Sydney leads for post-GFC price growth

New research by CoreLogic shows Australia’s capital city housing market has been “extremely interest rate-sensitive” since the GFC.

According to the data, dwelling values grew by 54.9 per cent for the combined capitals between December 2008 and June 2016.

Sydney led the way with a massive 87.9 per cent increase in home values during the post-GFC period, followed closely by Melbourne (71.8 per cent).

Canberra was next best for dwelling value growth with 26.9 per cent, followed by Darwin (20.9 per cent), Adelaide (14.8 per cent), Brisbane (14.6 per cent), Perth (9.0 per cent) and Hobart (6.4 per cent).

However, CoreLogic research director Tim Lawless noted that from December 2008 to October 2010, dwelling value growth across the combined capitals slowed to 21.8 per cent.

“Official interest rates were first increased coming out of the financial crisis in October 2009, rising by 175 basis points to November 2010,” he said.

“The boost to the first home buyers grant was partially removed in September 2009 and completely removed after December 31, 2010.

“Combined, these factors saw the rate of value growth slow, followed by a decline in dwelling values.”

Mr Lawless said that between October 2008 and May 2012, when official interest rates were at 4.75 per cent and stimulus was removed from the housing market, combined capital city home values fell by 7.4 per cent.

Furthermore, dwelling values for the combined capitals increased by 37.3 per cent from May 2012 to June 2016, during which time the cash rate fell by 200 basis points to 1.75 per cent.

“The data indicates that since the financial crisis, the capital city housing market could best be described as being extremely interest rate-sensitive,” Mr Lawless said.

“A deeper dive into the data shows that in reality, only Sydney and Melbourne have responded to the stimulus of low interest rates. The relative strength of the Sydney and Melbourne economies and the much greater employment growth have clearly driven housing values higher in these cities.”

Mr Lawless said that until economies outside of these two capitals improve, it is unlikely that an era of sustainable home value growth will return to these areas, despite extremely low interest rates.

“While affording to purchase a home in Sydney and Melbourne is becoming a stretch for many, existing home owners in these cities have experienced substantial equity increases,” he added.

Foreign investors facing $65,000 tax

A new report has revealed just how much foreign investors face in stamp duty costs to enter Australia’s property market, following increases by some state governments.

The latest edition of the Housing Industry Association’s Stamp Duty Watch report found that the purchase of a typical Melbourne unit by foreign a investor will incur almost $65,000 in stamp duty and fees.

“The situation is not much better in Sydney, with foreign investors hit for over $58,000 on the acquisition of a unit of average price,” HIA senior economist Shane Garrett said.

“Under the new rules, foreign investors in Brisbane units will be charged $29,000 in transaction taxes alone.”

As part of its state budget, the Victorian government recently increased its stamp duty tax for foreign buyers from 3 per cent to 7 per cent, while NSW introduced a 4 per cent stamp duty surcharge, and the Queensland government introduced a 3 per cent surcharge.

The report also found that stamp duty is adding an estimated $91 per month to household mortgage repayments for a median-priced home.

According to the HIA, the typical stamp duty bill was $17,811 for a non-first home buyer owner-occupier in June 2016, “which added another 3.6 per cent to the cost of purchasing a home”.

“This means that stamp duty eats up almost four months’ worth of after-tax income,” the association said.

Government given property ‘wake-up call’

There is an “acute problem” in our capital cities which governments are ignoring – but will property investors bear the brunt of the inaction?

The Household, Income and Labour Dynamics in Australia Survey has ignited new discussion on the level of relevance the government places on the relationship between negative gearing and housing affordability.

Following findings in the HILDA survey that fewer than half of Australian adults will own a home by next year, the Property Council of Australia has issued a statement saying that this should serve as a 'wake-up call' to governments on the case for fixing housing supply and affordability.

The Property Council of Australia’s chief of policy and housing, Glenn Byres, said sliding home ownership is a damning report card on the collective failure of governments to act.

“Housing affordability has remained a public policy orphan for too long, and there is a compelling case for change given the acute problem in our capital cities.

“Neither side of politics took a comprehensive plan to the last election. Instead, we saw a tax debate on negative gearing masquerading as a housing affordability debate.”

Meanwhile, founder and executive chairman of The Hopkins Group, John Hopkins, shares the sentiment that negative gearing policy and housing affordability issues should not be confused as one and the same.

“In the eighties, whilst I disagree with what Keating did, I said to [him] ‘it's not right that people can buy an investment this year, claim the losses as an investment, sell it next year, make a capital gain, and claim the losses as well’,” Mr Hopkins said.

“That's wrong. But not if someone is a genuine long-term property investor, the type of investment they purchase is relevant, and the time that they own it is relevant to prove that they are genuinely waiting to get an income.

“Where does the Labor party think the accommodation will come from that Melbourne and Sydney need, let alone Brisbane — because Brisbane’s percentage increase in population is bigger than Melbourne and Sydney — where do they think it's going to come from?”

According to Mr Hopkins, the greatest proportion of The Hopkins Group’s database is “just ordinary Australians”.

“Sure, there are some wealthy people on there, but it's not the predominance. The predominance by 85 to 90 per cent is easily just ordinary Australians,” he continued.

“I'm not trying to be political, because I'm happy to look at both sides of politics on various issues, [but] Labor are very much impacted by this sort of class thing, and it appeals to the worker to think they are getting into the wealthy people.

