Government urged to make first home buyers a priority

One of New South Wales’ peak real estate bodies believe the state government should be doing more to address affordability issues faced by first home buyers.

The Real Estate Institute of New South Wales (REINSW) believes the Baird government should “put the interests of first homebuyers at the top of its agenda” and has called for stamp duty concessions for those buying their first home.

The REINSW is lobbying for the NSW government to provide first homebuyers with a 50 per cent reduction in the stamp duty on a purchase of a residential property less than $1 million and provide the ability to pay the stamp duty over time.

“Home ownership is not only something that individuals should aspire to, it is also something that government should foster and encourage as a means of building wealth and providing for a person’s care post-employment,” REINSW president John Cunningham said.

“Not supporting first homebuyers, is to say the least short sighted and creates the risk that our best and brightest will be enticed to other states where the dream of home ownership can be a reality,” Cunningham said.

But while Cunningham and the REINSW believe the government should be “providing a pathway” for first home buyers, others believe those starting out may need to temper their expectations.

“The younger generations tend to have this perception that they can get the greatest and the best when they buy their first property and they just need to scale their expectations,” Rich Harvey, chief executive officer of said.

“You can’t always buy the most brilliant, beautifully laid out house with the perfect floor plan for your first home because that will be unaffordable. It’s a question of compromise and getting your foot on the first rung of the property ladder and then moving up from there,” Harvey said.

While some areas and property types may very well be out of the reach of those looking for their first home, Harvey said coverage of record price growth in markets such as Sydney and Melbourne distort people’s view of prices elsewhere.

A lot of people want to buy where their parents live. If you’ve grown up in a blue chip suburb, somewhere like Mosman then you might not be able to afford the median price of $2.8m and you might have to set your sights further afield.

“The median house price in Sydney is $1m and it’s around $750,000 in Melbourne and that definitely creates a perception that property is expensive everywhere, but there’s lots of options.

“[For Sydney] you have Newcastle and Wollongong as your satellite suburbs north and south. The outskirts of Melbourne have some cheaper options and Brisbane also presents some great options.”

While not in favour of subsidies for particular segments of buyers, Harvey believes there sre steps policy makers could take that would result in a more fluid property market.

“I’m not a big believer in subsidies. They tend to distort the market and I think it’s better if the market can work itself out.

“Overall I would like to see stamp duty lowered, not just for first home buyers, but for all people. It’s an impediment to property trading.

“If you had lower stamp duty then the older generation may consider downsizing and putting up older housing stock for sale and presenting more options for people to buy.”

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APRA figures show decline in investor, high risk lending

The effectiveness of the Australian Prudential Regulation Authority’s (APRA) investor lending intervention has been further illustrated by the release of lending figures by the watchdog for the March 2016 quarter.

According to analysis of the APRA figures by CoreLogic RP Data, at the end of March there was $906.7b worth of mortgages outstanding to owner occupiers and $501.3b outstanding to investors, with total lending up 8.7% compared to March 2015.

The average outstanding mortgage balance was recorded at $251,900 at the end of March 2016, having increased by 4.8% year-on-year.

While total lending is up by a relatively significant mark over the year, investor lending has risen by just 0.1% in the 12 months to March 2016 while owner occupier lending has jumped 14% over the same period.

At the end of March the value of investor outstanding investor loans was 3.2% below the peak levels reached in June 2015 and investors accounted for 35.6% of outstanding loans, down from the peak 39% also recorded in June 2015.

Over the March 2016 quarter alone, there was $81.7 worth of new mortgages written, which is the lowest quarterly total since the three months to March 2014.

Of that, $25.7b was issued to investors which is 25.5% lower than the value of new investor lending in the March 2015 quarter and is the quarterly value of new investor lending in three years.

New lending to owner occupiers was 16.1% higher in the March 2016 quarter compared to the March 2015 quarter.

CoreLogic research analyst Cameron Kusher said the figures show investor demand for finance has moderated, however that could change now that lenders are meeting APRA requirements.

“The data indicates that there has been a significant pull-back in new lending to investors over recent quarters,” Kusher said.

“The data also indicates that investor credit growth now sits significantly below the APRA imposed 10% pa speed limit.  This could lead to a rebound in lending to investors over the coming quarters,” he said.

 While lending to investors may bounce back, Kusher said the actions taken by lenders in response to APRAs desire to rein in investor lending have had some benefit, with higher risk lending practices seemingly on the decline.

“Interest-only lending which APRA and the Reserve bank have previously sounded warnings about is also starting to fall and is now at its lowest level since March 2013.  Higher LVR lending which is associated with smaller deposits are also trending lower which indicates less risky lending,” he said.

