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.”
The COVID-19 pandemic has forced many businesses to reflect on “industry norms” and the way they operate. We are no exception.
At Washington Brown we believe in researching each property and advising clients on the best way to approach achieving the maximum depreciation in the most cost-effective way.
Not EVERY property needs to be inspected in order for the maximum claim to be achieved.
This USED to be the case – but the tax legislation recently changed and property investors can no longer claim depreciation on items like ovens or dishwashers that are not brand new.
So NOW you can only claim depreciation on the structure of the building like concrete and bricks for 2nd hand properties.
If you BUY brand new items like carpet and blinds, you can still claim depreciation but it must be based upon the purchase price (not an estimate).
In the OLD days, we used to visit the property so we can value these items individually, the ATO put a stop to that.
Our Commitment to Property Investors Moving Forward
If we determine that an inspection is NOT required to ensure the maximum depreciation claim – this will reduce our fee AND you’ll receive the report sooner. Let Washington Brown work out the best depreciation plan for your property here.
Here are 5 reasons why SOME properties do not require an inspection:
Extensive Database – In 40 years we have amassed an extensive database of construction costs for the majority of residential and commercial buildings around Australia.
We have the costs – We are familiar with your building and as such, we already have the construction costs on file.
Plant & Equipment no more – You have purchased a second-hand property so you cannot claim on the existing plant and equipment components.
Online data – There is an abundance of detailed information and pictures of your specific property available online (both publicly and via subscription-based industry databases).
You have the costs – Your property is a brand new build and you have access to the construction cost, plans and inclusions list.
Here are 5 reasons why SOME properties STILL NEED an inspection:
Your property is unique – Your property is classed as High Spec/Luxury/Non-Standard and therefore not typical. An inspection will ensure the maximum deductions by ensuing all facets of your property are assessed and included.
Non-residential – This means you can still claim the full benefits of depreciation including the Plant & Equipment (carpets, blinds, etc.)
Renovated – Your property has been substantially renovated. There is insufficient information online and as such an inspection is necessary to maximise the depreciation.
More information required – We do not have access to sufficient information specific to your property. We, therefore, need to acquire this via an onsite assessment.
Plant & Equipment – Your property qualifies to claim Plant & Equipment deductions, an inspection ensures no assets are missed, which means your deductions are maximised.
Having caught up recently to co-present on a Depreciation-centric webinar in the lead up to the End of Financial year, Peter Foldes from Washington Brown was able to chat to leading property analytics researcher Terry Ryder (Owner and Creator of Hotspotting) regarding the effect of the COVID-19 Pandemic on Real Estate around Australia.
Terry, mainstream media seem to be touting that there will be a significant “hit to the Australian Property Market.” It paints a pretty gloomy picture; Do you think we’re going to see a “crash?”
The Australian real estate market is continuing to defy doomsday predictions of price drops as a result of the COVID-19 pandemic.
Prices are continuing to grow and the number of people searching for properties online is higher than it was at the same time last year, according to Terry Ryder, founder of Hotspotting.
All the data that is coming in actually defies the doomsday notions we’re seeing in news media,
Certain sections of the media in particular have been talking down real estate – and we’ve had dire predictions over the past two months about prices falling – but we just haven’t seen it in terms of the actual price data.
Figures from the nation’s largest property sales platform, realestate.com.au, are showing increases of up to 40% (compared to the same time last year) in the number of searches of properties for sale. People are certainly out there looking, at a time when the number of properties listed for sale has fallen significantly, and that might explain why the data on prices for March and for April was so strong, with six of the eight capital cities recording some price increase in April, as well as six of the seven regional market jurisdictions.
We often hear commentary on the “Australian Property Market,” implying that it behaves as a single commodity. Do you feel that some areas may actually continue to see growth throughout the pandemic period?
The nature of the local economy was pivotal in terms of which markets will continue to do well, which ones will stagnate and which ones might experience price drops.
