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Investment Property Market Snapshot - February
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Investment Property Market Snapshot - February

02 Mar 2020 18 mins read

Your monthly guide to latest industry statistics and news impacting landlords and property professionals...

Asking rents up

In February, capital city asking rents increased 2.5 per cent for houses to $569 p/w, while unit rents increased 1.1 per cent to $442 p/w, according to SQM Research. Sydney, Melbourne and Perth all recorded increases in weekly rents for both houses and units. Darwin and Hobart recorded decreases in both house and unit asking rents. Brisbane recorded a decrease in house asking rents but an increase in unit rents, while Canberra and Adelaide saw the reverse. Across the capitals: Canberra ($634 p/w houses / $464 p/w units), Sydney ($707 / $502), Darwin ($454 / $371), Brisbane ($471 / $378), Adelaide ($407 / $309), Hobart ($451 / $414), Melbourne ($553 / $423) and Perth ($447 / $336).

Vacancies decline

SQM Research showed the national vacancy rate decreased to 2.1 per cent in January (down from 2.5 per cent in December). The total number of vacancies Australia-wide was 72,422. All capitals, except Hobart which held steady at 0.6 per cent, recorded decreases in vacancy rates: Sydney (down 0.5 per cent to 3.1 per cent), Melbourne (down 0.4 per cent to 2.1 per cent), Brisbane (down 0.5 per cent to 2.4 per cent), Perth (down 0.4 per cent to 2.1 per cent), Adelaide (down 0.1 per cent to 1.0 per cent), Canberra (down 0.3 per cent to 1.4 per cent) and Darwin (down 0.3 per cent to 3.2 per cent).

Yields compress

According to CoreLogic’s Hedonic Home Value Index, capital city yields compressed to 3.5 per cent in January, with combined regionals at 5.0 per cent (bringing the national median to 3.8 per cent). Sydney continued to have the lowest yield of the capitals (3.0 per cent), followed by Melbourne (3.2 per cent), Perth (4.3 per cent), Adelaide (4.5 per cent), Brisbane (4.5 per cent) and Canberra (4.7 per cent). Only Hobart (5.0 per cent) and Darwin (5.8 per cent) had yields at or in excess of 5 per cent.

Hobart remains top rental market

Figures from CoreLogic showed Hobart remained the best-performing capital city in terms of rents in January. Hobart rents were up 5.8 per cent over the year to January, the strongest growth amongst all state capitals. Rental gains were also recorded in Adelaide (+2.0 per cent) and Perth (+1.9 per cent). Across the overall rental market, rents rose 0.5 per cent from the previous month and 1.3 per cent over the year.

Investor lending continues to rise

ABS’ Lending Indicators for December 2019 showed new lending commitments for investment dwellings rose 2.8 per cent (seasonally adjusted) to $5.44 billion. While the value of loan commitments to investors rose for the third consecutive month, commitments remain lower than owner-occupiers for the purchase of resi land, construction of dwellings, purchase of newly erected dwellings and purchase of existing dwellings.

Building approvals up

The number of building approvals nationwide rose 2.1 per cent in December to 14,423 (in trend terms), according to the ABS. Approvals for private sector dwellings excluding houses rose 4.9 per cent, while approvals for private sector houses also rose 0.3 per cent. The estimate of the value of residential building rose 1.1 per cent.

Property listings rise

National residential property listings increased 2.2 per cent in January to 295,295, according to SQM Research data. All capital cities experienced an increase in property sales listings over the month: Sydney (+5.1 per cent), Melbourne (+2.7 per cent), Brisbane (+3.0 per cent), Perth (+3.2 per cent), Adelaide (+2.6 per cent), Canberra (+0.6 per cent), Darwin (+1.7 per cent) and Hobart (+4.9 per cent).

Asking prices down

SQM Research data showed capital city asking prices for houses and unit decreased 0.4 per cent in January – to an average of $973,500 for houses and $575,100 for units. Melbourne, Brisbane, Adelaide and Hobart recorded increases in both houses and units, while Sydney recorded declines in both house and unit asking prices.  

Dwelling values rise

CoreLogic’s January Home Value Index showed national housing values increased 0.9 per cent over the month – 0.9 per cent combined capitals, 0.7 per cent combined regionals. With an annual growth rate of 4.1 per cent, it was the fastest pace of growth for a 12 month period since December 2017. The median value of a home was $545,622 – $632,408 for combined capitals and $386,618 for combined regionals. All capitals saw positive growth over the month: Sydney (+1.1 per cent), Melbourne (+1.2 per cent), Brisbane (+0.5 per cent), Adelaide (+0.2 per cent), Perth (+0.1 per cent), Hobart (+0.9 per cent), Darwin (+0.1 per cent) and Canberra (+0.3 per cent).

