommodate physical distancing.

“There may be some changes to the way we configure our offices, but they will still be a very important part of our working lives.”

While Australians have shown great versatility in making the shift to working from home, many are keen to get back to their workplace and reconnect with their work colleagues in person, adds Morrison.

According to an ABS survey recently, 86% of working Australians were somewhat comfortable in resuming attendance at their usual workplace, he says.

“There are lots of positive benefits to working in an office including the opportunities they present for critical ingredients for business success, including collaboration, creativity, innovation, learning, mentoring and developing and sustaining team culture.

“Many businesses have been able to manage remote working so well because of the close internal and external networks that their people developed in the pre-pandemic. Businesses have been surfing off the previous benefits of working in offices.

“It’s also a practical issue – not everyone can do their jobs as safely or efficiently from home, so we need to make sure that our CBDs and offices are open and working again to support those businesses which need a physical premises for their staff.”

LJ Hooker Commercial Managing Director Mathew Tiller says while there will be some businesses that see COVID-19 workplaces changes as a way to reduce costs and move some work online, many businesses will be unable to reduce their office space as they will need to ensure social distancing requirements are maintained.

He says those in the former category are also unlikely to do away with the office entirely.

“They will still need a central point to meet; a place where employees can catch up and engage with others.

“Working from home is great in terms of not having to commute to the office, but human interaction is also still very important for culture of work and mental health of employees. It also cultivates ideas and strategy.

“There will always be a need for office space; it will just be used differently and for different purposes.”

Tiller says the location of offices may also change, with many businesses likely to consider moving from the CBD to a suburban office closer to where employees live.

What do I see when I look into my crystal ball?

From an Investor Viewpoint:

In my view office buildings will become more spread out over time. We may find more suburban co-work spaces in the future. People will still want to physically interact, albeit less often.

I can see some CBD Offices being converted to residential over time.

I can’t see too many new office buildings being given the green light in the future.

Smaller office spaces may become more in demand as companies downsize to reflect the new working from home reality.

If you don’t own an office and are thinking of having a small hub where workers can get together and share space, now might be a good time to start looking.

From a Tenant Perspective:

If you are a tenant with a lease that’s about to expire, now could be a good time to negotiate.

You may have a clause that allows you to “re-set” the rent based upon an independent market valuation, rather than an automatic increase or linked to CPI.

I expect to see a lot of sub-leasing space coming onto the market over time.

As a rule of thumb, businesses require roughly between 8 and 12 square metres of gross space per employee. With more employees working from home, companies could in effect get two employees in that space on a co-sharing basis, thus reducing the need for office space in the future.

Whether you’re an investor of office space, or a tenant, you can get a depreciation schedule quote with our quantity surveyors

The HomeBuilder Grant

Is the new HomeBuilder grant scheme enough?

IN THE AFTERMATH of COVID-19, things are changing all the time, including restrictions and the impact these are having on a range of industries, including property.
So far the property market seems to be holding up pretty well, with minimal falls in values. But it’s a different story for the construction industry (a huge source of employment for Australians), which faces a steep drop in home building after September this year.
In light of this the Federal Government recently announced a new $25,000 property grant called HomeBuilder, to be handed out to eligible people building or renovating a home, which is designed to boost construction activity and stimulate the industry.
This $688 million housing stimulus package aims to build 30,000 homes by Christmas and is predicted to generate over $15 million in national economic activity, lead to $10 million in building projects and support more than 1 million jobs.
Details of HomeBuilder are still evolving, and there may be other assistance on offer in the months to come (particularly from state and territory governments) to stimulate the housing market – we’ll have to watch this space.
In the meantime, however, here is what we know about what’s currently on offer.

What is HomeBuilder?