Those markets which have and may continue to experience price drops are ones where the economy is heavily reliant on tourism, particularly international tourism.
My expectation is that the Gold Coast market will be one of the ones to drop, certainly in the short term
In contrast, strong regional cities with more diverse economies such as Ballarat, Bendigo, Orange, Albury-Wodonga, Mackay and the Sunshine Coast should continue to perform well. These are all cities where the local economy and employment are strong in industry sectors that are doing well despite the virus-impacted climate.
For example, the biggest sectors in Albury-Wodonga in terms of Number of Jobs are supermarkets & food stores, hospitals & medical services, the military and aged care.
Another example is the Sunshine Coast: One of the major factors which appealed to investors are the numerous large-scale infrastructure projects – and work on these has not stopped during the COVID-19 shutdown. Current infrastructure projects on the Sunshine Coast total more than $20 billion.
The ticks are in the ‘pro’ column of why you would be looking at a region like that for investment!
In your opinion, is now a good time to be considering a property purchase?
It is important for investors thinking of entering the market at this time to not get swept up in the doom and gloom expressed by “news media” and to keep a balanced view of what was happening. There are opportunities to be found in the current market.
I think it is a very good time to be looking because there will be opportunities to buy well.
Generally speaking, real estate is holding up quite well but there will be exceptions.
If you are out there as a buyer right now you are not going to be competing with as many investors as you might have done in normal times. You can perhaps negotiate from a position of increased strength.
I think it is a very good time to buy, as long as you select a location that has the underlying fundamentals to provide good growth.
THE POTENTIAL abolition of stamp duty in Australia has been proposed and discussed for at least a decade, but recently there have been fresh calls from many corners to do away with the property tax.
Economists in particular – starting with Ken Henry way back when he authored and delivered his Henry Tax Review in 2009 – have been pushing for stamp duty to be abolished, arguing that now is an opportune time to make major structural tax reforms to support the economic recovery post COVID-19.
If abolished, the most common suggestion is that stamp duty would likely be replaced by a broad-based land tax on real estate owners to be paid annually and/or an increase in the GST, although the Federal Government has indicated it is opposed to the latter.
Why should stamp duty be abolished?
Inefficient, bad, lazy, archaic… these are just some of the words used to describe stamp duty. Dr Henry has called it a ‘diabolical tax’ and labelled it one of the worst taxes in Australia.
The fact is that stamp duty was established in the early 19th century, when documents for the transfer of a home needed to be officially stamped to make them legally binding, and governments took the opportunity to ensure people paid taxes at the time.
But while this worked in the olden days, it’s not relevant now with our systems far more sophisticated.
There has also been no indexing over time, despite prices rising significantly over recent decades, which has resulted in huge stamp duty hikes and of course government revenue.
How much does stamp duty raise?
Domain figures show stamp duty on a median-priced home in New South Wales grew by 102% between 2004 and 2019 to reach $42,269, 183% in Melbourne to hit $44,164, and 189% in Brisbane to reach $11,013.
Governments like stamp duty because it can provide strong revenue to state and territory budgets, but the downside is that this revenue can be volatile, reliant on a strong property market and consistent transaction levels.
If transaction levels fall due to an economic downturn or a dive in confidence, so too does stamp duty revenue for governments, which can leave big holes in budgets from year to year.
For example, stamp duty revenue in NSW was $9.7 billion in 2016-17, but fell 24% in 2018-19 to $7.4 billion.
Could a broad-based land tax be an option?
In contrast, taxing land through a broad-based land tax, charged annually by sending a bill to everyone who owns land (a proportion if an apartment), would provide a much more consistent source of revenue over time.
“The problem for state government is when the property market is booming so are their coffers – and generally revenue from property is the second highest income-earner after payroll tax – but in situations like COVID-19 revenues dive,
Getting a regular land tax from all property owners is going to be much better for them to budget.”
