It’s not often we at Perspective feel the need to quote Dr Seuss, but we found this poem last week, and it seemed particularly pertinent.
It’s already time for our Year in Review with John Minns, COO of Independent Property Group; we examine the year that was and make predictions for the year that will be.
It felt like the same stories dominated reporting of the property marketing this year. There is an oversupply of apartments; the market is going to crash; First Home Buyers are locked out; negative gearing is the Big Bad of modern society. How is the Canberra property market faring?
Despite the mixed messages coming from the media, there are very few negative stories relating to the Canberra Property Market. According to the latest Corelogic report, over 12 months to November 30, the average home value increased by 8.4% to $590,000. Allhomes reports a more modest increase in value of 2.21% bringing the medium dwelling value to $540,000. Statistics about overall Canberra house prices are too broad to be particularly useful. Different areas will experience different growth depending on supply and demand. Some areas will definitely be experiencing growth of 8%, but not others.
Regardless of what data we use, it’s clear the market is going forward, not backward.
One thing the Canberra housing market is struggling with is undersupply. The overall Independent Property Group clearance rate is 93.5%, well above the industry best practice of 85%. I’d love to say this is entirely because of our exceptional staff, but while we believe they are doing a great job it’s also driven by a lack of supply in the freestanding residential market. You can see it in the increasing number of registered bidders at auctions, and the price homes are achieving above the reserve. At Independent Property Group this year, the average sale price above reserve is $30,752.
In the rental market, Independent vacancy rates are only 0.24%. We haven’t seen too much of an increase in rents, which is good, but it is difficult for tenants looking for a new home, particularly those on low incomes or those who aren’t as attractive to landlords (such as those with pets). The concern we have is for January and February. If we experience high demand from uni students or job postings, as we often do at that time of year, this undersupply is going to be a real problem.
[Perspective note: you can find the latest update on the Canberra Rental Market here.]
A recent article in the Canberra Times discussed the role of investors in pushing up house prices and suggested the government implement measures, such as altering the current negative gearing policies, to limit investor spending. What’s your response to this?
We share the view of Jon Stanhope and Khalid Ahmed that investors are not the primary cause of housing inflation in Canberra. Calls to ban negative gearing are short sighted and not backed by facts. Sensible consideration needs to be given to changes to the taxation system that have implications for investing. Making it more costly to invest and deliberately reducing rental supply for political reasons will likely make the situation worse. Our view expressed in the article we published earlier this year about negative gearing and housing affordability hasn’t changed.
Personally, I’d be concerned about any policy changes that result in a decrease in supply as it will create a shortage of rental properties, which will then increase rents, making it more difficult for those trying to save a deposit for a home loan.
So at the moment the dreaded apartment glut hasn’t occurred. What is the current situation with apartments in Canberra?
Realistically, there is potential for an oversupply of apartments to occur in some areas if everything that has been approved is built. The reality is that this is unlikely to happen. Developers aren’t careless with their money. They know they need to produce great locations, designs and quality for a project to be viable. If it’s not attractive to the market, or the market isn’t there, it won’t be successfully launched.
So despite the number of new apartments coming on to the market, are established apartments selling as well as established houses?
The average number of days a property is on the market is a good reflection of the state of the market. The average days on market for a detached house listed with Independent Property Group is 44 days (the Canberra average is 62 days). The Independent Property Group average days on market for an established apartment is 70 days (Canberra average 122 days), so it is taking longer to sell an apartment than a house but the clearance rate is 90%, so the demand is definitely there, even if it’s not as strong as for houses.
In comparison, over the same period in 2015 the average days on market for an established apartment was 90 days, so 2016 has seen a material improvement. The interesting figure is really the average days on market for townhouses. It has been 39 days for properties listed with Independent Property Group this year, fewer than that of houses, which emphasises the challenges faced with planning policies and lease variation taxes which prevent development of this type of property in the areas where demand is strongest.
