Home deposits take less time to save – another good sign for property investment

As the year comes to an end, all the ducks seem to be lining up suggesting that next year will be better for our property markets – always a good sign for those intersted in property investment.

A study released last week by BankWest showed that first home buyers are taking less time to save a deposit for their home due to flat property markets and rising incomes.

Couples buying their first place took about three years and nine months on average to save a deposit in 2012 – about three months less than in 2011.

And they didn’t have to save quite as hard, with the average amount needed for a deposit falling by $3000.

Of course if you live in Sydney or Melbourne, it takes a little longer to save your deposit – five years and eight months and five years respectively. That’s no real surprise and a reason more first home buyers are turning to apartments.

If you happen to live in Queensland or Tasmania, it will only take three years and seven months to lay down a deposit on a home in both states.

The report showed that buyers needed to save an $77,600 in the 2011/2012 financial year for a 20 per cent deposit on the median national house price of $423,000.

That was almost $3000 less than the $80,500 needed the year before.

The Bankwest study used Australian Bureau of Statistics Census income data for couples aged 25 to 34 and median house prices to determine average times to save a 20 per cent deposit. Almost 15,000 more buyers secured their first home in the 2011/2012 financial year than the previous year, a rise of 17 per cent.

Of course there is always affordable housing to be found in every state – you just have to go further out or to regional towns. Fact is, that’s not where many people want to live and the desire for many of us to live in the same type of suburb in our 4 big capital cities is what is pushing up rentals.

With rising rents, lower interest rates, higher wages and signs that the property market has bottomes, it is likley that more first home buyers are going to hop onto the property ladder in 2013.

Look what's happened to property values around Australia

RP Data  released their Home Value Index for the end of November today showing that dwelling values across all of Australia’s capital city housing markets, except Melbourne, rose over November with values now just -0.1 per cent lower over the past 12 months.

Across the 8 capital cities, the month of November saw the RP Data-Rismark Home Value index rise 0.4 per cent during the first two weeks only to relinquish these gains in the last two weeks of November and finish flat for the month.

As usual, there existed notable dispersions in the returns observed across the individual capital cities. Melbourne home values fell by -1.0 per cent over the month while all other capital cities rose.

The strongest performer over the month of November across the major capital cities was Perth where improving housing market conditions were evident with values up 1.0 per cent.

Brisbane and Adelaide values each increased by 0.5 per cent while Sydney values rose by just 0.1 per cent.

On a quarterly basis, most capital cities recorded a rise in dwelling values.

The largest capital gains being found in Darwin (+3.1%), Perth (+3.0%), Brisbane (+0.8%) and Sydney (+0.6%).

The only cities where values were down over the three months ending November were Canberra and Melbourne (both -0.7%) and Hobart (-4.5%).

What's happened over the last year?

On an annual basis, Sydney (+1.3%), Brisbane (0.3%), Perth (+3.4%) and Darwin (+13.1%) have each shown a rise. The largest fall over the past twelve months to the end of November was recorded in Hobart, where dwelling values are down -7.0 per cent.

According to RP Data Senior Research Analyst Cameron Kusher, the November market conditions highlight that the road to a market recovery will not be without pauses and those cities which performed very strongly in 2009 and 2010, like Melbourne, may show continued weakness.

"Capital city home values remain -5.6 per cent lower than their historic highs of 15 November 2010, but, up 2% from their low of late May 2012."

"Home values in Brisbane and Perth remain below where they were five years ago whereas the other mainland cities have all increased over this period. This has meant that relative to the other capital cities, Brisbane and Perth have experienced affordability improvements and subsequently we may see them become more popular from both an owner occupation and investment perspective." Mr Kusher said.

Rismark International CEO, Ben Skilbeck, commented, "With the recent sharp improvement in consumer sentiment showing that optimists now outweigh pessimists, house price to income ratios back at 2003 levels and meaningful recent housing affordability gains, it will be interesting to see the impact on the housing market if interest rates are further cut in December as widely anticipated. Given the historically weak seasonal month of December, if rates are cut in December, it’s likely we’ll have to wait until early in the new year to see the housing market response."

Australian Bureau of Statistics economic data key to the housing market, including building approvals and housing finance commitments to owner occupiers, are also showing improvement over recent months. These improvements are being reflected in an increased level of sales activity and improving home values across a number of capital cities over recent months.

Source: RPData

Now is the time for hesitant property investors to make a move

After a sluggish winter, spring brings hope of fresh movement in Australian property sales. According to the nation’s leading property, accounting and wealth financial advisory group, Chan & Naylor, this is a great time for those with investments in housing, but anybody hoping to join the property ladder down the line now has a conundrum to face: Australian property is high in demand and supply is low.