The other major issue with stamp duty is that because it’s a massive impost on a single transaction – it could be $40,000 or $50,000 on top of a property purchase, particularly in Sydney, for example – it impacts economic decision making, often in a detrimental way, with people less inclined to buy or transact.
In particular, it can act as a barrier or deterrent to home buyers, particularly first homebuyers, who have to save both a deposit and then more for stamp duty, or add it to their mortgage, which will cost them more over time.
But it also leads to an inefficient use of housing as people become more reluctant or are unable to move – including to upsize or downsize – as they have to pay the huge cost of stamp duty each time, which makes it too expensive.
This results in people living far from work opportunities or their children’s schools, or people living in homes far too big for them as they shy away from downsizing, which also prevents that larger housing being freed up for families that need it.
“Abolishing stamp duty might encourage more home ownership, which is a good thing,
When you have to come up with a 5% deposit plus 5% stamp duty, in theory it takes twice as long to come up with, so it’s a barrier to home ownership.
For prospective home owners it’s going to be a benefit because it’s less initial money that they have to come up with.”
How would the abolition of stamp duty work?
New South Wales and Victoria are currently talking about doing away with stamp duty, while the Australian Capital Territory has been the only state or territory in Australia to actually do so, starting the process back in 2012.
The ACT is phasing stamp duty out under a 20-year plan, gradually reducing stamp duty rates and replacing it with higher annual rates or a land tax-style property rate.
While this can lead to a situation where people are paying both stamp duty on a purchase and an annual property tax over time (ie. being double taxed), thereby also ensuring the government’s revenue remains fairly stable, it’s not the only way to do it.
The other way is to abolish stamp duty straight away, and apply a land tax to purchases from a certain date, exempting people who already own a house and have paid stamp duty. This, however, could leave a hole in state or territory budgets for some time.
What are the potential disadvantages of abolishing stamp duty?
This issue of how stamp duty would be abolished and what is would be replaced with is the major potential downside, with the devil in the detail of how the plan would work.
One concern is that these annual land tax bills would have to be very sizeable to replace stamp duty, with one Deloitte Access Economics model estimating the average property would have to pay $2400 per year, but of course many properties valued at higher rates could pay up to five times as much.
And who would stop governments from upping these rates regularly, so that people end up paying much more over time?
According to the Property Council, the ACT’s approach was supposed to be revenue neutral for the government but in actual fact the revenues from property taxes are now higher.
A HIA report from the start of 2018 found the switch from stamp duty to land tax in the ACT has resulted in additional property taxes of $196.5 million, an increase of 38% over four years.
Koulizos hasn’t made up his mind about whether abolishing stamp duty is the right way to go, but isn’t a big fan of another annual financial impost on home buyers or owners, on top of council rates, insurances and water bills.
“I’m particularly concerned for people on fixed incomes or pensioners – once you get to 65 or 70 it’s another impost you have to keep paying until the day you die.”
Peter Koulizos Chairman, Property Investment Professionals of Australia
There are suggestions land tax bills for older people could be paid upon the sale of the property upon their death, but the bill of course still has to be paid.
So, will it happen?
While there is a lot of talk about the abolishment of stamp duty, whether or not it will actually happen remains to be seen.
Governments are very dependent on the huge revenue generated from stamp duty, so moving away from that will prove to be difficult.
Personally, I feel we should try our utmost to move away from this lazy tax that limits a workforce from moving to where the jobs are.
But it’s going to be very tricky politically to convince voters that replacing stamp duty with an annual charge on land is a good idea.
“Where there is a physical inspection of premises by a quantity surveyor which results in a person (the tenant or the inspector) contracting the COVID-19 virus, there may be a breach of duty of care because of the failure to take reasonable steps to avoid infection.
Due to the global pandemic status of COVID-19, the potential for infection is arguably a foreseeable risk and legal action may be taken against the landlord/owner of the premises and/or the quantity surveyor’s firm as a consequence of the breach.
It is at this stage uncertain how the Courts will deal with the liability issue and it may take years before the extent of the relevant duty of care as a result of COVID-19 can be fully defined.”
