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Two Australian Cities That Are Defying the Country’s Housing Downturn

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Australian Cities That Are Defying the Country’s Housing Downturn

Two years ago, Sydney and Melbourne were two of Australia’s red-hot housing markets, and it seemed as if nothing could stop home values from skyrocketing. But now the party is over.

Tighter lending restrictions on housing investors introduced by the Australian Prudential Regulation Authority (APRA), Australia’s banking regulator, saw credit growth, or the amount banks have lent to from housing investors, slow to record lows. This, combined with a range of tougher regulations for foreign buyers, put the brakes on a booming housing market, hitting Sydney and Melbourne the hardest.

Australian home values fell 4.8% in aggregate through 2018, marking the weakest housing market conditions since 2008, according to CoreLogic. And uncertainty is set to continue, particularly with the opposition Labor Party promising to wind back long-enjoyed tax breaks for property investors if it wins this year’s federal election.

But buyers keen to add Australian property to their portfolios still have several options.

One is to buy in Sydney and Melbourne—the cities most popular with international investors—and suffer some further value falls in anticipation of eventual long-term growth. But this approach will take some gall, argues CoreLogic senior research analyst Cameron Kusher.

CoreLogic figures show Sydney home values fell in aggregate by 8.9%over 2018, and Melbourne values fell by 7%. Home values continue to fall, and it is impossible to predict where the bottom will be.

“Rental yields are rising [in Sydney and Melbourne] as dwelling values fall, so there may be some investment opportunities,” Mr. Kusher said. “However the expectation is that dwelling values will fall further, so for investors, it really is a question of whether you are prepared for some further declines in the market were you to purchase now.”

A second option is to look to the housing markets of other Australian cities which aren’t undergoing downturns of the same magnitude. Two worth considering are Hobart and Brisbane.

Hobart in 2018 went through a housing boom in stark contrast to every other Australian capital city. Growth in home values has eased but is still strong.

Some experts say d Brisbane is at the beginning of a growth cycle, driven by a strong state economy, high levels of inward migration and much more affordable housing prices than Sydney and Melbourne.

Hobart

The picturesque capital of Tasmania emerged as an outlier in 2018 around the time Sydney and Melbourne began posting annual declines in home values. The city underwent a housing boom in stark contrast to every other Australian capital city, with annual value gains above 10% while other cities fell.

Hobart’s growth has inevitably slowed, and is predicted to slow further due to its declining affordability and the broader woes of the Australian housing market.

But for now, Hobart’s housing market is still leading the nation in by a large margin, with values rising by 8.7% in 2018, roughly the same distance that Sydney’s market fell over the same period, according to CoreLogic figures.

Hobart’s median home price was A$457,523 (US$327,369) at the end of 2018, making it far more affordable than Sydney and Melbourne, which have median values of A$808,494 and A$645,123 respectively.

Detached houses make up the vast bulk of the housing in Hobart, with a small number of terraces and apartments in the city’s inner suburbs. Many of its homes have sweeping views, as the city slopes up from the Derwent River banks.

And while rental yields in Hobart have fallen due to the city’s steep capital growth, they are still the nation’s second-highest at around 5%. A high level of inter-state migration is keeping demand for rental properties high, supporting rental growth.

The city’s property boom has also led to a surge of development in central waterfront suburbs like Sandy Bay and Battery Point, pointing to the possibility of attractive new homes coming to the market.

Economist and prolific housing commentator Andrew Wilson said Hobart’s house prices were “almost irrationally lower than anywhere else in Australia” with a pre-boom median house price that was about a third of Sydney’s. Low interest rates and a surge of migration into Tasmania kicked off the housing mania, he says.

Those looking for quick capital gains could be disappointed. Mr. Wilson believes the Hobart market has “caught up” with other capitals in terms of pricing. Demand in Hobart will likely moderate, bringing the city’s rate of growth lower than where it has been.

However the city still has relatively good prospects, he said. He expects the rate of growth to ease but is not anticipating falls in value. Migration into Tasmania is holding up and rental properties are scarce, ensuring continual demand.

And one strong positive for Hobart is its relatively high proportion of owner-occupiers compared to Australia’s largest cities, which have much higher investor activity. This makes it less vulnerable to the credit squeeze, which is stifling investor activity in Sydney and Melbourne.

“Those markets, particularly Sydney, had a much higher proportion of investor activity,” Mr. Wilson said. “So I think Hobart isn’t exposed to the same sort of withdrawal of investor activity. Even though it’s likely to have that, it’s off a much lower base there.”

