THE UNKNOWN – PROPERTY AND 2021

The great pandemic of 2020 has created more questions than answers, I’d like to look at how it affects property.

We have seen the world brought to ground by the isolation and closing of borders.  In Australia we are in the enviable position of being an isolated country with a good government which has provided protection against this and potentially future 1 in 100 year pandemics.

By isolating ourselves and bringing home our traveling expats, we have created a cocooned economy that needs to become internally reliant.  With our wealth now circulating throughout our own borders, the economic impacts appear to be moderating.

I know that isolation will cause many areas within our economy to suffer through the next few years. Industries that have relied on overseas travellers and immigration continue to be hard hit, although there is some relief cushioned by the homegrown factor.

The Australian property industry has traditionally benefited in the past from immigration and overseas investment. There is evidence that it is now being supported by an increased demand from returning expats.  Together with lower interest rates and government incentives, there is strength in the residential property market for freehold houses and townhouses. 

The industrial property market is being strengthened through the new home-grown businesses. These are developing as result of the current uncertainties causing former employees moving into small business opportunities.

The office market in contrast, is suffering, as “work-from-home” has become an attractive option with increased vacant offices. It has created a balance of family/work-life for the employees and cost savings for the boss.  My view is that the full impact on the market, especially on institutions, investors and superannuation firms (who are major investors in this type of property), is still unclear .

Currently I can see that apartments and units are the hardest hit of all of the markets.  This sector is now suffering from years of over-development, poor construction, loss of immigration and the lack of overseas student demand.  It is likely that the volume of projects under construction and ready for commencement may result in subdued pricing over the next three years.  I am already seeing the cracks appear with many prominent apartment builders currently under the microscope.

The retail market, already suffering from the online shopping bonanza, has seen many smaller enterprises and shops closing through inefficiencies the pandemic has now highlighted.  How this sector will develop over the next few years remains unclear. 

The next two years require caution with a moderate sense of optimism.  The isolation of countries and economies should redistribute the real wealth on this planet. The new world has realised that it is not impervious to external threats, with a need to recede to a place of certainty and safety seen as valuable.  Globalisation and open economies have created problems outside our control making us reconsider our lifestyle choices. 

Australia controls so many resources including a food supply that can satisfy twice our population. This, together with ocean borders, results in a truly safe place to live. I consider Australia has the environment where the reliance on necessities does not need to be satisfied by other countries.

Much of our wealth lays in the property we own.  Our property is fast becoming the envy of many in the world, who now look at Australia as truly the lucky country.  I think this demand for security and safety has become more attractive as the world comes closer through travel times and the internet. 

I know from people around me that pandemic has change our lives. It has shown that most of us do not always need to leave home to be happy and productive. A balanced life can be truly, more enjoyable. 

COMPULSORY ACQUISITION IS A COMPLEX GAME!

As the government pushes forward with its current metropolitan changes and strategies, Sydney is undergoing a monumental period of land and property acquisition.

Road and transport networks are needed to assist in the metamorphosis to Sydney’s Three Cities plan with the Department of Transport leading an unprecedented amount of property acquisition plans across the city.   Large projects such as the Light Rail systems, Northconnex, Metro west and south west tunnelling together with the Northern Beaches link are only some of the projects likely to affects Sydneysiders over the next five years.

As the Government pushes forward it will have a direct affect on many property owners and occupiers requiring relocation of homes and businesses.  Are you prepared? Do you have the right tools and advice?

Changes in the Land Acquisition (Just Terms) Act 1991, as a result of the review by David Russell and Michael Pratt, changed much of the landscape in the acquisition process.  It resulted in changes in the legislation and methods for notification providing a better timeframe for decision making.

Understanding the acquisition process and your rights through the Act are critical in formulating strategies and an effective approach to compensation.  Do you know your rights regarding the extent to which you are protected under the Act and the situations where compensation is and is not available. 

As each matter is individual, all acquisition and statutory procedures require specialist legal and valuation advice.  It is important that you seek out those who are proficient and have the experience in these matters.

Written by Peter Karvon
Senior Valuer (KPP)

“Dead Cat Bounce” Heard of it?

I was discussing the current spike in the real estate market with friends who have recently sold and wanted some advice on whether they should jump straight back into the market and buy.  They were concerned that the market (which has been lagging for the past few years) was spiking upward and they were afraid of not being able to buy back in.