The scheme offers a $25,000 grant to owner-occupiers substantially renovating their home or building a new home between June 4 and December 31 this year.
It comes with restrictions though – for new builds the home cannot be priced at more than $750,000 and renovations must cost at least $150,000 and up to $750,000 for a home valued at $1.5 million or less, but the work excludes sheds, pools, tennis courts, granny flats or any other structure detached from the dwelling.
The grant is also means tested, with income caps of $125,000 for singles and $200,000 for couples.
Contracts must be signed within the next six months and construction must start within three months of the contact date.
The program is expected to be up and running within a few weeks, with applications able to be backdated to June 4 so contracts can be entered into right away.
It will be implemented via a National Partnership Agreement with the federal, state and territory governments.
At the time of writing applications for the grants were not yet open, but Australians could register interest in the scheme through the Government’s official website.
The $25,000 HomeBuilder grant is designed to complement state and territory housing assistance programs, including grants and stamp duty discounts, to encourage more people to undertake building work.
Since the Federal HomeBuilder announcement, some states have offered further stimulus, with Tasmania offering $20,000 for any owner-occupier to build a house, while Western Australia is offering owner-occupiers and investors a $20,000 grant.

What are the pros and cons of the HomeBuilder grant?

Some argue the money offered by HomeBuilder would be more effective in achieving its aims of stimulating construction if it was given for the provision of social housing instead.
While the HomeBuilder grant will encourage more people to undertake a building project – either through a renovation or new build – which will stimulate the construction sector, inevitably it will also be given to those who were already planning a project anyway, which is one of the program’s criticisms.
Other criticisms are that it’s too restrictive due to factors such as the large outlay required (particularly for renovations), property value caps, means testing and timeframes – particularly to get approvals and plans – which may lead to a low take up.
It could also inflate prices for houses or trades, as grants often do, but the short timeframe for the scheme is expected to counteract this.
Despite all these potential drawbacks it has been reported that there has been huge enquiry – numbering 8000 as at June 8- about the program in the days following the announcement. This indicates interest – and potential take up – is high, and the program could be the catalyst for people taking action after sitting on the sidelines due to Coronavirus.
In particular it could be a great incentive for first home buyers, who will also be able to take advantage of state and territory grants, but it’s also a good opportunity for existing homeowners to upgrade to a new homes or update their current home.

What to consider

You should do you own research and seek expert advice before rushing in to take advantage of this grant, despite time being of the essence.
Ensure you are making a prudent investment decision and either buying a new home that will increase in value or ensuring you are adding value through a renovation and not overcapitalising.
Chris Gray of YourEmpire.com.au says in the past property grants have often created a short-term bubble in the market, and quite often it can be a “false economy”.
Home buyers, he says, are often better off buying a mainstream existing house in a well-located suburb with no grant rather than buying a new one with a grant, as the underlying investment in the most important thing.
He warned homebuyers taking advantage of HomeBuilder to do their numbers, and determine if they would actually still do a renovation and spend the money if they didn’t have the grant.
“The grant should be the bonus rather than the reason for doing it,” he says, adding that having to spend the extra $25,000 on a higher-value renovation means overcapitalising is a real risk.
“You might spend money on things that actually devalue the property such as gold-plated taps or diamond encrusted something else. You can spend money upscaling to satisfy the requirements of the grant and it doesn’t suit the area or the type of property.
“Get a fresh pair of eyes to look over your property and determine what it is worth now and what it will be worth after so you make sure you add value and know how much to spend on a renovation.”

Do we need more property grants to stimulate the housing market post COVID-19?

At this present time, it doesn’t appear that the housing market needs propping up via other grants or handouts.
According to CoreLogic Head of Research Tim Lawless property values have been quite insulated from a downturn to date, with CoreLogic data to the end of May showing home values were down less than half a percent.
The HomeBuilder grant is more about jobs than housing, he says.
“(It) is more about shoring up jobs in the residential construction sector, so it is rightly targeted towards incentives to build or renovate, rather than stoke demand for established homes which could have an inflationary effect on prices.”
Mr Lawless explained that housing construction has been in a broad downturn over the past year and a half, and will likely slump further through the year.
“Nationally dwelling commencements peaked in the first quarter of 2018 and by the end of last year had declined by around one third to be 14 per cent below the decade average,” he says.
“Considering housing construction typically provides a strong multiplier effect on the economy via the scope of the supply chain and array of trades and industries involved, a stimulus package for the sector makes sense.”