Land demand picks up

According to the February 2020 HIA-CoreLogic Residential Land Report, residential land sales have increased 45.9 per cent from their record low in the March 2019 quarter. The report noted demand for land and dwellings have rebounded strongly from June 2019.

Top 5 fastest rental growth suburbs

According to SQM Research, the top five suburbs for fastest rental growth in houses were Bayview 2104 (up 82.4 per cent over the year to $1,178 p/w), Scotland Island 2105 (78.4 per cent / $892), Bellevue Hill 2023 (68.3 per cent / $2,594), Docklands 3008 (58.8 per cent / $1,104) and Terry Hills 2084 (51.4 per cent / $1,110). For units the top performers were Stradbroke Island 4183 (170.8 per cent / $975), The Gap 4061 (67.6 per cent / $689), Glen Huon 7109 (61.4 per cent / $360), Berowra Waters 2082 (49.7 per cent / $509) and Virginia 4014 (47.0 per cent / $294).

Highest yielding localities

SQM Research also revealed the five highest yielding localities for houses across the capital cities: Parkville 3052 (yield of 7.7 per cent), Redbanks 5502 (7.0 per cent), Davoren 5113 (6.7 per cent), Penfield 5121 (6.3 per cent) and Claremont 7011 (6.2 per cent). For units the top yielding suburbs were Ultimo 2007 (11.7 per cent), Hackham 5163 (8.5 per cent), Elizabeth 5112 (8.5 per cent), Bronte 2024 (8.3 per cent) and Stradbroke Island 4183 (8.3 per cent).

Price growth tipped

The latest market forecast by Domain points to gains across all capital cities over the next two years. The combined median house price across all capital cities is expected to increase by 8 per cent this year and by up to 7 per cent in 2021. For units, prices are expected to grow 6 per cent this year and up to 5 per cent next year.

According to the latest forecast by NAB Group Economics, overall property price growth in Australia will hit 4 per cent in 2020, before slowing down to 2.5 per cent in 2021. ANZ has also revised its growth forecast upwards and now expects house price growth nationwide to hit 8 per cent this year, with a further gain of 4 per cent in 2021.

Housing market moves in positive direction

According to CBRE’s 2020 Market Outlook report, strong price growth is returning to residential markets, especially for Sydney and Melbourne. The report indicates there is the possibility of this leading to an overflow of people moving to more affordable capitals, such as Brisbane in particular. “With the cost of debt low and lending volumes starting to turn, it is predicted that investors will return,” CBRE noted.

Vendor happiness rises

The Price Expectations Report from RateMyAgent found 41 per cent of vendors around Australia were satisfied with the sale of their property in December 2019, up from 20 per cent a year earlier. Vendors in Victoria (55 per cent) were the most satisfied, followed by those in Tasmania (51 per cent), NSW (50 per cent) and the ACT (48 per cent). By comparison, the least satisfied vendors were located in SA (42 per cent), Queensland (38 per cent) and WA (33 per cent).

Investors optimistic

According to the ME Bank Household Financial Comfort Report, 51 per cent of investors have an optimistic outlook for resi property prices, revising up price expectations for 2020. Just 10 per cent anticipate prices will fall. Investors in Brisbane (67 per cent) were the most optimistic about higher property prices, followed by Sydney (51 per cent) and Melbourne (45 per cent).

Investors urged to hold

Investors with property in Brisbane, Gold Coast, Townsville, Ipswich, Newcastle, Melbourne, Sydney, Adelaide, Perth and Darwin have been urged by the Property Club not to sell in 2020, as these markets are at the bottom of their property cycle or in recovery mode. The Property Club president noted 17.4 per cent of investors resold at a loss compared to 11.3 per cent of owner-occupiers. Research also showed that houses sold for a profit are typically held for 10 years and units for 8.8 years .In contrast, house owners that sold at a loss typically held their property for 5.8 years and unit owners for 5.7 years on average.

Future investment hotspots

Research from InSynergy Property Wealth Advisory found Brisbane, Adelaide, Canberra, Perth and the Sunshine Coast were locations most likely to see strong price growth in 2020. Each location was picked because it had strong market fundamentals which could see the markets rise between 80 and 120 per cent while also returning higher yields.

According to investment consultancy Momentum Wealth, Perth (37 per cent) and Brisbane (26 per cent), are tipped by investors as the capital cities to invest in the next 12 months.  The consultancy noted that the relative affordability and growth opportunities in both capitals were the primary drivers of continued interest in these markets. Brisbane emerged as the most popular market for investors actively seeking opportunities, while Perth was considered the capital city market with the best long-term prospects with 61 per cent ranking the location as  having the highest three-year growth potential.