Brisbane

Brisbane—the sunny riverside capital of Queensland—didn’t take off like Sydney and Melbourne in recent years. The decline of the Australian resources boom since 2012 hit Queensland’s economy, and a more recent building boom has left the city with an oversupply of apartments. From 2014 to 2015, net migration was its lowest in 30 years, Mr. Wilson said.

But energy is now returning to Queensland’s economy. Strong jobs growth and a surge of major infrastructure projects are enticing buyers to the state once again. Inter-state migration into Queensland is now the strongest of all the Australian states, Mr. Wilson said, driving down rental vacancy rates.

Residential building is winding down, and Mr. Wilson said the city’s housing oversupply is fast being soaked up.

Brisbane home values climbed by 0.2%in 2018 according to CoreLogic, taking its median value to A$493,568. That makes it Australia’s largest city that showed capital growth in the past year.

The bulk of homes in Brisbane are detached homes, many of them iconic “Queenslander” houses built on stilts. But the city also has a large number of apartments, with the more luxurious developments offering views of the Brisbane River.

Brisbane’s rental yields are also on the rise, taking some of the burden off investors who are planning to hold their properties for the long term. Gross rental yields are hovering around 4.5%, according to CoreLogic, and that’s well ahead of Sydney and Melbourne, which are around the 3.5% mark.

These factors have led experts to predict the Brisbane housing market will be among the strongest performers. Insurer QBE, in partnership with BIS Oxford Economics, predicts in its QBE Australian Housing Outlook 2018-2021 that the Brisbane median house price will rise nearly 11% in the three years to June 2021.

Mr. Wilson argued that Queensland’s recovering economy and clear affordability advantages will bode well for the state’s housing market.

Brisbane also has a large and well-established luxury housing market that offers much more “bang for your buck” than other cities.

“For A$2 million to A$3 million you can buy something that in Sydney would cost you well over A$10 million, and in Melbourne, well over A$5 million,” Mr. Wilson said.

But property market analyst and buyers advocate Catherine Cashmore, director of Anderson & Cashmore Real Estate Advocates advises that people should be wary of apartments in Brisbane for now and stick to houses, as this is where the demand and price growth is likely to be.

“Unlike in Sydney, there are more options [to live in a house] in Brisbane,” Ms. Cashmore said. “You don’t have to live in an apartment unless you want to live in the middle of the city. Most people want to get into a family home and get close to good schools.”

 

Source: www.mansionglobal.com

 

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Opinion

Perth and Brisbane top choices for property investors

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Perth and Brisbane top choices for property investors
  • Perth and Brisbane considered the best capital cities to invest in
  • 70% of WA property investors believe it’s a good time to buy in WA
  • Lending restrictions causing concern amongst investors
  • Negative gearing set to impact over 60% of investors

Perth and Brisbane have emerged as new property investment hotspots as investor interest continues to shift from the declining Sydney and Melbourne markets.

A survey of 483 investors across Australia by property investment consultancy Momentum Wealth showed that Perth and Brisbane were leading the pack when it comes to investor preference, with 36% and 33% of survey respondents highlighting the respective capital cities as the best places to invest.

Team Leader of Momentum Wealth’s buyer’s agents, Emma Everett, said a combination of affordability and potential growth opportunities had likely contributed to higher levels of investor interest in the capital city markets.

“Whilst both markets offer strong levels of affordability compared to Sydney and Melbourne, they also hold promising opportunities for long-term growth, with Brisbane already experiencing overall price growth and areas of Perth performing strongly as the market enters its recovery,” she said.

Ms Everett said that investors looking to take advantage of current conditions will need to remain vigilant in their property research and selection.

“In these early stages of recovery, it’s not uncommon for different areas of the market to experience price growth at different times, so investors will need to remain diligent in their research to ensure they are selecting an area that aligns with both their investment strategy and growth expectations,” she explained.

The survey also showed that professional service firms were regarded as the most credible source of information when researching the property market, compared to only 1% of investors who ranked friends and family as the best source of property research.

Hometown confidence hits a high in WA

Whilst Perth was considered the best place to buy amongst overall respondents, the survey also highlighted a considerable rise in home confidence, with an overwhelming 70% of WA investors finding Perth to be the most appealing capital city to invest in.

This marks a further 4.5% increase from last year’s survey, when the proportion of WA respondents preferring Perth spiked a staggering 29% from the year prior.

Ms Everett said renewed confidence is already leading to price growth in some areas, but warns investors need to act fast to avoid rising levels of buyer competition.

