Will Santa bring change to Melbourne Property?

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Another weekend of 60% clearance rates on 875 reported Auctions and a further 690 private sales proving that the market is still marching on toward 2013 with gusto. Our enquiry levels have been exceptional, with many prospective purchasers now finding it very hard to compete in a market that is heating up.

2013 will be a very good year for average Australians. Many upsizers and downsizers will finally put their homes on the market and make the move they have been planning for a couple of years. Lowering interest rates will give investors more buying power. And further cuts to the stamp duty rates will assist first home owners.

For a couple of years now, many people who already own homes have listened to the media tell them they should not sell their homes. “If you do not have to sell, then don’t.” These headlines have been seen throughout the papers, blogs and tweets since early 2010. And many people believe and listen to these commentators. What they didn’t explain was that anyone trading in a property to purchase another will find the same market when they are purchasing. It started this year in October, grew to a rush in November and I think we will see a virtual flood in late February and early March of owner occupiers changing homes. This will increase the pool of property available but will also mean much greater demand from people with money to spend.

Investors have been a little shy to purchase good long term growth property of late. Much of the property that has good long term capital growth prospects has a lower yield than other properties. (For those spruikers who tell you that yield and growth are not related and that you can find great high yield properties that have fantastic growth: just remember if that were true, your average “mum and dad” investor would never be able to buy one. They would be snapped up by every institutional Superannuation fund that has $1Billion to invest!) But with the drop in interest rates an average negatively geared property becomes neutrally geared within a very short space of time. Negative gearing relies on capital growth all the time, neutral gearing property means you do not have to see as much growth in the short term to make this a much more intelligent investment than most share markets at the moment.

First home buyers have been squirreling money away for the past few years and with the stamp duty savings dropping by a further 10% for properties that settle after Jan 1 2013 and the further drop in interest rates that the banks are passing on over the next few weeks, I would say that competition in the sub $600k range will become quite fierce.

As soon as demand picks up, supply will follow. We have seen a small version of that throughout spring. October turnover was up slightly and ended on good clearance rates. This, in turn, led to more people putting their own homes on the market in November, which is why we still have 920 gazetted auctions next weekend and a further 120 3 days out from Christmas!

There are still a lot of hurdles to overcome before we talk about average 9% growth rates for Melbourne property in 2013. The US is still marching towards their fiscal cliff, but most of the commentators believe this disaster will be averted, at least in the short term. Growth numbers out of the US for employment and consumer spending are up. China’s growth will most likely ramp up again next year and hopefully there are some cool heads that will begin to drag Europe out of the economic mire it has found itself in. With another interest cut in early 2013, which the banks will pass on some of, I think we will see a slow climb in prices for the better suburbs of the Melbourne property market. Sustained slow growth through 2013 should see median prices climb about 5- 7% and without a further catastrophic event I would think that 2014 will see us back to our average 9% growth in the top third of suburbs in Melbourne. The only area I don’t foresee growth above inflation would be in new home estates.

For the many thousands of you who read this column each week and respond with comments and to all our valued clients, I would like to take this opportunity to thank you and from all the team at JPP Buyer Advocates I would like to wish you a Safe and Merry Christmas and a happy New Year.
Our office will be closed from Friday 21st December until Monday 7th January 2013. Emails and phone messages will be answered in a timely fashion throughout this period.

Ian James
JPP Buyer Advocates

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.