It has been all too long since my last article. It is very easy to be caught up in work and forget about the things that matter most to some people. Business has been brisk and with the addition of two granddaughters last year, my limited time meant something had to give. And my weekly articles suffered. For those stalwart subscribers, I apologise.
Last year the market rose quite strongly after two very sluggish years. The first quarter of 2013 saw turnover rise and market sentiment move toward a positive bias for the first time since April 2010. By September, the market was really humming and the clearance rates were reminiscent of 2007. It was only the last three weeks of last year during December that a few cracks began to appear and whilst the clearance rate stayed up there, the prices flattened out substantially. According to the multitude of data sources now available, we had growth somewhere between 7% & 9% for the year. In other words, we achieved the long term average capital growth rates.
The rental market was not quite the same with rental yields stagnating and in some suburbs actually dropping. With the multitude of apartments coming on line last year and over the next 3 years, inner city apartments will be more difficult to lease. Whilst the published median price graphs may continue to show rises, it will actually be due to the reporting of the sales of new properties. When these change hands in 2 or 3 years again, I believe we will see a slight capital decline. So too with the rental yields. Supply will outstrip demand for a few years and then things will return to normal within 5 or 6 years.
There is much talk from many different directions about where the economy is going. Are interest rates going to remain stable, will they rise or fall; where is the current bias sitting? Is the unemployment rate going to spike with such fervour when the mining development boom slows and the car manufacturers leave our shores next year that it will cause tremendous and catastrophic negative market sentiment? Or will the Australian Dollar fall far enough to reinvigorate tourism, our manufacturers and all our other exporters? Only time will tell.
I think this year will show sustained average growth in price in the middle and outer rings of Melbourne. It is where most first home buyers will start their life long property obsessions, and it is where the average long term investor can still purchase subdividable land in fantastic growth suburbs under $600k. Even some new estates have some better economic value than they used to a decade ago. With the low interest rate environment, many retirees and some first time investors are heading for the new estates that offer a very healthy 5% rental return, and potential for some capital growth. It means that whilst the property is rented the retiree is getting a very good monthly return or the first time investor is not out of pocket, even on very high borrowings, after rental returns, depreciation and negative gearing tax advantages. This is much better than most other safe available investments.
The last issue that will be high on the agenda for developers and anyone that owns a substantial plot of land is the change in zoning laws. The state government changed the laws last year and all the Melbourne councils have until June 30 to implement the new rulings. An information facts sheet can be found here http://www.dpcd.vic.gov.au/__data/assets/pdf_file/0008/197423/Reformed-Residential-Zones-fact-sheet_July2013.pdf
In short, there are some councils that may make changes such that a 900sqm block that could potentially be subdivided into three units, may be only used as a single house site after July 1 2014. If you are considering a development in the short term, please feel free to touch base and we can put you onto experts in this field. The councils are currently saying that any applications they receive well before June 30 will be looked at under the current provisions.
Over the next few weeks I will endeavour to break down these different points and elaborate, as well as answer any questions that I receive from my subscribers.
As always, if you are considering any property purchase in Melbourne this year, please do not hesitate to call or email and we would be happy to have a chat.
Ian James
Director
JPP Buyer Advocates