Puzzle Finance Blog

Greener pastures, golden opportunities

Don't hold your horses in this year's promising buying climate.

This year could be a good one to pick up more than a tan while on vacation, according to the real estate experts, with holiday homes and hobby farms selling at discounted prices.

The managing director of Hay Property Consultants, Peter Hay, says the flat market conditions of the past 12 months, combined with weak consumer confidence, have led to a drop in discretionary spending on property. As a result, cashed-up buyers have a great opportunity to pounce on well-priced coastal, rural or alpine properties in 2013.

''It's a buyers' market and it's going to be pretty much at its bottom edge, so you can select good property and buy it well,'' Mr Hay says. ''I just bought 2.5 acres [one hectare] with views up at Romsey for a client. It sold for $640,000 two years ago. We bought it for $520,000.''

While Mr Hay says 2012 was a flat buyers' market overall, it ended stronger than it began, with a slight rise in auction attendances towards the end of the year for inner-city stock following the latest interest rate reduction. He predicts 2013 will continue to be a buyers' market, but believes the situation will improve for some vendors, depending on the type of property they want to sell.

''If you're within eight to 10 kilometres of the city … anything south of $500,000 has been selling really well. I think that entry level to those markets will improve next year rather than just remaining steady.''

Mr Hay says first-time buyers will still have to overcome the barriers of expensive land and high building costs. ''It's making it hard for first-time home buyers to get into the market, particularly in the areas reasonably close to the city. We've got migrants coming to Australia and they're holding up that market.''

While first-home buyers' stamp-duty discount will increase from 20 per cent to 30 per cent this year, Mr Hay says the discount will have little impact on buying behaviour. ''That's such a small amount of money. If you're buying a house and land package, you only pay stamp duty on the land. So that's not a lot of money.''

He predicts investment activity in the residential sector will remain muted. ''We're not seeing investors return to the market in huge droves because the yields are still low,'' Mr Hay says. Residential investors are seeing a 2 per cent to 3 per cent net return, with leases in some outer areas dropping by $20 a week when they come up for renewal.

''I think we're going to see nominal investor activity because the dynamics of return versus purchase price aren't going to change much.''

But for those looking to buy, Mr Hay says there are great opportunities in suburban areas that are slated to benefit from big infrastructure projects, such as the Frankston bypass, the rejuvenation of Dandenong and the Dingley bypass.

The Real Estate Institute of Victoria's Robert Larocca shares Mr Hay's belief that the residential real estate market will be similar to 2012, which ended with a clearance rate of 61 per cent, the second lowest in a decade after the 59 per cent posted in 2011. The number of residential sales last year was the lowest since 1996.

Mr Larocca says improving consumer confidence might lead to an increase in the number of active buyers and vendors - and prices. ''But I wouldn't be confident of any more than 3 per cent or so. So, in real terms, prices would be keeping pace with where they are now.

''If we're going to see substantial capital growth, it really will require far more confident consumers.''

Mr Larocca says the impact of lower interest rates is not clear cut because while lower rates make it cheaper for buyers to borrow and service their loans, the fact that the Reserve Bank opted to lower them is an indication of its concern about the state of the economy. And that concern feeds into buyer behaviour.

''If it [the lowering of rates] does what the Reserve Bank wants it to do, which is improve the state of the economy, that will have its own natural positive impact on real estate.''

Current conditions, he says, are difficult for those with investment properties. ''Issues like the easing that we've seen in the vacancy rate [from about 2 per cent to 3 per cent] will make it a little more difficult for them. We're not likely to see any real increases in rents next year … but they will probably benefit in a more immediate fashion from quite low interest rates.''

Mr Larocca says anyone considering buying an investment property this year will be heartened by the knowledge that the price will be less than it would have been at the peak. ''So most buyers and most investors can buy knowing that if they hold their assets in the medium or long term, there is upward movement to be had.''

He says first-home buyers in Victoria this year will be luckier than those in other parts of Australia as the state government will continue to provide the $7000 first-home buyer's grant, unlike the Queensland, New South Wales and South Australian governments. This is on top of Victorian first-home buyers being eligible for the 30 per cent discount on stamp duty.

''[The increased stamp-duty discount] is not going to lead to a stampede, but it will make it incrementally easier, and that will bring a few more first-time buyers into the market. It will reduce the cost of ownership over the term of the loan, so it will help. I'm sure they'll be happier not to pay it than pay it.''

Mal James, from James Buyer Advocates, which specialises in inner-city properties valued at $1 million or more, says it's difficult to predict how the top end of town will perform. While 2012 started off weak, it ended up being stronger than expected, with the exception of the $3 million-plus market, which was ''almost non-existent''.

''Winter was dead as a doornail except for Tullamarine, where experienced agents were hopping on their flights to Europe because there was nothing happening,'' Mr James says. But by year's end, the high-end market was performing well.

''Based on how we finished [the year], I have to say you would have to think [2013] is going to be pretty good. There's been a significant number of transactions at the top end of town and every action has a reaction,'' Mr James says. Those who bought may now have to sell, and those who missed out on properties last year will be looking to act.

Mr James says the luxury market is highly dependent on stock and buyer sentiment, but has the benefit of migration, particularly from Asia, into inner-city Melbourne. ''I can't see why the market wouldn't continue to perform.''

He says the inner city still compares favourably in terms of price with other desirable international cities such as New York and San Francisco.

  • Likely to remain a buyers' market.
  • Good time to buy a holiday house or hobby farm.
  • Buy near big infrastructure projects.
  • Further stamp-duty reductions for first-home buyers.
  • Apartments less than $500,000 selling well.

Posted by Kate Robertson - Domain (The Age) on 11th January, 2013 | Comments | Trackbacks

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