“Perth is offering some great buying opportunities for investors looking to take advantage of current levels of affordability, but those looking towards high-demand suburbs will need to move quickly or risk entering the market when competition levels have already picked up.”

“We are already seeing significant evidence of this in some areas of the market, with increased activity from trade-up buyers resulting in significant price growth in Perth’s central sub-region across the past 18 months,” she said.

Lending restrictions still a barrier

Whilst investors are recognising the potential benefits of entering the market, lending restrictions continue to pose a barrier for some, with a number of investors finding increasing difficulty in securing finance in light of recent APRA changes and the Banking Royal Commission.

The survey showed that 67% of respondents had reviewed their loans in the 12 months to November 2018, up 8% on the previous year’s results.

Team Leader of Momentum wealth’s mortgage broking team, Caylum Merrick, said the challenging lending conditions highlight the importance of regular loan reviews in ensuring investors continue to receive the support they need.

“In today’s lending environment, and in any lending environment for that matter, it’s vital that investors conduct regular loan reviews to ensure they are still receiving the best rates and products to support their investment goals.”

“Whilst we’ve seen record low interest rates in recent years, we’ve also seen a number of buyers impacted by changing lending restrictions. With many banks now raising their interest rates outside the RBA cycle, it’s more important than ever that investors keep their finger on the pulse,” he said.

Negative gearing set to impact majority

The potential changes to negative gearing proposed by the Labor government pose a further source of uncertainty for some investors, with 61% of survey respondents revealing they have a negative cash flow portfolio.

Ms Everett said that whilst investors who rely heavily on the tax benefit will need to be mindful of the impact of such changes, it’s important they remain focused on the fundamentals during the property selection process.

“Whilst negative gearing provides a useful tax benefit for those with a negative cash flow portfolio, investors need to remember that tax offsets only form a small portion of a property’s overall returns, and that factors such as land value, location and tenant appeal remain critical to a property’s performance.”

“Investors who get these fundamentals right from the start will be better placed to weather potential changes and short-term volatilities in the market,” she said.

Ms Everett said that any investors who are unsure or concerned about the potential impact of recent changes, including shifts within the lending environment, should seek advice from an independent investment advisor.

“It’s been a challenging and at times confusing period for investors trying to navigate through these complexities themselves or relying on unreliable sources to guide them, so it’s important that they seek professional and independent advice to ensure they fully understand the opportunities and risks specific to their situation,” she said.

 

Source: miragenews.com

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Opinion

Is this property hotspot making a comeback?

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Is this property hotspot making a comeback

Investors in search of stability and yield amid the market downturn could find solitude in an old favourite this year.

The February issue of Herron Todd White’s Month In Review report found that the Brisbane property market will see some growth in 2019, and overall will continue to see consistency in its property market.

“Brisbane in the coming 12 months will, generally speaking, see a stable market across most locations,” the report noted.

“Brisbane has been on the cusp of substantial price rises for about six years now.”

What could indicate those looming price rises is an influx of infrastructure projects, which are expected to drive employment up, a factor which the report stated is “sorely in need of improvement in Queensland”.

“Some of these major projects will have national and international appeal – the Howard Smith Wharves project and the Queens Wharf complex in particular – which have a flow-on for boosting our tourism and services sector,” stated the report.

Also of importance is the capital city’s more affordable property when compared to Sydney and Melbourne and high levels of interstate migration figures.

Tips for buyers

The report noted the inner and middle rings, particularly around 3 kilometres of the CBD, is unlikely to produce any bargains, but provide investors with some long-term investing opportunities.

“This is solid real estate where our population likes to live and play. For example, this would include Enoggera out to Stafford in the north and Annerley through to Moorooka in the south,” the report stated.

For Brisbane property, the report also mentioned to look for growth creation factors, such as renovatable properties on sizable blocks of land, larger allotments with solid long-term redevelopment potential and subdivisible land.

Exercise caution 

Investors looking for where not to invest should be careful in the northern and western corridors pictured more so towards property investors, the report warned.

“If there’s a predominance of dual occupancy and duplex structures or generic townhouse designs on offer, tread warily if your goal is capital gains,” the report stated.

“Credit restrictions have not helped the demand side of the equation in this sector either and with plenty of supply on hand, the result seems to be subdued growth if any for this real estate.”

Despite the oversupply of apartments, those aimed at home owners have performed well, according to the report, and further supply has been predicted to slow down.