At this stage, all states have strict protocols for private viewing so real estate transactions can, hopefully, continue.
Property sales tend to take place over a limited time period and a personalised viewing is necessary in most cases.
As of the 31st of March there has been strong guidance from the Federal Government to stay home, unless you are shopping for essentials, medical reasons, exercise or you can’t work remotely.
Firms like ours and many others, have started working remotely. We have existing data on a huge range of buildings and have access to a variety of means to carry out a report.
IF THERE is one thing the majority of us have at the moment, it’s time. And since we can’t go anywhere many are putting it to good use by getting things done around home – things we have been putting off for a long time because we’re usually too busy. Surely you’ve all seen the queues at Bunnings lately… home improvement has never been more popular!
So what are the top things you should be doing to your home while you’re in isolation that could improve it for your use and even add value, without spending a fortune? We asked three experts – Craig Hogg of The Edge Property Buyers, Good Deeds Property Buyers principal Veronica Morgan and buyers agent and CEO of Propertybuyer Rich Harvey – to give us their top tips.
Clean your home’s exterior
The first thing you can consider doing is cleaning the outside of your home to improve the aesthetics, according to Hogg. Admit it, this is something that often goes by the wayside due to our usually-busy lives, doesn’t it? Now is a good time to clean all the front windows, screens, doors and gutters, and give dirty surfaces a high-pressure wash. While you’re there you can get some precious Vitamin D while you’re under lock-down, adds Hogg. It will make a huge difference to the appeal of your home, and if you have any plans to sell anytime soon it will add value as first impressions count.
Clean the inside of your home
Follow up the external clean with a good declutter and spring clean internally, including under the house and the garage, to open up some extra space, says Hogg.
“Cleaning doesn’t cost a cent and will immediately improve the presentation of your property and more than likely improve your mental well-being as well.”
Tidy up the garden
Landscaping and garden maintenance always takes time, so why not use your time in isolation to get some exercise and tidy up the garden, top soil the lawns or plant out a brand new garden bed or veggie patch, says Harvey.
“First impressions count to buyers if you are considering selling,” he adds.
Plant a herb garden or veggie patch
“I just moved house in February, and hadn’t yet planted a herb garden, so that has been one of the first things I’ve done in isolation,” says Morgan.
It may not add value to your home per se, she says, but it will add to the comfort and amenity, particularly if you are forced to work and play indoors for extended periods of time.
“I think getting out in my garden, even if it’s just a few pots, does help my mental health, as does feeling like I’m actually in control of something – that is. I can grow something that we can then eat – even if it’s a small thing.”
There’s always somewhere in the house that needs a refresh through painting, according to Harvey.
“Why not use the break to get some painting done and turn it around in two or three days and then get the house back to normal?” he suggests.
Painting is an affordable way to improve the appearance of your property, if you have the funds available, adds Hogg.
“Stick to neutral colours and try to lighten the look and feel of the property,” he says.
“Tile paints are popular at the moment, and combined with new cabinet handles, will help transform tired old bathrooms and kitchens into something special for only a few hundred dollars.”
Polish the floorboards
This is messy, but fresh looking floors are a great way to create a tidy and stunning look, says Harvey.
Flooring can have one of the biggest impacts in a home, and will be a satisfying task to complete.
You can do-it-yourself too, in just a day or so. Jump online or head into Bunnings (it’s still open) to get some instructions and the equipment you need, including a sander, polish and a brush, and set to work!
Get additional data points installed
We could be working and schooling from home for some time, so this will likely come in handy in the coming months, as well as in the long term.
“I completely underestimated the need before schooling and work moved into the home,” says Morgan.
Getting additional data points installed will, again, add to the amenity and comfort of your home, says Morgan, particularly if you’re stuck there for many more months, rather than strictly adding value.