“The added benefit surrounding lower LVRs is that if a borrower has a deposit of more than 20% of the value of the property they can typically avoid lenders mortgage insurance (LMI). 

“These emerging trends can only be positives for the stability and security of the Australian mortgage lending market.”

According to the APRA figures, the value of new lending for loans with LVRs above 90% fell 22.8% over the year to March 2016 and is at its lowest level since the March 2011 quarter.

Lending for LVRs above 80% represented 22.4% of all new lending in March 2016 which was its lowest proportion on record.

In the March 2016 quarter 34.9% of new lending was on an interest only basis, however value of new interest-only lending was the lowest since the March 2013 quarter.

Mortgages with offset facilities account for a record-high 43% of all outstanding mortgages at the end of March and the value of these mortgages has increased 20.4% year-on-year.

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“No doubt” around Sydney oversupply concerns

While concerns about oversupply have been raised in the past about Sydney’s inner city suburbs, one market researcher believes the issue is much more widespread.

According to analysis by market researcher and buyers’ agency Propertyology, 18 of Sydney’s 43 local government areas currently have a property supply pipeline that is 100% higher than historical averages, while another 10 Sydney LGAs have a pipeline of supply that is 50% above what is needed.

Propertyology’s figures claim the average number of new dwellings approved in Greater Sydney each year for the 10 years ending 2011 was 22,555, while in the four years from 2011 – 2015 approvals have averaged 38,225 per annum.

Simon Presseley, market analyst with Propertyology, said Sydney’s current supply pipeline is out of sync with demand.

“Sydney is about to enter new territory. Its average annual population growth rate has consistently hovered around 1.6% but supply is really ramping up – things are out of sync,” Presseley said.

“The trend is not abating either. A further 51,106 dwellings were approved in 2015,” he said.  

“The official data analysed by Propertyology leaves us in no doubt that several pockets of Sydney will become over-supplied.”

Pressley said economic conditions in Sydney will help its property market retain some strength; however some owners should be ready to see price falls, especially in areas of dense development and where foreign investors are prominent.

“The significant increase in property holdings to Asian investors does pose some risk if significant destabilisation in Asian economies were to occur” he said.

“We know that, when times get tough, investment properties are often one of the first assets disposed of in order to bring the household budget back in order. High levels of resale stock never plays out favourably on property prices.

“Some off-the-plan buyers with settlements due in 2017 and 2018 also risk losing their deposit as a result of tighter credit policies subsequent to the initial exchange of contracts or lower valuations in some of the potentially over-supplied pockets of Sydney.”

While Presseley believes there is a looming oversupply issue for Sydney, not everybody is so sure the city will see the tens of thousands of new dwellings predicted for city actually appear.

Mark Mendel, chief executive officer of off the plan property marketing firm iBuyNew, believes approval numbers often skew people’s perception of the supply pipeline.

“A lot of developments actually aren’t proceeding. While there might be a very high number of approvals, a lot of developers are struggling to get the finance they need or the presales they need because the banks keep moving the goal posts,” Mendel told Your Investment Property.

“So what you’ll find is that while there are a lot of approvals in place, a lot of those developments won’t happen. People should be looking at project starts, not approvals,” he said.

Mendel isn’t the only one who believes oversupply concerns for Sydney may be overblown, with Domain Group senior economist Andrew Wilson saying conditions are still stable in the city.

“If we look at unit prices versus house prices [in Sydney], you can see they’re clearly tracking each other. It’s the synchronisation of the macro drivers of those particular sub markets. If we saw units behaving differently to houses it would mean we had a structural disconnect, not a cyclical disconnect,” Dr Wilson said at the Mortgage & Finance Association of Australia Broker 2020 Conference last week.

“Units are operating in the same cyclical environment as houses. If we had an oversupply we would see a differential in that market, but we don’t. If I showed you the Brisbane model of this you would see that has a clear disconnect. There is an oversupply of apartments in Brisbane and it is pushing prices down and that is a structural disconnect,” he said.

“The Sydney market, clearly on the price data, doesn’t have that same relationship.”

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First home buyers languish at ‘record-low levels’

First home buyers continue to “languish at near record-low levels” as wages grow at their slowest pace in almost 20 years.

Looking at wages growth between December 2008 and March 2016, data from CoreLogic RP Data shows that wage growth has been less than half that of cumulative house price growth over the same period.

