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.”
Property depreciation is a legal tax deduction related to the ‘wear and tear’ of an investment property over time. A tax depreciation schedule outlines the deductions you may be entitled to claim each year of ownership on the Building Allowance (the structure itself including bricks, concrete, etc.) and, if eligible, on the Plant and Equipment items (internal items like ovens, carpets, blinds, etc).
As with any tax deduction, claiming property depreciation reduces your taxable income. That means more money in your pocket to reinvest or to spend on yourself or on your family.
A depreciation schedule from Washington Brown is a fully-comprehensive, ATO-compliant report that helps you pay less in tax. The amount the depreciation schedule says you can claim effectively reduces your taxable income because it’s taking into account how much it costs you to own and maintain the property.
While you may be used to claiming on such items as council rates or property management fees where you have paid money towards an item or service, depreciation is a “non-cash deduction.” This is because it’s the ONLY deduction that you don’t have to pay for on an ongoing basis – its already ‘built’ into the purchase price of the property.
If you’ve purchased an investment property, request a free quote for a fully comprehensive, ATO-compliant depreciation schedule today and save.
Let me introduce you to our new product, the CGT Saver™ Report – A report specifically created to prevent our clients from paying too much in Capital Gains Tax.
Although you can no longer claim depreciation on second-hand Plant & Equipment Items (ovens, dishwashers, etc.), with Washington Brown’s CGT Saver™, you can claim the applicable and documented value as a capital loss if you remove or replace any of these in the future.
This report lists and values all those included items that you have purchased at settlement. It then allows you to claim a capital loss straight away if any of these items are removed.
The best bit.. This loss can offset other share &/or property gains that you might make.
This report is exclusive to Washington Brown, so ask for it by name and contact us to find out more.
If you have purchased an investment property after May 9, 2017 – request a free quote here and one of our tax depreciation specialists will review your property and let you know if a depreciation schedule is worthwhile for you.
You see, everything that looks half interesting at the moment is being promoted as an “off-market” transaction.
Here’s what I’m thinking
If I receive an email from an agent where I’m part of a big group database and I’ve received it as a BCC – it’s pretty much ON the market.
If the agent has signed an agreement with the vendor to sell the property, it’s ON the market.
The other day I even received an email from an agent in Queensland trying to sell units off-the-plan on the basis they were Off Market.
So I queried an agent the other day, as nicely as I could, asking how it can be “off market” when the I’m receiving a group email promoting the property.
The answer was that the vendor didn’t want loads of people inspecting his house in Bondi.
“Oh nooooo I’m selling a house in Bondi please don’t let all those pesky buyers come to my house and drive my price up”
Now before every real estate agent gets stuck into me….I’m sure there are legitimate “off market” deals…BUT I think the term is becoming about as overused as a waiter saying “enjoy” every time they bring me my food!
I suspect the real estate agents saw that buyers agents were making money using this term and thought “we can do that too”.
So they go to there database with an “off market” email, create interest – then put it up on realestate.com.au and hey presto… Boom!!
Suddenly the vendor doesn’t mind those pesky purchasers, they are even leaving the scent of coffee or perhaps some incense wafting through the house just before the open.
AFTER a few years of strong growth Australia’s property market appears to be cooling.
But this doesn’t mean investors should shy away from buying; in fact, it’s just the opposite.
It’s an opportune time to buy due to slower price growth and a record low cash rate, and while the overall market is experiencing a slowdown, there are always with growth potential to be found.
Where are they? Let’s first take a look at what’s happened over the past year before gazing into the crystal ball.
The current state of play
Property prices grew by 7.8% over 2015, with Sydney and Melbourne leading the charge, according to CoreLogic RP Data figures.
Sydney values were up by 11.5% at the end of the year, while Melbourne values were up 11.2%, despite both seeing a slight drop in values over the last quarter.
While Sydney was the standout performer at the start of last year, Melbourne has now started to take over.
In the first month of 2016, Victoria’s capital saw growth of 2.5% compared to 0.5% in Sydney, and the performance difference between the two over the past six months has been significant, with Sydney seeing a 0.6% drop in values and Melbourne seeing a 3% rise.
Outside these perennial favourites, over 2015, there was little growth in other capital cities.
Brisbane and Canberra saw a moderate increase of 4.1% in property values, while the other capitals all had fallen. Perth and Darwin experienced the biggest declines of 3.7% and 3.6% respectively.
What’s in store for 2016?
Many experts believe the property market is likely to be slower this year, with subdued growth and lower rental returns.
Affordability will be a factor hampering growth in some markets, particularly Sydney and Melbourne, where the median dwelling price is now $776,000 and $595,000 respectively, according to CoreLogic RP Data.
Another factor impacting demand is the regulatory crackdown in the mortgage market, which occurred in 2015 and has led to higher interest rates, particularly for investors, who have since scaled down their activity.