These are extraordinary times for us all. The COVID 19 pandemic is impacting the health of our loved ones, the way we live our lives and the businesses we rely on daily. And here at Washington Brown we are determined to do our bit to help.
Commitment to our clients
Supporting Australia’s property investors is the backbone of what we do. That’s why we’ve launched Washington Brown’s 50/50 Plan to help increase your cash flow when you need it most – NOW.
Put simply – we will be offering all clients the opportunity to pay only 50% of the report now and 50% in 6 months time.
You see, claiming depreciation on your property’s wear and tear from last year, could put money in your pocket this year. But you’ll still need a property depreciation schedule to do so.
Inspecting your tenanted investment property may not be possible under the current climate. We will be assessing each property on a case by case basis and advising you on the best approach to achieve the maximum depreciation.
This may result in an inspection not being needed because, after decades of collecting data from properties around the country, Washington Brown has sufficient information to continue to prepare most depreciation schedules.
For a limited time, this is an acceptable practice according to the Australian Institute of Quantity Surveyors (AIQS), due to the unprecedented circumstances we all find ourselves in.
Supporting both our clients and employees
Washington Brown has been in business for 40 years. We are committed to supporting both our clients and employees during this difficult time.
If you are an existing client, rest assured you will continue to be able to access all previous reports via your own protected online portal WBme.
The Morrison Government has today announced a $17.6 billion economic plan to keep Australians in jobs, and to keep businesses in business in light of the Coronavirus pandemic.
The Government has outlined an increase of $700M to the instant asset write off threshold from $30,000 to $150,000, and has also expanded eligibility to businesses with a turnover of less than $500M (up from $50M).
Put simply, if you were to buy carpet for your office that costs $40k, previously you would have had to depreciate it – now you can simply write it off.
Washington Brown recently refurbished our office for a cost of $202,000 and were able to claim $35,000 in depreciation in the first year. If we’d carried out the same fit-out today, our first-year depreciation would’ve been a much higher $152,000. That’s a HUGE difference.
The remaining $50,000 relates to capital works items, like painting and plumbing, and will still need to be claimed at 2.5% per annum over a 40 year period.
Quantity Surveyors are experts in breaking down the overall construction cost into individual items and now has never been a more appropriate time to do this.
There are five main points to consider:
Businesses should ensure they have a detailed report of any fit-out costs to be carried out.
When acquiring any new asset, businesses should try to keep the costs below $150,000.
This generous bonus has an expiry date of June 30, 2020.
Assets costing over $150,000 can still be depreciated but not claimed as an outright deduction. Businesses with a turnover of less than $500 million will be able to deduct an additional 50 per cent of the asset cost in the year of purchase.
This accelerated depreciation (point 4) will expire on the 30th of June 2021.
Some examples of what may qualify for an immediate tax deduction include carpet, desks, blinds, work stations and a lighting upgrade.
Whilst we are currently in uncertain times, this incentive aims to assist both your business and the broader economy as well.
I was about 25 years old (a long time ago!) when I did my first property deal. I was the quantity surveyor on a project converting the Balmain RSL in Sydney into residential apartments.
I approached the developer and told him I was interested in buying an apartment. I did not have a lot of cash, so I had to go halves with a friend. We put in $1,000 each as a holding deposit to secure a one-bedroom unit, with a loft, for $220,000. It was a good start – we didn’t even need to fork out the 10% deposit.
Then the builder went broke halfway through the construction. It was a nightmare. It took another 3.5 years to finish the project. What a headache, for me the QS and more so for the developer!
In the meantime, however, while construction was being delayed, the value of the property almost doubled. So, our $220,000 one-bedroom plus loft apartment was now worth around $400,000. We had signed a contract on the original price which meant our $1,000 initial deposit returned quite a handsome profit for my friend and I.
WHAT A rollercoaster the past year has been for property!
We saw a lacklustre start to 2019 largely due to apprehension around last year’s Federal Election and particularly proposed housing-related tax policies from the ALP.
