Look what happened to property values last month – latest RPData figures

The latest stats from RPData show that capital city home values in Australia rose by 1.6 per cent over the last three months however, during the seasonally slower month of August, value growth flat lined.

Seven of Australia’s eight capital cities have registered capital gains over the last three months with the exception being Adelaide.

After recovering by one per cent in June and 0.6 per cent in July following the RBA’s back-to-back rate cuts, dwelling values across Australia’s combined capital cities were unchanged in August.

At the end of August, dwelling values across Australia’s combined capital cities were down just  -0.6 per cent in the first eight months of the year compared to a -2.2 per cent year-to-date loss in May.

The year-on-year numbers have also shown a substantial improvement. Dwelling values were down -2.4 per cent at the end of August compared to -5.3 per cent in May.

Dwelling values in both Sydney and Melbourne both increased by 0.1 per cent over the month of August, with the two biggest capitals recording 2.4 per cent and 2.5 per cent capital growth, respectively, over the last three months.

In August gains were also seen in Adelaide (+1.4 per cent), where housing values had struggled in recent months, and Canberra (+1.2 per cent).

The markets weighing down the result were Brisbane (-0.2 per cent), Perth (-1.2 per cent), Hobart(-1.2 per cent) and Darwin (-0.5 per cent). However, all cities except Adelaide have experienced a net increase in home values over the last quarter.

According to RP Data research director Tim Lawless, Sydney is proving to be one of the most consistent performing capitals this year.

“Sydney dwelling values have increased over five of the past eight months providing a cumulative capital gain of 1.9 per cent over the year to date. Canberra (+1.4 per cent), Hobart (+3.9 per cent) and Darwin (+8.4 per cent) have also yielded owners capital gains over the first eight months of 2012. In contrast, other capitals, like Adelaide (-1.3 per cent), Brisbane (-1.4 per cent), Perth (-2.5 per cent) and Melbourne (-2.6 per cent), have recorded tougher conditions this year.”

Mr Lawless noted that the rebound in Melbourne was encouraging given more worrying signals earlier in the year:

“In May 2012, Melbourne home values were down 5.1 per cent in just the first five months of the year. However, the bounce in the period since the RBA’s May and June rate cuts has helped Melbourne values claw-back about half of these losses to be off a more palatable -2.6 per cent,” Mr Lawless said.

Highlighting the improved affordability over the past quarter, Mr Lawless points out that almost every capital city has recorded capital gains over the last three months.

“Improved affordability since June has helped dwelling values rise across every capital city over the three months ending August 2012, apart from Adelaide. The big question is, ‘can this growth be sustained?’ On the one hand, winter is seasonally slow, so these results have been encouraging.”

“On the other hand, we know that there is likely to be an increase in new supply over Spring, which may introduce some headwinds for a recovering market. How the market plays out over the Spring season will be an important litmus test for its resilience,” Mr Lawless said.

A spokesman from Rismark added, “Late last year we forecast that housing conditions in 2012 would deliver a material improvement over the -3.8 per cent loss suffered in 2011. Despite the fact that the RBA did not cut rates again until May, and we had the banks hike rates by about 25 basis points in the intervening period, the national market has clearly stabilised.”

“Substantially improved housing affordability combined with new demand deriving from the self-managed superannuation and Asian markets are a positive. Price adjustments in the luxury market in concert with global economic uncertainty are demonstrable negatives. We remain of the view that 2012 will yield better outcomes than those experienced in 2011.”

Source: RPData.com

What makes a more popular investment: units or houses?

In a recent blog  Tim Lawless from RPData  asked the question what makes a more popular investment and the answer was no surprise to me, but some of the statistics he came up with were fascinating.

Here’s what he said…

Nationally, 58% of flats, units and apartments are owned by investors. That is quite an amazing statistic, especially when you compare that with detached houses where only 21% are investor owned.

Across the capital cities the proportions are even higher. Darwin tops the list with 70.6% of all units being rented followed by Brisbane where 70.2% of all units are rented.

The lowest proportion, 60.3% in Sydney, is still significant. I would presume Sydney’s proportion is probably lower due to the city having the highest house prices (more owner occupiers choose units over houses thanks to the lower entry price), as well as the fact that Sydney is the most mature unit market in the country.

The high rate of investor ownership of apartments begs the inevitable question… why?

Similar to owner occupiers, it partly comes back to price points.

The unit market generally offers a lower buy in price (investors face affordability hurdles too!) than detached or semi-detached homes. Based on median selling prices across the combined capital cities over the June quarter, units are 12% or $59,000 more affordable than houses.