Top 10 riskiest suburbs

According to RiskWise’s 2020 list of Top 10 Danger Zones, Gosford (2250) on NSW’s Central Coast is the riskiest suburb for investors to purchase property this year. An oversupply of apartments was the main criteria for the list. Other suburbs making the top 10 were Mascot (2020), Rouse Hill (2155, which took out the top spot in 2019), Darwin (0800), Surfers Paradise (4217), Fortitude Valley (4006), Adelaide (5000), Clayton (3168), Docklands (3008) and Box Hill (3128). 

Banks cut investor loan rates

The ANZ has cut its two-year investor rate to 2.88 per cent for P&I loans. The move follows the CBA cutting fixed rates for investors by 0.25 to 0.5 percentage points.

RBA holds

At the first meeting for 2020, the RBA decided to hold official interest rates at 0.75 per cent. The RBA last cut the interest rate in October, the third of three cuts in 2019 as the economy stagnated, and is expected to cut sometime this year to a record low of 0.5 per cent.

730k to move to P&I

According to data from Finder, 730,000 borrowers will convert from IO to P&I loans in 2020. The figure is based on analysis of APRA data which showed 39 per cent ($295 billion) of all home loans granted in 2015-16 were IO. The comparison site noted on the average loan of $395,000, IO borrowers would face a $3,600 increase in expenses if they move to a standard variable rate loan with an interest rate of 4.8 per cent.

RBA urges borrowers to shop around

In its quarterly statement on monetary policy, the RBA’s analysis of new mortgage rate data revealed borrowers with variable rate mortgages originated four or more years ago are charged an interest rate approximately 40 basis points higher than borrowers with newly originated loans. “For a loan balance of $250,000, this difference implies an extra $1,000 of interest payments per year,” the RBA observed. Having found that the price differential between new and outstanding variable rate home loans increases with the age of a loan, the RBA Governor said “it is worth shopping around and checking in with your lender to see if it can now give you a bigger discount”.

Investors cite finance barriers

According to research from Momentum Wealth, 38 per cent of aspiring property investors cited lack of equity or borrowing issues as factors preventing them from entering the market in the short term. The complex lending environment also resulted in 68 per cent saying they would engage a mortgage broker for their next investment loan.

Mortgage stress up

Figures from Digital Finance Analytics revealed more than 1.1 million households – or 32.8 per cent of owner-occupier borrowing households – were estimated to be in mortgage stress in January and 83,400 were at risk of 30-day default in the next 12 months.

Office vacancies fall

Data from the Property Council of Australia revealed office vacancy rates had fallen in Melbourne (to sit at 3.2 per cent), Hobart (4.1 per cent), Canberra (10.3 per cent), Darwin (16.8 per cent) and Perth (17.6 per cent) in the past six months. Rises were recorded in Sydney (3.9 per cent), Adelaide (14.0 per cent) and Brisbane (12.7 per cent). The national vacancy rate decreased marginally to 8.3 per cent, with vacancy in the CBDs remaining stable at 8 per cent. Non-CBD markets saw their strongest level of demand in eight years, reporting a decrease of 9.1 per cent in vacancy.

Globally resi rental values outperform capital values

With an annual increase of 1.2 per cent from 0.4 per cent in 2018, residential rental values fared better than capital values (increased 0.1 per cent), according to the Savills World Cities Prime Residential Rental Index. However, as with capital values, rental growth slowed in the second half of the year, with a 0.3 per cent increase, compared to 0.8 per cent in the first half. Average yields increased in 2019 as rental growth outpaced price growth, standing at an average of 3.2 per cent, compared to 3.0 per cent the previous year.

ATO advice on insurance payouts

In the aftermath of the national bushfire crisis, the ATO has reiterated its stance on the taxable status of insurance payouts for rental properties. The ATO notes that an insurance payout for a property that was used to produce income, including renting out a room, will have tax consequences, with the insurance payout amount relevant when working out capital gains or capital losses. Insurance payouts for loss of rental income, repairs and replacements must be included as income, as does any money received from a relief fund.

Demand for tradies rise

The HIA Trades Availability Index for the December 2019 quarter revealed that although the housing market cooled, skilled trades remained in short supply. In Sydney, Melbourne and Brisbane demand is “exceeding availability”. The availability of bricklayers, carpenters and ceramic tilers all deteriorated.

Updated land valuations

Land owners in NSW will receive new valuations from the office of the NSW Acting Valuer General by the end of April. The valuation reflects the value of the land only as at 1 July 2019. Overall land values across NSW decreased 5.4 per cent, with decreases recorded for residential land in Sydney and some coastal areas. Some regional areas experienced slight to moderate increases, while commercial, industrial and rural land values increased. New valuations will be made at 1 July 2020 to reflect any impact from the bushfires in affected areas.