“But don't we want people trying to provide for their own future? Property is part of it. And in addition to providing for their own future, relying less on government, they are also providing accommodation. I don't get it.”

Property market confidence falls further

New research has revealed that Australians are continuing to lose confidence in the property market, with sentiment in the residential sector now at its lowest level since December 2012.

According to the latest ANZ-Property Council Survey, confidence in the property sector dropped 0.2 index points to 129.4 during the June 2016 quarter, and has fallen further to 126.8 in the September quarter so far.

The continued fall is said to be driven by the residential segment, which continues to cool from the peak of 2015.

“Sentiment in the residential property sector is still easing, and is now at its lowest level since December 2012,” it said.

Furthermore, the results show an increasing number of industry firms expect growth in both construction activity and capital values to ease over the next 12 months.

“This softness is largely to be expected given regulatory changes introduced last year and tightening of finance criteria by many lenders,” it said.

“Tighter borrowing conditions for developers and investors are certainly having an impact on the market, with firms reporting that the availability of debt finance continues to worsen.

“The decline in sentiment continues to suggest that the housing sector’s contribution to [economic] growth will ease from here.”

Commercial property sentiment has also fallen slightly, led by a drop in the industrial segment. However, post survey analysis reveals that confidence in commercial property has been consistently stronger than the residential sector for the past year, and the outlook for the sector is more positive than its residential counterpart.

Established Perth apartment blocks in high demand

While house prices in the WA capital have declined for six consecutive quarters, demand for older-style apartment buildings is rapidly escalating.

Small blocks of older-style apartments in Perth's fringe CBD suburbs are becoming one of the hottest investment tickets in town, according to leading agent Knight Frank.

Knight Frank has reportedly sold more than $20 million worth of apartment blocks in the last 12 months, across suburbs ranging from South Perth, Inglewood, Jolimont and Daglish.

They have ranged in price from $1.2 million to more than $6.5 million, and have extended to suburbs as far from the CBD as Shoalwater.

Knight Frank's senior director of capital markets in Western Australia, Todd Schaffer, said demand for older-style apartments had escalated significantly in recent months and the trend was set to continue.

“Each sale has been hotly contested by a range of potential buyers, from individual investors through to small family companies,” Mr Schaffer said.

According to Mr Schaffer, more than 90 per cent of sales negotiated by Knight Frank had been cash, unconditional deals.

“The sales are primarily coming from apartment blocks in established residential areas where there is little or no scope for larger scale residential redevelopment on the site,” he said.

“Buyers are recognising the value in these properties and are opting to either hold or refurbish them and establish long-term, strong, reliable cashflows, with future development.”

Unlikely city's house prices outpace Sydney

One capital city has topped the rest for house price growth over the June quarter, hitting a record median price – but it may come as a surprise to many.

According to the Domain House Price Report for the June quarter, the average house price increased nationally by 1.5 per cent with median prices hitting a new record in Melbourne, Adelaide and Canberra.

Canberra experienced the strongest growth of all the capital cities with an increase of 3.1 per cent over the June quarter to hit the record price of $654,306.

Melbourne house prices also reached a record high of $740,995, growing by 1.5 per cent over the quarter.

In Adelaide, prices also saw strong growth, rising by 0.9 per cent to hit a record of $498,927.

Looking at the other capital cities, Sydney’s median house price increased by 2.4 per cent to $1,021,968, edging back up over the $1 million mark.

In Brisbane, house prices grew by 1.2 per cent to $521,915.

Hobart’s median house price also grew by 0.3 per cent over the quarter to $345,880.

Meanwhile, prices continue to fall in Perth and Darwin.

Perth prices saw a decline of 1.7 per cent to $568,132, marking a sixth consecutive quarter of price falls for the capital with the median price now at its lowest point since March 2013.

House prices also fell in Darwin by 0.7 per cent to $613,590.

Domain chief economist Dr Andrew Wilson commented that these results indicate that recent house price falls are at an end, brought on by a revival of investor activity and a drop in mortgage rates.

“With the prospect of further interest rate cuts, it’s likely that house prices will continue rising in 2016 as improved affordability stimulates a surge in market confidence for both buyers and sellers,” Mr Wilson said.

Generation Y or 'generation selfish'?

Another industry commentator has slammed young people who claim they can't get onto the property ladder, saying they are missing out on home ownership because they aren’t prepared to make sacrifices.

Malcolm Gunning, principal of Gunning Real Estate, has said that when it comes to home ownership, young people are an uncompromising generation.

“There are lots of young people who are complaining that it is too hard to buy in Sydney, however they won’t forgo their material possessions,” Mr Gunning commented.

“More and more we are seeing a victim mentality associated with the high cost of property, yet this ‘generation selfish’ sees widescreen TVs, designer clothes, international holidays and eating out as everyday essentials,” he said.

“They simply won’t do what is necessary to cut their lifestyle in order to save a deposit.”

Mr Gunning also said that young people are not prepared to invest in a ‘stepping stone’ property in a less desirable location.

“They want the Surry Hills pad, right now and won’t modify their expectations,” he said.

According to Mr Gunning, this issue can mostly be seen in Sydney.

He commented that unlike Sydneysiders, young people in regional areas who are earning less are making sacrifices to get into the property market.

“They recognise that getting onto the property ladder should be a priority and do everything they can to ensure they are saving to get to their end goal,” Mr Gunning said.