Despite recent figures from The Economist stating the Australian housing market is overvalued by 36%, and reports locally and abroad concerned over an apparent property bubble in Australia, now is the time for hesitant property investors, including first-time buyers, to make their move if they want in on the Australian dream.

Moreover, if Australia is to avoid the boomerang effect taking place around the world, whereby millions of adult children are returning home to reside with parents into their 30s, it is crucial that first-time buyers start considering property investment as a way into the market rather than focusing initially on home dwelling options.

Potential investors sitting tight for a bubble to pop could be waiting a long time.

According to a recent study by KPMG, 60 years ago house values in Australia stood at roughly seven times the yearly household income and today that figure stands at a very close 6.9%.

Property values have remained on an upward trend with modest corrections within a cycle, and there are no signs to suggest we are heading for a major downward turn.

High living standards, low and controlled interest rates, relatively high population growth, undersupply and a healthy banking system are only a few reasons why buying property in Australia is an attractive option for personal occupancy or investment. In fact, demand is undeniably set to grow.”

Some of the key drivers contributing to the rise in housing demand include:

• Retirement of the baby boomer generation and the widening skills gap left behind require further skilled talent to replenish skills and the tax base, which will inevitably come from abroad;

• The wealth and opportunity offered by Australia, which attracts skilled migrants from neighbouring countries each year;

• The steady entry of five million Generation Ys into the market, which, according to projections by the Australian Bureau of Statistics, will raise the demand for housing by 15% on the previous generation, as more attempt to edge away from the family home;

• A diminishing amount of available land for new housing, as people flock to city hubs;

• A lack of government initiatives to ensure Australia has an adequate housing supply; and

The sum of these things will keep the value and cost of existing housing high.

Given growing demand, smart buyers will invest now, but too many assume the first property they buy is going to be the one in which they live and grow old and so they hold out for the Australian dream to come along and potentially either miss the boat or pay a higher entry price.

In the current landscape, investors – particularly those buying for the first time – become more strategic in their approach. For example, a first property could be used for rental purposes as opposed to becoming a buyer’s first home.

This would not only generate income, but allows investors to use that property as a security for funds to buy a more desirable home down the line. These investors must do the numbers as the ability to purchase a more strategic property may outweigh any grants available. The tail should not wag the dog.

Property acquisition should be treated as a business process as opposed to an act of the heart and realise that it can be a stepping-stone towards acquiring the perfect home later in life.

Property is the biggest asset most people will own, and so they need to surround themselves with professionals who can offer advice in making considered and informed decisions, such as buying in the right market and property cycle or choosing a property with the opportunity to create equity through renovation or improvement, boosting both capital value as well as rental yield.

Parental support may be an option for adult children lacking sufficient funds to get on the property ladder, but this requires caution. A simple and formal loan agreement to help with a deposit is considered safer than becoming co-guarantor – 100% liability for the debt and no assets can lead to a negative equity trap in cases of bankruptcy or where the child splits from a partner the guarantor could be left holding the debt with no asset.

While for the likes of the UK, the rise of the ‘boomerang generation’ is driven predominantly by high levels of unemployment and a poor economy, Australia could find itself experiencing a similar effect, not because our economy is weak, but because not enough is being done by the government to prevent a housing shortage.

Where are the best property investment opportunities for 2013?

With 2012 coming to an end many property investors are asking where are the best property investment opportunities for 2013.

Residex released their dwelling statistics for September which showed prices to have risen in the month. Theirs reports are useful because they also show how each city has performed over the past decade, and they provide some useful statistics on housing affordability.

The picture below is sourced from the Reserve Bank’s chart packs and shows dwelling price movements excluding apartments by capital city from 2004 to the middle of 2012.

So where are the best prospects for 2013 and beyond?

Sydney

Residex has shown that Sydney has comfortably been the worst performing capital city over the past 10 years (showing just 3.5% average annual capital growth), and the chart above illustrates that despite a boost in prices through the financial crisis, overall performance has been relatively weak since the last major boom in prices through to early 2004.

Counter-cyclical investors therefore should look to Sydney for some of the best capital growth opportunities over the next 10 years.

The Residex numbers do, however, show that there is an affordability issue for houses in Sydney and therefore apartments in the inner- and middle-ring suburbs may offer the best potential for growth over the next decade.

Melbourne

Many have been surprised by the resilience shown by the Melbourne property market over recent months.

The city undoubtedly has great fundamentals for the long term with a diverse range of industries and strong projected population growth.

But even the biggest optimist would have to say that if you bought now you have probably missed the best of the boom following the tremendous appreciation in prices of around 35% through 2009 and 2010.

Melbourne showed incredible capital growth from 2007 to 2011 and it seems extremely unlikely to me that such strong growth will be seen again over the coming decade.

Brisbane

Brisbane has been a notable underperformer over the past half-decade since 2007, especially with confidence having been dented by a little by the flooding in the city, but the property markets will turn the corner at some point and offer some opportunities for counter-cyclical investors.

