Andrew Bell’s Market Update: What Is The Road Ahead For Real Estate?


MARKET WRAP: Issue 17 August 18th, 2016

We are only a couple of weeks away from Spring and I am still wondering whether we are actually going to get our windy August, let alone a cold Winter. It is certainly the most mild Winter I have ever experienced on the Gold Coast in 24 years, however, it has been great for the real estate market.

Is Capital Growth Improving Confidence?

A number of new reports out that really all circulate around what is likely to happen to real estate in the time ahead.

Firstly, Core Logic showed that during the month of July the capital city dwelling values and an aggregate rose 0.8% over the month. July faced some battles, such as the election and the aftermath of the election, as well as the uncertainty that went with it. The same report showed that capital city dwelling values were 6.3% higher over the first seven months of 2016. Of course, there were differences throughout the country with the biggest increase in Sydney, where property values were up 9.1% year on year, whilst Darwin was down by 7.6%. However, clearly all the big players being Sydney, Melbourne & Brisbane were all very strong.

Growth has eased from the previous year with the combined capital city index rising 11.1%, however, a more modest growth level is very much desired, as it will avoid the risk of markets peaking any time soon due to unsustainability.

In a second report, also from Core Logic, it shows that property prices in Australia’s combined capital cities have been growing for 50 consecutive months and are at record highs. Over those 50 months, prices have surged 38.3% again on aggregate. There is no surprise there are many throughout Australia who believe it cannot continue and that a correction must be somewhere on the horizon.

Well, that takes me to another survey, which was combined research again by Core Logic and TEG Awards. This report found a significant paradox in the housing market attitudes with the large majority of respondents indicating a willingness to buy a home at the very time that others are suggesting the market may be vulnerable to a substantial correction.

The survey found that 64% of recipients believed it was a good time to buy a dwelling and that was up from 60% who felt that way a year ago. It was also the case last year that 65% also indicated they thought housing values could be exposed to a downturn. It comes as no surprise that it was Sydney based respondents that were the most concerned or pessimistic about property values. Sydney is certainly the market that has seen a significantly larger increase than any other market.

The paradox was, with such a large proportion of survey respondents thinking now is a good time to buy a dwelling that it was surprising to see almost two thirds of people indicated that they thought dwelling values could suffer a correction.

What Is The Road Ahead For Real Estate?

It certainly makes for interesting thinking. What do you think is the road ahead for real estate? I certainly think it is very geographic. Obviously, Sydney has gone up incredibly and has the biggest risks associated with it. Yet, if you look at Darwin or Perth, their property values have actually declined. No risk of overheating there. Closer to home, Brisbane has been very measured in its property values and on the Gold Coast largely we have only been recouping values that were lost through the Global Financial Crisis. There is no risk of prices over heating on the Gold Coast.

I think what people are really facing now, whether it is first home buyers, families, investors, or indeed retirees is what in fact do you do with your money? What do you do with your cash?

For most people there are only three choices – 1. money in the bank 2. money in shares or 3. money in real estate.

We know with the record low interest rates you really get nothing for putting your money in the bank. It is certainly not working for you. It is just simply a place to hold it and increasingly that is simply not enough. With a low growth economy and a wobbly world economy the stock market is as tricky as it has ever been. What is safe? What is risky? Am I actually going to get a yield? The stock market for most people requires a high level of sophistication and you can’t be assured of returns. How scary is it that you can have a CEO resign and share values fall by 30% plus. One minute you are a darling of the stock market and the next minute some Analyst has found a flaw and down goes your share value.

Is Now The Time To Buy?

Most people understand real estate. Most people know that it has been the backbone of Australia’s wealth for a century. Most people like the ideal of owning the roof over their own head and a lot of people like the fact that they can go and see the property, touch the property – it is real. Everybody knows that you can rent your property out and receive a return. Right now, with interest rates at record lows in our history, there has never been a greater attraction to borrow money for that physical property.

With forecasts of interest rates remaining at record lows for a decade or more, real estate remains the preferred option for most investors. What will limit price growth is simple affordability. Will people’s salaries or incomes support the borrowings to pay the prices that markets are looking at? This means that perhaps certain sectors of every market will not see growth yet affordable price ranges will see greater growth.

From my 40 plus years in the industry, this is indeed the most unique environment we have ever been in. One of a kind. Looking forward, and these days I only do that 12 months at a time, I believe that growth will slow in some of the stronger growth markets, in some of the markets where values have fallen they will see a stabilisation and for some markets where growth has been very low e.g. the Gold Coast where we have only returned to 2007 values if we maintain a sensible sub 10% growth we have a couple more years in us yet.

Isn’t hindsight wonderful but we can check in on all of that in a year or two time.

Last Chance To Join Us!

My last point is that we still have three tables left for our Ray White Surfers Paradise Muscular Dystrophy Charity Ball on the 3rd September. It is going to be a fabulous night, we would love to have your company if you would like to join one of the big social nights of the year on the Gold Coast Selena Carson’s details are on screen (s.carson@rwsp.net or 0410 650 185) so please give her a call and she will get all of the details to you.

Catch you in a fortnight’s time. Stay safe.

SMALLAB

Kind regards,
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group