Nationally, wages have increased by 23.4% between December 2008 and March 2016, whilst home values have increased by 51.7% across the combined capital cities. Wages are now growing at their slowest pace in at least 18 years, according to CoreLogic RP Data.

CoreLogic RP Data research analyst Cameron Kusher said this is particularly noticeable in New South Wales and Victoria. 

“While the increases highlighted include strong wage increases in the latter part of the mining boom, nonetheless, it shows that in NSW and VIC wages are increasing at a much slower pace than home values in Sydney and Melbourne are,” he said.

House prices in Sydney have growth by 80.2% over the period whilst wages in NSW have increased by just 23%. In Melbourne, home values are up 67.8% whilst wages in VIC are up just 23.6%. 

However, Kusher said this is having the most profound effect on first home buyers. 

“While lending to owner occupier first home buyers has fallen, lending to investors and subsequent buyers has increased in most states and territories with substantial rises in NSW and VIC,” he said.

“Those that do not yet own a property will struggle to compete with investors and upgraders who have been active in the market and where significant equity has been acquired.”

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Tax hikes to have “zero effect” on property market

While the idea of higher property taxes for foreign buyers of Australian real estate has been criticised by many, one member of the Australian real estate industry has come out in favour of the practice.

Earlier this year the Victorian government announced foreign buyers of residential real estate would face higher stamp duty and land tax rates and it is believed the New South Wales government will make a similar announcement in its upcoming state budget.

From 1 July, stamp duty in Victoria for foreign buyers will increase from 3% to 7% and the land tax rate will increase from 1% to 1.5%. The NSW government is expected to lift its land tax rate to 1.5% for foreign buyers.

Concerns have been raised that the tax hikes would put NSW and Victoria among the most restrictive jurisdictions in the world for foreign real estate investors, but Mark Mendel, chief executive officer of off the plan property marketers iBuyNew, believes the higher tax rates will do little to stop the flow of foreign money to Australia and believes the NSW government should tax foreign buyers further.

“In Victoria they had [stamp duty] at 3% [for foreign buyers] and it had zero effect on the market and they’re now raising it to 7% and it will probably have zero effect,” Mendel told Your Investment Property.

“So I think we could have an expectation in New South Wales that a surcharge of 3% would have no effect on the market,” he said.

Critics of the plans believe the economy could suffer if foreign investors direct their attention elsewhere, but Mendel believes the tax increases will prove to be a benefit for the state governments and the public.  

“[Foreign investors] buying a property obviously helps the economy in terms of the construction and keeping people employed. But why not have them put a bit more money back into the communities where these developments are being built?” he told Your Investment Property

“A lot of foreign buyers may not be living here. They’re either just moving their money her for their kids or political stability. So if they paid a bit more tax the local community would get the benefit of the development but also the benefit of parks and other facilities, which let’s face it a lot of communities really need and the government needs to find a way to fund it.”

Those opposed to the idea of the tax increases have pointed to the fact that they have been proposed at the same time many Australian banks are closing their books to foreign borrowers, but Mendel believes that practice is likely to only be temporary and will have little impact on the market.

“There’s a lot of talk at the moment about the restrictions on lending to foreign buyers. Based on what we’ve seen in the past whenever there’s a lending policy change, it’s normally something that’s short lived because the banks get scared when they start to lose business.

“If you look at Westpac now, they’ve reintroduced 90% LVRs for investor loans because they were losing business, simple as that. While there’s talk about it today, in six months’ time there will be probably be change in policy and start accepting foreign borrowers again.”

Non-major lender AMP became the latest to restrict lending to foreign buyers, last week telling brokers that it has classified non-resident borrowers as an “unacceptable borrower type.” 

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New home sales falter

The sale of new homes in Australia has moved past its peak according to figures released yesterday.

After increasing in March, the latest New Home Sales Report from the Housing Industry Association (HIA) has revealed that new home sales declined 4.7% during April.

The monthly fall was driven by a fall in sales across all dwelling types, with detached sales down 3%, while multi-unit sales fell 10.8%.

Source: HIA

While the cycle’s peak may now be in the rear-view mirror for the residential construction industry, HIA economist Diwa Hopkins said the slowdown will not be dramatic.

“The trend in new home sales reiterates that the peak for the cycle has passed, but the descent we’re now observing is very mild,” Hopkins said.

“This signals the potential for very healthy home construction activity throughout 2016, much as we have been anticipating,” she said.

Hopkins said the immediate outlook for the industry fits with long-term forecasts, with larger impacts to be felt in the apartment sector.

“This overall trajectory of total new home sales is consistent with our long-held expectations for new home building activity.