Being the cheapest mainland capital city in which to buy a house some of the best opportunities lie in this sector of the market, particularly in some of the established, supply-constrained suburbs.

Perth

Western Australia has not only shown the strongest population growth in Australian states of late, it has also contributed very strongly to the nation’s GDP growth due to its resources focus.

With low unemployment and low vacancy rates in certain suburbs, although Perth has not shown any dwelling price growth since the phenomenal boom in prices up to 2007, the fundamentals do seem to be aligning for the years ahead.Perth represents a good bet for those intent on riding the boom in mining capital investment.

Adelaide

Adelaide has been a slow but steady performer in the past, but has not shown much growth since 2007. As population growth is not forecast to be as strong as in some other cities, the cities prospects may be likely to continue in a similarly steady vein.

Houses are relatively cheap as compared to other capital cities, which offers some immediate potential for growth, and the larger blocks in some areas of the city offer great subdivision opportunities.

Canberra

Supply appears to be meeting demand in the housing market so the immediate potential for growth does not look great from my perspective. There may be some opportunities in the apartment market but overall very strong growth in the city does not look likely in the immediate future.

Darwin

It is undeniable that Darwin is showing oustanding growth at the moment, and there is every potential that this may continue with vacancy rates being so critically low.

Despite what anyone may tell you, the prevailing high prices do mean that the potential for fast gains come with a risk premium attached.

Sure, while the economy and GDP continue to grow so solidly dwelling prices may continue to forge ahead strongly, but if the economy takes a turn for the worse, so might dwelling prices in Darwin.

Hobart

Tasmania has shown weak population growth over recent years and therefore is not on my watch list.

Hobart is the cheapest capital city in Australia in which to buy a house and it offers decent rental yields in some areas – and therefore this attracts some mainland investors. Not one for me.

Summary

Since 2008 I have been mainly buying in Sydney.

My opinion hasn’t changed in that I think Sydney will be the best performer on a risk-adjusted basis over the next decade, particularly now that Melbourne seems to have done its dash. I would certainly consider buying a house in Brisbane in the coming years too.

Obviously, property investors don’t ‘buy the market’; investors buy individual properties, so it is important to find the outperforming sub-markets and property types.

Undoubtedly Darwin, Perth or any number of regional markets might show stronger capital growth than Sydney, but investment returns should always be measured on a risk-adjusted basis.

It is important to consider what might happen if Australia slips into recession and particularly if there is a commodity price meltdown.

Remember that an awful lot can happen in a decade.

Investors bump up Sydney apartment prices

There’s no denying that Sydney-siders have been highly influential when it comes to encouraging Australia’s slow but steady transition to apartment living.

The Harbour city has led the way in constructing higher density dwellings for the last few decades, so when senior economist for Australian Property Monitors Dr Andrew Wilson, recently stated that  Sydney’s renewed love affair with apartment living and investment is continuing, it came as no surprise to me.

Australian Property Monitors reported that, although the median price for units in Sydney fell just 0.2 per cent in the June quarter, they surged 3.6 per cent over the first six months of this year.

Sydney is clearly the best performer for median unit price growth of all the major capitals over the year to date, with Perth the next best, rising by 1.7 per cent. Conversely, Melbourne apartment prices fell by 1.7 per cent and in Brisbane they fell by 3.6 per cent over the first six months of 2012.

Sydney’s median unit price is tracking around its peak level of $465,221 recorded over the March quarter this year.

Investors are back

A big influence on rising apartment demand in Sydney this year has been an increase in investment activity. Latest Australian Bureau of Statistics data shows the value of residential investor finance for NSW up by 6.6 per cent over the first half of this year against last year. Investor loans are also 3.8 per cent higher to June compared to the first half of 2010, which makes NSW the only state in positive territory.

Dr Wilson expects buyer activity and price growth to continue for the rest of the year in Sydney’s apartment market.

At Metropole we’ve been noticing an increasing demand from investors keen to buy into the Sydney market, where apartments are more affordable than some initially thought and in general yield strong rental returns.

Particularly popular right now are areas around Sydney’s inner west, which is going through significant gentrification and showing strong capital growth, along with the ever popular inner eastern suburbs.

Peace and profits

A great example of the investment gems to be found in Sydney at present is this 2-bedroom apartment recently purchased for a client in Ashfield.

Located at the rear of a small boutique block, the unit has a lovely leafy outlook, is close to all amenities and best of all, had an existing tenant providing guaranteed instant returns for the investor.

With its own car space and the potential to rent for between $400 to 420.00 per week with a bit of a minor makeover, the proven capital growth of Ashfield will ensure this investment ticks all of the client’s boxes for years to come.

The purchase price of $420,000 was negotiated prior to the auction and settlement occurred in July.