Activity was also subdued due to the fallout from the Banking Royal Commission and tightened lending restrictions imposed by the Australian Prudential Regulation Authority.
However following the Federal Election in May and confirmation the status quo would continue the market slowly started improving as confidence returned, and now it’s firmly in recovery mode.
The difference between the start of 2020 and the same time one year ago is like “chalk and cheese”, says Hotspotting.com.au founder Terry Ryder.
“One year ago everything was super negative but now things are much more positive,” he states.
But just how positive is the market? Will the price growth that started in 2019 continue this year, and if so, will it be at a strong pace?
Let’s first look at why prices have started to rise again…
In the wake of the uncertainty in the property market over 2019 many sellers decided to hang onto their homes, fearing they wouldn’t get the desired price, and construction also eased.
This led to a lack of available stock for buyers to choose from, which Ryder says was one of the several factors contributing to the price growth that started towards the end of the year and has continued into this year.
“One of the factors in the escalation of prices, particularly in bigger cities, was that at a time when demand recovered quite strongly, there was very little supply and vacancies were generally low in most locations around Australia,” he says.
“There was a lot of competition for good properties available, which was a big factor in price growth last year.”
Now, in 2020, there are signs supply is starting to rise, with sellers more confident in testing the market, and more construction in the pipeline, so price inflation that occurred due to a lack of stock will likely be tempered moving forward.
National residential property listings increased in January by 2.2%, according to the latest data from SQM Research. All capital cities saw a rise in listings, but the largest rise was in Sydney of 5.1%, followed by Hobart at 4.9%.
Sydney’s listings are still 24.8% lower than 12 months ago, while nationally listings are 10% lower than a year ago. But there are likely to be further increases in the coming months.
Dwelling approvals are also improving, with annual growth lifting to 2.7%, the first positive since June 2018.
“Markets are rising and people can get pretty good prices for their properties if they’re willing to list them,” says Ryder.
“Consumers were a bit battered and bruised after a period of negativity, including fears of the Federal Election, but since the middle of May last year there have been a series of fortunate events.”
These events include an easing of lending restrictions, tax cuts, three interest rate reductions and more positive media coverage on the market.
“There are always multiple factors in why the market rises and these factors are all part of the equation,” says Ryder.
“But with more supply coming to the market this year, it will take some pressure off prices, particularly in Sydney and Melbourne.
“The market will settle down a bit and be what you might call a ‘normal’ market.”
Indeed, the latest CoreLogic Home Value Index found that while property prices rose across every capital city in January, the rate of growth had slowed in recent months.
Over the past year prices have grown by 4.1%, which is the fastest pace of growth for a 12-month period since December 2017, but in January the index was up by a total of 0.9%, down from its recent monthly peak of 1.7% in November.
Growth markets are aplenty this year
With Sydney and Melbourne likely to take a backseat this year, smaller capital cities are set to come to the fore, including Brisbane, Perth, Canberra and Adelaide.
“Sydney and Melbourne have had substantial and lengthy booms, and the increase in supply and the affordability factor will tend to suppress the level of growth in those cities,” says Ryder.
“Cities that haven’t had a big run but have the right dynamics in play will have a strong year.”
Brisbane is overdue for growth, and all the ducks are starting to fall into line for the city to do much better this year, explains Ryder.
“All indicators are that Perth has finally moved into a recovery after five years of gradual decline and Canberra looks solid, underpinned by one of the steadiest economies in the country.
“Adelaide is always underrated; it’s got a lot more going for it than people realise and it will have a good year as well.”
Hobart has had a good run and is likely past its peak, and Darwin is still struggling, adds Ryder.
He points out that regional areas also have the potential for growth this year, with the strongest market being regional Victoria, with parts of regional New South Wales also looking promising, including Orange, Wagga Wagga, Goulburn and Dalby.
In regional Queensland the Sunshine Coast offers some of the best growth potential, with a strong economy, while some parts of Central Queensland are also recovering, including Mackay.
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