The gap is widest in Sydney where unit prices are almost 23% or $139,000 lower than house prices.

Yields are also important

Another valid reason is the fact that rental yields have historically been higher for units compared with houses.

The latest RP Data-Rismark indices show unit yields across the combined capital cities are currently at 4.9% compared with 4.2% for detached houses. In fact, across every capital city, rental yields on units are higher than yields for houses (except Darwin where both are at 6.1% which are the highest rental yields across the capital cities).

Finally, it is often the case that units are located in more popular locations for both renters and owner occupiers. The majority of unit developments are located close to transport networks, major working nodes and retail amenity.

The high proportion of investors really doesn’t come as a surprise!

Warning to borrowers: don’t be fooled by attractive home loan discounts!

Australia’s leading financial comparison website RateCity is warning borrowers and prospective home buyers to be cautious of special home loan promotions offering discounts which promise to be “great deals”.

The warning follows research by RateCity, which found that the overall cost for loans with introductory rates were more expensive on average than basic and standard home loans.

In fact, it would potentially cost an extra $6,556 for a $250,000 home loan over 25 years for the average introductory variable home loan compared to a basic or standard home loan.

RateCity comparison of average introductory home loan and standard/basic home loans

	Average advertised rate	Average comparison rate*	Total cost over 25 years*
Introductory variable home loans	5.91%	6.55%	$258,750
Standard and basic variable home loans	6.36%	6.41%	$252,194
Difference	-0.45%	0.14%	$6,556

Source: RateCity.com.au, excludes packaged home loans

*Based on comparison rate for a $250,000 home loan over 25 years

Michelle Hutchison, Spokesperson for RateCity, said introductory rate home loans generally end up costing borrowers more because they have a much higher revert rate compared to the average standard and basic variable home loan rates in RateCity’s database.

“Some borrowers, particularly first home buyers, are attracted to introductory home loans because they appear to be a cheaper option for getting your foot through the door of the property market with their reduced interest rates at the start.

“While they may save borrowers a small amount of money in the first year, most intro home loans revert to a much higher rate and then end up costing borrowers more money over the life of the loan,” she said.

Many packaged home loans are also marketed by discounts rather than the actual interest rates, according to Ms Hutchison.

“Most borrowers with the major banks are believed to be in packaged home loans, where borrowers pay a higher annual fee, often between $350 and $400, in return for a discount for the life of the loan. Often fees on other products such as credit cards and transaction accounts are also waived.

“While home loan packages can be good value for some borrowers, higher discounts are generally only given to borrowers with bigger loan sizes often over half a million dollars, and in some cases are also restricted to larger deposits.

“That’s why it’s so important to compare home loan comparison rates rather than the size of a discount. Comparison rates are a more accurate way of finding out how much a home loan will cost because it takes into account the loan size, upfront and ongoing fees and averages out the interest rates over the life of the loan.”

How many more apartments can we build?

The perception that our cities are turning into mini-Manhattans given the high-rise apartment projects in our CBDs and city fringe is untrue, according to the results of the 2011 census. 

Sydney leads the way to apartment living

Greater Sydney remains the apartment capital of Australia. More than a quarter of greater Sydney residents (25.8%) live in this type of dwelling, and this proportion is virtually unchanged over the last 5 years.

Apartments as a percentage of the total housing mix in greater Melbourne have in fact fallen as a dwelling type from 16.1% in 2006 to 15.3% in 2011 despite the total number of flats and units rising from 217,836 to 219,111 during this period.

According to the census, 11.7% of greater Brisbane residents live in flats, followed by Adelaide (10.4%) and Perth (9.1%).

If we compare this to the number of people living in apartments in other major capitals around the world, you can see that we have a long way to go to catch up.

Our lifestyles are changing

For generations backyards, barbecues and big houses have been the norm for Australian homeowners, but that’s all changing and now as our lifestyles are changing there is evidence of a growing preference toward apartment-style accommodation in Australia.

Since more of us are swapping our backyards for balconies, apartments are my preferred style of residential investing today.

A 2012 report from the Grattan Institute aptly entitled The Housing We’d Choose, indicates a growing preference toward apartment-style accommodation in Australia. The study found that Australians want more apartment-style housing and are moving away from detached housing.

The report found we’re not building enough of the type of accommodation more and more people want. It suggests there are potentially thousands of tenants and home buyers out there who simply cannot find the type of accommodation they are seeking in the places they most want to live.

Over the years our perception of townhouse and apartment living has changed.