NT introduces pets in rentals legislation

The NT Government has amended the RTA to allow renters to have pets. Tenants living in a private rental property who wish to keep a pet on the premises will need to give their landlord written notice describing the proposed pet. The landlord will have 14 days to make objections to the Tribunal. If the landlord does not apply to the Tribunal within 14 days, the tenant may keep the proposed pet on the premises. An exception applies for rentals covered by strata title laws.

NSW renters able to make modifications

NSW Fair Trading has confirmed that from 23 March tenants will be able to make changes “of a minor nature” to a rental property. If the tenant’s request for a fixture or alteration, addition or renovation is of a ‘minor nature’, then the landlord must not unreasonably withhold consent. Fair trading noted: “The tenant must pay for the fixture they install or for any alteration, renovation or addition to the property that they make, unless the landlord agrees otherwise.” The new Regulation lists the kinds of fixtures or alterations, additions or renovations of a ‘minor nature’ for which it would be unreasonable for a landlord to withhold consent.

Regions host 4.5m Airbnb guests

Online lodging platform, Airbnb, has revealed 4.5 million people booked rooms in regional Australia in 2019. In NSW, over 360,000 Airbnb guests booked rooms in the South Coast, over 240,000 visited the Hunter region and 28,000 visited the New England North West region, including Tamworth. In Queensland, over 350,000 guests visited the Sunshine Coast and over 210,000 visited Tropical North Queensland. In Tasmania, more than 75,000 visited the East Coast and more than 49,000 visited the North West region. In Victoria, more than 120,000 visited the High Country and 44,000 visited the Lakes region. It is estimated more than 260,000 Airbnb guests visited WA’s South West, and more than 14,000 visited SA’s Barossa Valley wine region last year.

Catastrophes update

The series of destructive hailstorms that struck parts of Victoria, the ACT and NSW on 19 and 20 January was declared a catastrophe by the ICA on 19 January. As at 28 February, more than 87,500 claims had been received with a value in excess of $805 million.

On 10 February, the ICA declared its sixth weather-related catastrophe in five months after severe storms and flooding lashed parts of Queensland and NSW. A week after the weather event, it was estimated more than 21,000 claims had been received – of which 90 per cent were for building damage – with a value in excess of $100 million. Most claims are for property damage caused by storm runoff, flooding, strong winds and heavy rain.

EBM RentCover policyholders caught up in the natural disasters should contact our Expert Care Team for claims assistance.

Legal corner: one PM in court for rent arrears, one fined for no registration, one gets a work order for fraud & an agency fined for bond lodgement failure

A Perth property manager has faced the Fremantle Magistrate’s Court for failing to pay her landlord $9,899 in rent. The tenant-PM claimed there was a mould problem at the $1,100 p/w property and stopped paying rent. Agents for the property are now seeking eviction and the rent arrears to be paid. A trial hearing has been set for May.

Another PM in Perth has been fined $2,000 and ordered to pay $350 in costs for falsely operating as a PM without the proper registration. The woman took money from her employer to get her RE registration certificate but never showed up for the training course and instead gave her employer a certificate with her name on it but with some else’s registration number. She was fired from the agency. Consumer Affairs noted the penalty for this office increased from a maximum of $3,000 to $25,000 in January this year.

A real estate agency director in NSW has been convicted of four breaches of the Property, Stock and Business Agents Act 2002 and sentenced to 150 hours of community service. In addition to a 12-month intensive correction order, the fraudulent dealings involving almost $100K in trust money also resulted in a $1,150 fine. The director’s real estate licence was also cancelled for four years.

A Queensland-based PM company operating in Perth has been fined $80,000 for failing to lodge eight bonds with the Bond Administrator within 14 days. The company was also convicted of eight charges of failing to maintain full and accurate trust account records relating to the dates of the bond lodgements (the records showed the bonds were lodged on time despite many of the bonds actually being lodged eight months late).

Finance industry update: New regulations for mortgage brokers

On 6 February 2020, the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers [2019 Measures]) Bill 2019 was passed. As a result, credit licensees and representatives will be required to act in the best interests of the consumer in relation to credit provision and assistance. Credit representatives will also now be required to give priority to the consumer’s interests if they are aware of any conflict between the consumer’s interests and their own interests. The act also aims to address conflicted remuneration for mortgage brokers. Any failures to meet best interests or conflicted remuneration obligations could see brokers hit with penalties of more than $1 million.

Main photo by Yoann Laheurte on Unsplash

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 661 662 if you have any questions. 

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