“We aren’t recommending anyone rush back into this type of investor accommodation, but the future is looking less dire than it did a couple of years back,” the report noted.

“2019 will be a year to watch in Brisbane. If we can accentuate the positive and eliminate the negatives, then property owners should do fine by annum’s end.”

The big picture

Although the broader Australian residential property market is in a down cycle, data experts and research houses are quick to point out that the long-term trajectory is positive for property investors.

You can read more about how the property market has been performing since 1999 here.

 

Source: nestegg.com.au

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Opinion

Negative gearing changes will affect us all, mostly for the better

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Negative gearing changes will affect us all, mostly for the better

Don’t have a negatively geared investment property? You’re in good company.

Despite all the talk about negatively geared nurses and property baron police officers, 90 per cent of taxpayers do not use it.

But federal Labor’s policy will still affect you through changes in the housing market and the budget. Here’s what you should know.

Labor’s negative gearing policy will prevent investors from writing off the losses from their property investments against the tax they pay on their wages. This will affect investors buying properties where the rent isn’t enough to cover the cost of operating the property, including any interest payments on the investment loan.

Doesn’t sound like a good investment? Exactly right: negatively gearing a property only makes sense as an investment strategy if you expect that the house will rise significantly in value so you’ll make a decent capital gain when you sell.

The negatively geared investor gets a good deal on tax – they write off their losses in full as they occur but they are only taxed on 50 per cent of their gains when they sell.

Labor’s policy makes the tax deal a little less sweet – losses can only be written off against other investment income, including the proceeds from the property when it is sold. And investors will pay tax on 75 per cent of their gains, at their marginal tax rate.

Future property speculators are unlikely to be popping the champagne corks for Labor’s plan. But other Australians should know that there are a lot of potential upsides from winding back these concessions.

Limiting negative gearing and reducing the capital gains tax discount will substantially boost the budget bottom line. The independent Parliamentary Budget Office estimates Labor’s policy will raise about $32.1 billion over a decade.

Ultimately, the winners from the change are the 89 per cent of nurses, 87 per cent of teachers and all the other hard-working taxpayers who don’t negatively gear. Winding back tax concessions that do not have a strong economic justification means the government can reduce other taxes, provide more services or improve the budget bottom line.

Labor’s plan will reduce house prices, a little. By reducing investor tax breaks, it will reduce investor demand for existing houses.

Assuming the value of the $6.6 trillion property market falls by the entire value of the future stream of tax benefits, there would be price falls in the range of 1 per cent to 2 per cent. Any reduction in competition from investors is a win for first home buyers.

Existing home-owners may be less pleased, especially in light of recent price falls in Sydney and Melbourne. But if they bought their house more than a couple of years ago, chances are they are still comfortably ahead.

And renters need not fear Labor’s policy. Fewer investors does mean fewer rental properties, but those properties don’t disappear – home buyers move in, and so there are also fewer renters.

Negative gearing would affect rents only if it reduced new housing supply. Any effects will be small: around 90 per cent of investment lending is for existing housing, and Labor’s policy leaves in place negative gearing tax write-offs for new homes.

All Australians will benefit from greater stability in the housing market from the proposed change. The existing tax breaks magnify volatility. Negative gearing is most attractive as a tax minimisation strategy when asset prices are rising strongly. So in boom times it feeds investor demand for housing. The opposite is true when prices are stable or falling.

The Reserve Bank, the Productivity Commission and the Murray financial system inquiry have all raised concerns about the effects of the current tax arrangements on financial stability.

Negative gearing would affect rents only if it reduced new housing supply.

 

And for those worried about equity? Negative gearing and capital gains are both skewed towards the better off. Almost 70 per cent of capital gains accrue to those with taxable incomes of more than $130,000, putting them in the top 10 per cent of income earners.

For negative gearing, 38 per cent of the tax benefits flow to this group. But people who negatively gear have lower taxable incomes because they are negatively gearing. If we look at people’s taxable incomes before rental deductions, the top 10 per cent of income earners receive almost 50 per cent of the tax benefit from negative gearing.

So you shouldn’t be surprised to learn that the share of anaesthetists negatively gearing is almost triple that for nurses, and the average tax benefits they receive are around 11 times higher.

Treasurer Josh Frydenberg says aspirational voters should fear Labor’s proposed changes to negative gearing and the capital gains tax.

But for those of us who aspire to a better budget bottom line, a more stable housing market and better opportunities for first home buyers, the policies have plenty to find favour.

 

Source: brisbanetimes.com.au

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