“Our forecasts reflect an expectation that a modest decline in new home building in 2016 will be largely driven by a decline in multi-unit construction, following the successive record levels that occurred in 2015 and 2014.”

In the month of April 2016 detached house sales declined in four of the five mainland states: Western Australia (-19.8%); New South Wales (-8.1%); Queensland (-7.8%) and South Australia (-1.3%). Only in Victoria did detached house sales increase (+14.3%).

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Negative gearing, CGT changes would not destroy house prices

The rate of house price growth would only slightly moderate if the Labor Party was to win the upcoming federal election and subsequently alter negative gearing and the capital gains tax (CGT) discount.  

According to modelling of the plans, which would see negative gearing restricted to new builds only from 1 July 2017 and reducing the CGT discount to 25%, by the McKell Institute, Labor’s changes would have only a minimal effect of prices.

In relation to negative gearing, the McKell modelling claims house prices across Australia’s capital cities would grow at a compound annual growth rate of 2.6% from 2017 -2026 if the Labor proposal was introduced.

If the current arrangements were retained, house prices would grow at a compound annual growth rate of 3.09% over the same period.

While those opposed to the changes have claimed Labor’s plans for negative gearing will devastate house prices, the McKell Institute claims the grandfathering of investors who have purchased property prior to 1 July 2016 will prevent any major collapse.

“The long term effect will be that this policy will moderate demand for existing homes and lift demand for new homes. The increased new supply will ensure rents remain stable,” the McKell Institute research said.  

“Grandfathering existing negatively geared homes will ensure the housing market remains stable during the transition phase.”

The McKell modelling assumes Labor’s negative gearing policy would increase housing supply by 10% per year.

The modelling predicts that Labor’s plans to cut the CGT discount in half would have a similar effect on house prices.

“The reduction in the CGT discount will result in higher tax liabilities on investor owned property which may result in a long term effect that marginally reduces demand for homes with higher expected capital gains (although homeowners are left unaffected),” the McKell Institute research said.  

“The result will be to moderate future house price growth. Grandfathering the discontinuation of the CGT discount will ensure a smooth transition without any sudden changes to prices. As such, we estimate a 0.5% reduction in housing price growth per year from the discontinuation of the CGT discount.”

While the modelling suggests house price growth will be slightly subdues if Labor was to implement its plan, the McKell institute believes the changes will be of a benefit to home buyers and investors.

“These findings demonstrate that the proposed changes will have a positive effect on housing affordability, while ensuring current investors in the housing market still see a long-term increase in the value of their existing investments in a de-risked and more stable investment environment.

“The results disprove certain suggestions that the proposed changes would have a dramatic impact on house prices when introduced in 2017 as proposed by the Federal Opposition.”

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Regional WA starts the year strong

Western Australia’s regional market has carried the torch for the state over the first three months of 2016.

After seasonal conditions saw the WA regional markets perform poorly over the December 2015 quarter, the three months to March 2016 have been a different story with figures from the Real Estate Institute of Western Australia (REIWA) showing regional house, unit and land markets outperformed their metro counterparts.

“It’s really pleasing to see that regional WA’s overall median price lifted 1.3 per cent over the quarter, and looking at houses, units and land individually, there was notable growth in all three areas,” REIWA president Hayden Groves said.

“In particular, units experienced the biggest quarterly growth in median price, lifting six per cent. This can mostly be attributed to the Mandurah-Murray region which saw its median unit price improve significantly to $390,000 over the quarter, from $320,000 in the December quarter 2015,” Groves said. 

Source: REIWA

In comparison, REIWA’s figures for Perth over the March quarter show the metro market was much more subdued over the three-month period, with house and unit prices pulling back slightly when compared to figures from the December quarter.

In terms of house prices, Bunbury was regional WA’s best performing sub-market over the quarter.

“Bunbury in the state’s South West saw the biggest increase to its quarterly median house price in the March quarter, lifting 5.6 per cent to $395,000,” Groves said.  

“Bunbury also saw an improvement in house sales activity over the quarter, with volumes increasing six per cent in the first three months of this year.”

House prices also increased over the quarter in Northam, up 4.3% to $245,000, Albany Urban Area up 2.7% to  $386,000,  Kalgoorlie-Boulder up 2.6% to $340,000 and Mandurah-Murray region up 1.9% to $396,000.

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Slight clearance rate dip on fourth busiest auction week of 2016

Australia’s national auction clearance rate looks to have moderated slightly last week as the market had one of its busiest weeks for the year.

