We’ve just released our annual McGrath Report for Spring and I’m struck by the difference a year can make. Last year, we were starting to see signs of improvement and we were predicting that 2013 would be the turnaround year for the residential market, the beginning of the next growth cycle. And it’s looking like that is exactly the case.
In last year’s report, we quoted RP Data figures showing property prices up 1.7% for the year to August. Latest figures for Jan-Sept 2013 show a 10% gain – that’s a big change! This time last year, one to three year fixed loans were at 5.59%. Today, you can easily get the same loan in the 4.9-ish% bracket – in fact, you can even get a variable rate under 5%.
A lot has changed and buyers and sellers are now responding. Clearance rates continue to be buoyant with Sydney reaching 88% on the first Saturday in Spring – the highest rate we’ve seen all year. Many properties are selling prior to auction – in fact, many are exchanging after just a few days on the market. Fear of missing out is starting to set in and it’s only going to escalate.
There are several factors driving the market recovery. Changes we are experiencing include:
• Variable interest rates are now under 5% vs last year when they were around 6%
• The share market was around 4,400 and today it is up around 5,200
• Auction clearance rates have shifted from around 55% to above 75%
• Chinese buyers have arrived in force and are seeking quality properties in all price ranges. Chinese buyers are now Australia’s third largest residential real estate investors behind the US and Singapore. Chinese investment is up 75% in just two years, according to the Foreign Investment Review Board
• SMSFs have increased their investment into residential property by 10.4% in the past year alone. One in 25 Australians now have their own SMSF
• Sydney has had two of its highest house sales ever at $52M and $33.5M
• We have just had a new Government anointed with a landslide victory
• The key performance indicators are as healthy as I’ve seen them for many years
I’m not saying the recovery phase will be without a hitch or the occasional dark cloud, but the horizon is far clearer this year compared to last.
My major predictions for the year ahead are:
• Continued residential property recovery Australia wide with several cities to experience an upsurge in demand and prices in 2014
• Sydney leading the way but South-East Queensland the overall strongest growth market in Australia over the next three years, with Queensland projected to replace Victoria as Australia’s second most populous state by 2050
• Increasing demand from Chinese buyers, with wealthy families continuing to apply for the Significant Investor Visa, which allows fast-tracked residency in exchange for $5M worth of investment in approved assets. Since the visa’s launch in November 2012, over 300 applications have been lodged and 90% are from China
• Houses to outperform apartments over the next three years. RP Data figures show Sydney house prices up 10.7% and Brisbane house prices up 1.7% compared to apartment prices up 7.5% and 1.0% respectively over the first three quarters of 2013
• Interest rates to bottom around these levels for the remainder of the year but will start to rise in the second half of 2014
We hear of people lamenting about missed opportunities in real estate all the time. “If only I’d bought then…”. Today’s market is one of those times. There are phenomenal opportunities here for taking and if you’re smart enough to get in now, you’ll see the rewards sooner than you think.