Monthly Archives: December 2014

Property in 2015

If 2014 was the year of the foreign investor, expect 2015 to be the year of the expat returning to the property market. Having given up on Aussie housing in large part due to the high Australian Dollar (AUD), expats are set to enter the market again as the dollar sinks.

Whilst house prices have steadily risen in Sydney and Melbourne for the past 2 years, when priced in USD, Pounds, or Euro, Sydney housing has not risen at all in real terms for expats.

Sure, house prices have risen strongly, yet the recent fall in the dollar has more than offset the rise for those living abroad, earning one of the major currencies.

An interesting point about the apparent ‘property bubble’ in Australia is that the recent price rises have been confined to Sydney and Melbourne. Overall, when viewed through the eyes of an expat, Australian housing has actually dropped in price outside the Sydney and Melbourne markets.

A return of expats to the market will offer some support to house prices, which are no doubt going to be pressured on many fronts. Unemployment is rising, confidence is wobbly, rents have fallen away and many buyers are fatigued at watching prices go up for two years in a row.

There are strong and contradictory arguments as to why the property market will perform well in 2015 and conversely, why it will see a correction.

Interest rates are now tipped to fall further, which will push the AUD lower again and in the hope of stimulating confidence in the broader economy. The lower AUD may also see foreign investor’s money continuing to flow into the property market.

There are a few key markets that will influence how the market performs throughout the year.

Expats and overseas investors

Expats have not seen Aussie housing this affordable since the GFC when the AUD hit $0.625 against the USD in late 2008. Since then the dollar reached a peak of $1.10, spending two years at/or above parity. The AUD at these elevated levels terminated expat interest in Aussie housing.

The RBA continually talked the AUD down throughout 2014 to the point where it now seems we are set to see sub $0.80 against the USD. If the dollar does settle below $0.80, expats will be tempted to enter the market. As the dollar has fallen from $1.10 to $0.85, expat buying has been muted. There is a price point at which the buying becomes compelling though. The lower the AUD goes the more likely we are to see expat buying.

Another subtle point in this equation is the employment sector is improving in many other countries as Australia’s unemployment hits 12 year highs. There may be a stronger desire for talent to head on a working overseas holiday taking advantage of the stronger incomes abroad.

In regards to overseas investors, debate has raged as to whether they are or are not buying established housing against Foreign Investment Review Board (FIRB) regulations. And if the foreign investors are flaunting the rules, to what degree is it impacting on house prices? Debate has raged on this front and will continue to do so throughout 2015.

The FIRB rules differ between existing and new stock. Foreign investors are entitled to purchase brand new developer stock without restrictions. In turn, a lot of the developer stock that was being built as affordable stock for first home buyers has suddenly become hugely in demand with foreign investors. The drop in the AUD will only inspire foreign investors further.

First Home Buyers

First home buyers are the true victims of the booming market. The story for first home buyers is unlikely to improve in 2015 either. First home buyer incentives were put in place for developers to build more stock, but the reality is developers have found they can achieve stronger prices in other segments of the market.

Investors

Rents have dropped and prices have risen. The end result is yields have gone from about 4 to 5% net in 2012 to under 2%. This destruction of yield is likely to see investors wary of buying at the top of the market. Any investment play is likely to be reliant on capital growth rather than yield. With interest rates at record low levels, housing at these prices is quite simply more appealing to home buyers rather than investors. Investors have been outbid by emotional home buyers for the best part of 18 months and this looks set to continue throughout 2015.

Baby Boomers

Baby boomers are beginning to consolidate their affairs as they near and/or reach retirement. The recent strong market has seen an increasing number of baby boomers sell down their real estate holdings. Whether it’s downsizing from the large family home or unloading some of the investment properties, there is little doubt that the movement of wealth by baby boomers is going to impact on the market in 2015.

Boomers have not only shown a panache for selling. They have been enthusiastic buyers of luxury apartments. Apartments with water views, well located to amenities and close to the CBD/Harbour have been in increasing demand.

Home Buyers

The key to home buyers continuing to drive house prices is confidence. Confidence on many fronts though.

Confidence in their employment, confidence that the market will continue to rise/hold, confident that rates are going to remain low, confident in the broader economy.

Whilst ever home buyers remain broadly confident, positive sentiment toward housing will remain making home buyers the largest determining factor of the markets fortunes in 2015.

 

The absurdity of print in the digital age.

The internet has just about killed off newspapers world wide. With it has gone the rivers of gold – the classifieds. Classified advertising for cars, real estate and jobs all underpinned newspaper’s profits.

The rivers of gold for newspapers also created rivers of gold for estate agents. Agents packaged up expensive and largely needless print campaigns that home sellers were convinced to pay for upfront.

Agents benefited from the rivers of gold in many ways. Whether it be a brand building exercise, a sales tactic to increase ‘vendor motivation’ or rebates of some kind, many agents survived on the rivers of gold.

Many within the real estate industry still refuse to believe that print is dead.

For the consumer, the debate as to whether the internet has trumped print is over. Yet many agents still persist with trying to sell expensive print campaigns. These campaigns range from newspaper advertising, leaflet drops to real estate agents magazines. It would be unfair to suggest that these forms of advertising bring zero benefit to a campaign. It is also fair to say that the benefit they bring to a campaign is not cost effective in comparison to signboards, internet marketing and database marketing.

To ensure that you get cost effective marketing from your preferred agent, allow them to run as much print advertising as they deem necessary. Just ensure that it is at their cost and not yours as the seller. You will quickly realise what the agent truly believes in versus what is a dispensible brand building product.

If you are wrestling with the merit of the print debate, consider the following – real estate agents have two primary roles when employed by a home seller.

The first is to find interested buyers. Different agents use different strategies to achieve this objective. They will focus on newspaper ads, internet ads, For Sale signs, databases etc.

The second objective of the agent is to negotiate the highest possible price with the best terms for the home seller. Some agents can achieve this objective, some can’t. However, some home sellers could also achieve this outcome and some couldn’t. For the home sellers that could competently negotiate for themselves, the only real value a real estate agent can offer is one of saving time and effort.

Underselling Properties

Most agents spend excessive amounts of money finding buyers and then use selling strategies such as auction that undersell properties. The excessive amounts of money being spent looking for buyers is the home sellers money, not the agents though. So, if the home seller is paying upfront for advertising and carrying the risk to find a buyer, what is the home seller really paying for?

Answer – the agent’s negotiation skills or in some cases, lack thereof.

If you feel that the agent does not possess a high level of negotiation skills to sell your home, do it yourself. To pay an agent $5,000 in advance to find a buyer in the digital age is absurd.

If print is the true cause of selling real estate, why not print a few brochures and place an ad in the newspaper yourself? You will save large on the commission as many private sellers have pleasantly discovered.

Going further, you could erect a For Sale sign and list your property on the internet at a fair price. You will quickly find plenty of interested buyers. It will then be up to your negotiation ability to close out the sale at the best possible price.

When a home seller commits to spending between $5,000 and $10,000 on a print campaign, they do so in the absolute belief that their home is going to sell. There also tends to be a correlation between market conditions and the amount of advertising a home seller commits to. The stronger the market, the more sellers spend on print advertising. This phenomenon has rung out again in the boom of the past two years.