Early figures from CoreLogic RP Data put the preliminary national clearance rate at 68% for last week, down slightly from the previous week’s final result of 68.9%.

Last week saw 2,419 auctions held across Australia’s capital cities, making it the fourth busiest week for 2016.

The corresponding week in 2015 saw 2,792 auctions held, with the national clearance rate being recorded at 78.5%.

Sydney was home to the strongest clearance rate last week, with the harbour city’s preliminary rate currently sitting at 75% after it held 773 auctions.

The previous week saw Sydney’s clearance rate finalise 73.2%.

The Eastern Suburbs was the best performing Sydney sub-region last week, with its preliminary clearance rate at 91.9%, followed by North Sydney and Hornsby at 83.3%.

Melbourne was the busiest market last week holding 1,157 auctions, with its preliminary clearance rate coming in at 70.8%,

So far that is relatively steady compared to the previous week’s final result of 70.8%.

Melbourne’s top performing sub-region for the week was the Outer East with a preliminary clearance rate of 78.3%.

Preliminary results in Brisbane show a clearance rate of 40.2% across the city last week, compared to 50.9% last week and 48.0% at the same time last year.

Last week saw the Queensland capital hold 190 auctions last week, up from the 131 it held the week prior.

Last week saw Adelaide hold 122 auctions and return a preliminary clearance rate of 52.6%.

That figure is down from the final clearance rate of 68.8% from 92 auctions recorded in Adelaide a fortnight ago.

Canberra held 107 auctions last week, which was the city’s busiest week since mid-March and the third straight week Canberra has held more than 100 auctions.

Preliminary results show 64.4% of Canberra auctions were successful, down from 67.2% the week prior.

Perth’s preliminary clearance rate currently sits at 50%.

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Investors should take inspiration as property dominates BRW Rich List

The 2016 BRW 200 Rich List should serve as inspiration to all real estate investors across Australia.

Released last week, more than a quarter of this year’s list was individuals whose wealth was accumulated through property, including Meriton Group Owner Harry Triguboff who claimed the top spot with a personal wealth of $10.62b.

Frank Lowy (No.3/$8.62b), John Gandel (No.5/$5.4b) and Hui Wing Mai (No.6/$5.39b) also all featured in the list’s top-10 thanks to their property decisions, while Stan Perron featured at number 12 with a total of $2.88b.

In total, 54 people on the list generated their wealth through property, followed by the retail industry (24) and other forms of investors (23).

While not everybody will reach the financial heights of those who feature in the BRW list, Lindy Lear, general manager of Rocket Property Group, said there is no reason the everyday property investor shouldn’t sell themselves short in the goals they set.

“People set realistic goals on what they think they can do. They think this all I’ve got now, so I’ll set my goals on that, whereas what we teach them is to set the unrealistic goals,” Lear said.

“[Rocket Property Group founder] Ian [Hosking Richard’s] favourite saying is that it’s not about your resources, it’s all about your resourcefulness. If you’ve got a goal it changes your thinking, you think ‘what do I have to do to get that goal,” she said.

“Suddenly you become very resourceful and opportunities or ways of getting started will appear before you.”

Lear said setting an ultimate goal, no matter how unlikely achieving it may be, is one of the key steps all investors need to take.

“People very much underestimate themselves. They’re usually paralysed by fear of making a mistake so they never get started,” she said.

“People are so fearful that it’s too risky, they might not get a tenant or something like that, that they never get going. But I’d be more fearful of doing nothing and having nothing to show for it 10 or 15 years’ time.

“We’re not all going to be multi-millionaires or billionaires, but to me goals are everything and you need to have a picture of what you want. My goal is to leave a legacy for my children and that’s what drives me.

“Everybody is building a portfolio for a reason. Usually investors will talk about passive income or being able to retire in so many years. But there’s something else that will drive the successful people to reach higher and that’s what these 200 people on the [BRW list] have and they’ve used property as a vehicle to achieve that.”

While setting an ultimate goal for yourself is an important step, Lear said it’s also important that investors don’t allow naysayers to stifle their ambition.

“People will often get buyer’s remorse after speaking to friends and family and convince themselves they’ve made the wrong decision.

“Some of our most successful investors don’t want anyone else to know for that very reason. They want to keep it private, they don’t tell other people because they know they’ll got ‘oh what did you do that for?’ or ‘you’re stupid, you’re going to lose all your money.’”

“Friends and family will often do that from a place of concern, but they don’t realise the impact it can have on people. We’ve had people who have reversed their decisions based on fear given to them by people who know nothing and have no expertise around property.”

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