This is a common concern for many who sell their properties, and have not bought – a practice I do not encourage to most.  I’ve always had the same advice for the majority of home buyers, which is, buy and sell in the same market, it’s a no risk policy.

Of course, this is not what they wanted to hear, they wanted my opinion on the current state of the market and what I predicted would happen. 

Crystal ball gazing is not a wise practice without some in-depth understanding of market trends and historical and empirical data, and, is always subject to risk, opinion and judgement.

As they were both adamant to hear my views I simply said “Dead Cat Bounce”.  They both looked quizzically at me before I had to explain.

I said, it’s an economic term used to describe the temporary recovery to a market that, has been in the doldrums for a period of time.  Of course they thought I was making it up until I went to trusty Google to show them what I meant.

I explained that the current spike in the market was the result of languishing supply, being snapped up by pent-up demand, and that the real number was not the Auction Clearance rates (as some would want us to believe) but the value of the sales in the marketplace.

When I showed them that the current total value of the sales in the marketplace were in fact 35% less than the sales value at the top of the market,  they seemed surprised.   I went on to explain that the volume reflected sales at the lower end of the market with a high volume around the median price which had spiked.  These factors, together with the springtime selling period were the reason for this false impression of the market.  Yes, there has been a spike but not sufficiently at this time to make me believe it was anything more than “Dead Cat Bounce”.

I’m pretty sure they both really didn’t understand my explanation and hope they buy something before too long, just not straight away. Time is on their side

By Peter Karvon

Will Banks have their revenge?

Australia’s Royal Commission into Banking has been long overdue most people would agree.  The nature of financial lending has evolved dramatically since its deregulation in the mid 1980’s.

The competition and growth of second and third tier finance providers, together with the demands from their shareholders, forced banks into areas and diversification that were, to say at the least, questionable.  The Royal Commission has now uncovered much, that many of us already knew, and that few would have ever dared criticise.

The Banks have been the Australian economy’s greatest strength and now potentially its greatest threat.

What we have is the great conundrum.

Shareholders are suing the banks whose share price then suffers to both parties detriment.  The more that is being claimed the greater their losses.

Banks now need to review all their add-on charges to consumers, which have to date supported record profitability.  So to maintain profitability will they be forced to increase interest rates on those same consumers?

With tightening credit controls, borrowers who now wish to move loans from the banks who are raising interest rates, may now not qualify under new lending requirements.

And with these new lending controls, banks will not, in the immediate future, lend at the previous capacity thereby reducing the borrowed money supply.  The main beneficiary of easier money in the past 30 years has been the property industry, which has grown and is advancing on the supply of money.  What now?

Land Tax – Is it time you reviewed your valuations?

With the property market beginning to show signs of a correction a lot of property owners will still be burdened by high land tax assessments.  The averaging system that the governments uses over a three year period provides a better outcome for collecting tax however, in a downward market with returns and values falling the average value is only partially affected.

If we consider the last three years of growing prices in property when the market values start to fall your next assessment  is of vital importance in future tax assessments.   The government valuers have ensured that their assessment for rating and tax purposes has been current and up to date, will the same be said as the market begins to fall.

Taxation on property and property holdings an ongoing burden on the property investor and ensuring that valuations are current and accurate may save thousands of dollars in the next market phase.

 

Sydney – The gap is widening!

Eighteen months ago I started gathering information from Domains property research in an effort to better understand the current market situation. I listened to many industry and financial experts discuss this information and make seriously inaccurate statements about the condition of the Sydney market place.

The discussion in property has been based around the medium prices being paid in Sydney and its unparalleled growth.  Or so it seems. The data reflected growth in medium prices.  The above data shows that the average prices have in fact fallen over the last 6 months by comparison to last year.  In fact over the last two months the difference in the average price has fallen by almost 35%.

How is this possible?

The medium price does not accurately express the value of the market place only the middle number.  In fact from figures provided by Domain the total value of sales in the last two month period were $3.2 billion whilst twelve months ago there was $4.4 Billion dollars in sales recorded.  The total number of sales in this period were almost the same – so where did the value go if in fact the medium price remained the same.

Less value in total sales within the same volume activity suggests falling prices.  With falling sales value we are seeing less money in the residential market place.

Comments by Reserve Bank assistant governor Michele Bullock last week reflected an opinion which I highlighted in a previous article.  The strength of the Australian residential market place is predicated on ownership not speculation.  The level of investment and speculation that has occurred over the past four years in the Sydney residential market place is cause for concern and this may only be the tip of the iceberg.