Where once we saw medium- and high-density developments as “slums” intended for lower socio-economic classes, in the last 20 years or so apartment living has become the practical and trendy alternative, in particular sought after by young, upwardly mobile professionals.

What of the future?

Today, the inner suburbs in our capital cities built out and the cost of constructing new apartment buildings is prohibitive – land costs more, construction costs have increased, and town planning regulations mean it’s much harder and more expensive to build new apartment complexes.

The skyrocketing cost of new construction means that the values of established apartments are being pulled up to maintain the price differential between established and new apartments.

Apartments make great investments

With the number of Gen Y’s looking for accommodation continuing to rise, rental demand for near city and inner suburban units and apartments will grow significantly in the coming years. And our old friend the supply and demand equation will ensure that rents for these types of properties keep rising, as will their values, as higher yields will entice investors back into the market.

Today apartments make great investments and in general appreciate in value equally, if not more, than houses in our capital cities and interestingly during the recent property slump apartments held their value better than houses.

And this trend is likely to continue as it’s about much more than affordability. As I’ve already explained, significant changes in our population profile and lifestyle priorities are creating a strong demand for apartment living.

Today, our lifestyles are vastly different to those of our parents. We’re working longer, we’re increasingly time poor and we’re starting families much later in life. This means proximity to work, transport, entertainment, cafes, shops and beaches is becoming more important than owning a piece of land. At the same time apartments are continuing to improve in design and size and are generally closer to the CBD than affordable houses.

It should be fairly obvious that more single households, smaller families and the impact of the baby boomers downsizing will continue this trend in the long-term. People are getting married later in life and apartments suit their busy lifestyles; and when a baby comes along, they will often stay in their apartment or buy a bigger one in the same location.

Case Study of a great investment

Here’s an example of a great apartment we bought for a client as an investment:

This 2 bedroom apartment is located in Summer Hill, a primarily residential suburb of the Inner West region, adjoining two of Sydney’s major arterial roads, Parramatta Road and Liverpool Road.

Despite formerly being working class, Summer Hill and many of the surrounding suburbs have gradually undergone gentrification over recent years. It features a mix of federation-era houses, as well as medium density apartment blocks near the railway station.

This great 2 bedroom apartment will make a first class long term investment for our client who secured it at an excellent price and a strong yield.

This is the type of property that has a level of scarcity, meaning it will be in continuous strong demand by owner occupiers (to keep pushing up the value) and tenants (to help subsidise the mortgage); bought in the right location (one that has outperformed the long term averages), at the right time in the property cycle and for the right price.

Demand for Sydney apartments drives up rents

Rents for units in Sydney have surged over the June quarter as demand continues to increase for apartment style living over the typically more expensive housing option.

According to Australian Property Monitors (APM) the median weekly asking rental for Sydney units rose by +4.4% over the quarter to $470. Unit rents in Sydney are now approaching those for houses, currently at $500 a week after a flat quarter and largely flat over the previous year.

Increasing demand by tenants for Sydney apartments reflects growing interest for this type of accommodation that typically is located closer to the CBD and provides more established urban infrastructure. Sydney’s rental market remains highly competitive for prospective tenants with low vacancy rates being recorded in most areas.

By contrast rental growth in Melbourne and Brisbane has remained flat over the June quarter, with Brisbane unit rents falling by -1.4%.

Brisbane’s current median weekly asking rents at $380 for houses and $360 for units are higher than those in Melbourne at $360 for houses and $350 for units.

According to APM Melbourne remains the most “tenant friendly” market of all the mainland capitals with rental growth for both houses and units having been subdued for some time. With comparatively high vacancy rates in most areas and a glut of new apartments in the pipeline and a slew of vacant properties in the outer suburbs as over zealous builders delivered too many new house and land packages, this is expected to continue.

There is also concern of a looming oversupply of apartments in the inner-Brisbane market, where there are more than 40 projects in various stages of development.

In Perth, median weekly asking rentals have risen markedly over the June quarter with house rents up by +7.5% to $430 and unit rents up by +8.6% to $380.

These rises will likely continue with Western Australia’s population set to grow by over 3% in 2012 placing upward price pressure on a Perth rental market already characterised by a shortage of accommodation.

Other capital city markets have largely recorded benign results over the June quarter although Adelaide house rents rose by +1.2% over the quarter to $340, while Canberra unit rents rose by +2.3% to $440.

Canberra continues to track Sydney’s rental growth indicating a tight rental market with similar high rents.

Although Darwin recorded significant rental growth for both units and houses over the June quarter, much of this can be attributed to seasonal effects that are characterised by extreme quarterly fluctuations typical of this market.