There really needs to be better planning policies in central areas, and by that we mean around older established suburbs. At the moment the charges applied to lease variation make it incredibly costly for people to subdivide their land to build smaller, single level homes.
By removing the tax, which isn’t bringing in the money the government had thought it would anyway, we could reduce our reliance on the release of Greenfields estates, as development in established suburbs increases. We also wouldn’t need to put as much high density development away from the town centres; we could reduce infrastructure cost, increase revenue from rates and land tax, and deliver the regeneration and vibrancy these suburbs would really benefit from.
Downsizers in particular would benefit from this. They want to stay in the suburbs they’ve lived in for years; they just want to do it in a property with less maintenance and fewer costs, typically a townhouse or larger apartment. Chief executive of the Real Estate Institute ACT, Ron Bell, discussed this exact problem in his article in the Canberra Times last month, as he struggled to find a suitable 3 bedroom townhouse.
So downsizers are clearly facing some challenges that the market needs to address. On the other end are First Home Buyers, and we hear a lot about them in the media, and how difficult it is for them to get a home. What has 2016 been like for them?
39% of the homes we sold this year were to First Home Buyers and that’s a great outcome. We’ve spoken many times throughout the year about the opportunities that exist for First Home Buyers in Canberra and with national statistics suggesting they comprise less than 20% of buyers in the market, it demonstrates what is possible when opportunity meets commitment. Despite the rhetoric we are hearing in some parts of the media and political arena, affordability has improved in sections of the market, particularly within newer estates. I guess the most important messages for those who do want to take that important step towards financial security are to have a willingness to make some compromises in location and property type, and understand saving for a home will require some sacrifices, but the payoff will be absolutely worth the effort.
If we were to ask you to make predictions for 2017, what would you say? Which suburbs are hot to watch?
I’d prefer not to buy into the “hot suburbs” debate. It is usually a question driven by statistics rather than what is happening on the ground in the market and for both live-in owners and investors their motivations for buying and location criteria will vary. We can say that unless something changes, freestanding houses in most established suburbs are likely to see increasing demand without an uplift in supply and it is difficult to see this happening in the next 6 months. In turn this will continue to put upward pressure on prices. There are 3 town centres which are being transformed and all will be worth watching closely. Apartments and townhouses in Greenway at Tuggeranong will continue thrive in demand as they fill that gap in underlying demand that had not been met in prior years. Belconnen’s new skyline is all the statement we need to realise Belconnen has well and truly come of age as a desirable place to live, work and play in sophisticated surrounds. And with construction well underway of Capital Metro, land release, demand and supply have all accelerated in Gungahlin.
On a personal note, you’ve had a big year yourself. You completed the New York Marathon recently in support of The Indigenous Marathon Foundation. What was that experience like?
It was an incredibly rewarding experience. I had the opportunity to work with a group of inspiring young people who had all worked incredibly hard to achieve what they did. The Indigenous Marathon Foundation is transforming lives across Australia and deserves all the support it can get. I’d really like to thank everyone involve. Thanks to the generous support on the Canberra community, we managed to raise over $40,000 for the cause.
Final question, it’s Christmas. What are your plans over the holidays?
Thanks for asking. Other than looking forward to spending time with our kids, their partners and our extended family, Jen and I are looking forward to reflecting on what has been an exciting year in 2016 and planning for a move to a new house in the early part of the new year. We are also planning a few short trips to take in the beach, the national park and a bit of tennis at the Australian Open in January.
I’d also like to wish everyone a great Christmas and fulfilling and enjoyable 2017.
So there it is, another year done and dusted. Perspective has some exciting stuff in store for 2017, including new additions to the team and a much-awaited website redesign. Until then, have a fantastic holiday period. We’ll be enjoying the prawns, cherries and glazed ham that make up our Christmas each year, and we’ll come back to you mid-January stuffed, happy and ready to take on commentary of our property market once again.