Despite expectations of softer conditions this year, dwelling values did experience a small rise of 0.9% in January, according to the CoreLogic RP Data Hedonic Home Value Index, which could be an indicator they won’t fall.
In any case, we know that the property market is never a ‘one size fits all’ and with so many submarkets there are always areas experiencing growth.
Investors need to start by looking at a state level before drilling down to individual suburbs and then even further into pockets within those suburbs.
Which states will shine?
While Sydney and Melbourne have come off the boil, their strong economies are expected to see property price growth level out rather than fall this year.
Other states are due for some stronger growth, however, and the one coming up on everyone’s radar is Queensland.
The south-east corner of the state is the area many are picking for growth over the coming three to five years.
Growth in South East Queensland over the past two years has been slow and steady, and predictions are that this will continue.
Interstate investors are being drawn to the area largely due to its affordability and higher rental yields.
Not only are prices in Brisbane around 40% cheaper than those in Sydney, with the city having a median dwelling price of $478,200, but property is also substantially cheaper than in Canberra, Darwin and Perth, which have median dwelling prices of $587,500, $520,000 and $515,000 respectively, according to CoreLogic RP Data.
The Perth and Darwin markets aren’t expected to experience growth in the short to medium term – and in fact, may experience further falls – but this means there may be some good buying opportunities at the moment for those looking at the long term.
Adelaide and Hobart have been ticking along steadily and the affordability of these areas means there are opportunities for investors looking in the right areas.
Hobart, which has the most affordable median dwelling price of all the capitals, some 20% lower than Adelaide, is already showing signs of growth with a significant 4.7% rise in dwelling values over January alone.
Canberra also experienced growth over the first month of this year with a 2.8% rise in dwelling values.
While experts warn the latter two markets are more prone to ups and downs, there are opportunities for investors, particularly for those looking for higher rental returns, with Hobart having the highest yield of all the capital cities at 5.4%.
When I was on stage giving a seminar about Property Depreciation, I always have a Question & Answer session at the end.
In the talk… I discuss our Property Depreciation Calculator and how it helps property investors make informed decisions about the type of rental property they want to buy.
Then this guy up the back puts his hand up the back and says
What’s so special about your Property Depreciation Calculator?
“Well”, I say, “Let me tell you…”
“I’m pretty proud of our property depreciation calculator, it took me 4 years to build and is the only one of its kind. In fact, it’s the only property depreciation calculator that lets you work out the depreciation of a property based upon a proposed purchase price.”
“You see, I believe you can’t really work out the depreciation of a property by entering an area – and, let’s face it, how many of us know the internal unit area of our property. Do we include balconies, garages, common areas etc…You see that’s why I think the other calculators on the market that use an area are flawed.”
I’m pretty excited by now, and I go on…”I’ve got to be honest…when I started creating this property depreciation calculator, well, I had more hair!! It was a long an arduous task.”
“You see, I think no two houses are the same, and that basing the depreciation of a property on it’s area is flawed. So I wanted to create a property depreciation calculator where people could enter a proposed purchase price and easily get a result.”
“Now, in order to do that we needed to come up with a way where the calculator would grab lots of like type properties add them up and average them out.”
“That’s why it took 4 years to build, we needed enough data in the calculator to make it a calculator that property investors could use. And today, I’m proud to say, day in – day out…it’s the most used part of our website.”
“We’ve actually got a patent pending on it…again why I’m proud.”
If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.
We were recently asked by a client “Do you take responsibility for your reports?” and I wanted to share our response regarding who is actually liable for depreciation once the reports have been sent out to the clients.
To prepare a Tax Depreciation Report, we require clients to supply cost information pertaining to the construction or improvements of their property where this information is known.
But, of course, we cannot take responsibility if a client provides us with false or fraudulent information.
I can happily confirm that we, Washington Brown, fully stand by our reports and estimates in the event of a client audit. We proudly take 100% responsibility for the estimated figures applied in the Tax Depreciation Schedules we produce for our clients.
Washington Brown has Professional Indemnity Insurance of $10,000,000. This far exceeds minimum requirements and the cover of other firms in our industry. Adding to this peace-of-mind is the fact that over the last 23 years, we have not once had our figures refused by the ATO.
Let me give you an example. You see, when a builder buys an oven for $800, that’s not what you pay for it. By the time the investor pays for this item, a range of other fees would have been included,
such as the architect’s design, transportation, installation and supervision. Next thing you know the real cost of this oven to you is $1,100, and it’s the real cost we’re after, not what the builder paid.
Now, that extra $300 on the oven depreciates at 20% per annum, rather than at the 2.5% building allowance rate. This means you can claim the depreciation much faster.
So at the end of the day, let builders build and let quantity surveyors save you money.
This blog is an extract from CLAIM IT! – grab your copy now!
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