Ross Greenwood speaks to Rob Klaric, from The Property Expert, about where the property markets in Sydney, Melbourne and Brisbane are headed.
Introduction: Is the property boom over?
Ross Greenwood: Welcome back to Money News right around Australia. As we come to the end of our year here doing Money News. I thought it was worthwhile to have a bit of a look at the residential property markets. And the reason for that is quite clearly, there is a mood whereby you can sense that the price of houses, particularly in Sydney and Melbourne, the hottest markets over the past four years, are coming to the end of their run.
Now, if you sit and have a bit of a look, for example, where it sits right now. You can see that over the past quarter and over the past months, you can see that the Sydney market has certainly come off the boil, in fact, gone backwards a little bit. And also even the Melbourne market, though it continues to be one of the strongest performing markets even in all of Australia. That the growth has started to subside.
In other words a reserve bank and the banking regulator APRA, have got their desire. The sting has come out of the housing markets. Does this mean that if you didn’t got into the housing market, that you’re going to get your chances next year? Not necessarily. It means however that if you got expectations of big values on your property, if you’re thinking about selling into the New Year, you might have to temper those ideas that you going to get really top dollar. And in fact it might take you a bit longer to sell your property as well.
When you also know that the property market is really starting to become a little questionable. Is when even some of the leading real estate agents and auctioneers is in the marketplace start to say, “We think that’s it.” One of those is Rob Klaric. Now Rob’s been around for decades. Basically selling properties around Sydney, done it for more than 30 years. He’s with the property experts and he says, “It’s over.” He’s on the line, right now. Many thanks for your time, Rob.
Interview with: Rob Klaric, The Property Expert
Rob Klaric: Pleasure Ross, always a pleasure and welcome to the listeners as well.
Ross Greenwood: Mate, you’ve properties around the place for years and years. You basically, you know and understand that it’s about the feel good, it’s about the optimism all that sort of stuff. Why would somebody who has traditionally been as optimistic about property as you have been, suddenly be saying, “Nope, it’s over. I think that now maybe we’ve seen the best of the increases and in fact we might start to see some declines.”?
Rob Klaric: Well, the reality is that I’ve been doing it for virtually over 30 years. I’ve seen and I’ve worked every boom and bust market and I can smell this market. It’s what they call, the end of the boom.
It’s coming back to some normality because last year this time, clearance rates, the auctions, were talking about 73, 75, 80 % in certain areas. And all of a sudden last Saturday, 58 %. Pretty much what the telling tale is though, and this is what the real estate agents probably won’t say to the marketplace, and the media actually tempers down the results, is that 1200 were scheduled, only 900 were resolved. What happened to the other 300 resolves?
The reality is they’re all probably being withdrawn or the agents haven’t actually quoted what they actually. That clearance rate is probably even much lower. And the reality is that we’re not getting paid for just rocking up to the auctions like it was before. We have 11, 12, 13, 15 guys. Were lucky at the moment to see one or two buyers at certain properties.
Ross Greenwood: Okay, now, you make your money selling property. You only make the money when somebody buys a property or you can sell a property. Now, when say for example you’ve got an auction on and you got to walk inside never chat to the vendor and say. “Listen, the markets not where you think it is.” The market out there with those people bidding. They’re actually tempering their demand, and that might be because they can’t get their finance or they really don’t want to spend as much, or there’s more property on the market. Whatever it might be, you’ve got to talk to the vendors and talk them around and say, “This is the price, right here.” That must be pretty hard for some of those people to hear.
Rob Klaric: Very much, taking one step back. I have the good fortune of selling my company to John Mcgrath five years ago, so I think the timing is perfect and at the same time I’ve become an independent advisor. Our role these days is to advise, as oppose to just being selling. But being there as an auctioneer and I love the fact that every Saturday. I get paid whether it sells or it doesn’t sell at the auction day, however, I know the vendors are asking me the question saying, “Well, Rob, we trust you, we know you. What’s your thought about what’s going on?”
I’ve been sitting down with them, with the vendors at that stage and say, “Look, last year was a different kettle of fish.” You wouldn’t have to worry, you wouldn’t had that discussion but now, most of the agents are having that discussion with the vendor, because were below the reserve and for the first time the vendors have got to look at what the markets taking and they haven’t had to do that, Ross, they haven’t had to do that in the last 12 months.
Advice for the clients whether they are buying or selling at the moment is, take one step back and then start to analyze which suburb you wanting to buy in and having a look. Because not all suburbs are the same, not everything is created equally in Sydney. Certain suburbs are still hot. ie. If you want to buy in Bondi this weekend or you want to buy this weekend or it’s still strong, but certain pockets outside of the Sydney metropolitan, it’s just not happening.
Ross Greenwood: One big issue, say for example, you’re talking about the Sydney market, we’re going right around Australia. But the fact of the matter is that you’ve got a situation now where the household debt to income ratio is a 194 %. It’s one of the highest in the world. Australians are carrying more debt than they ever have before.
And at some point it was always a case where the ability of borrowers to actually pay back mortgages on inflated house prices was going to reach a threshold. It seems to have got the threshold and that’s one reason I’d suspect while banks are actually pulling in their horns and not providing the finances as easily once might have. But secondly households are pulling in their horns and basically saying, “We can’t go their because it would expose us to potential trouble down the track.”
Rob Klaric: Yes, and that’s a valid valid point. It affects everybody. I got a young son, 25, he’s gone into the market. He’s bought a little at Sydney. Now, let me tell you that boy has got a $1,000,000 mortgage. Now, as a parents we worry, the reality is he got a great job, he works at Macquarie Bank, certainly not the director, but he makes some reasonable dollars. But at the same time too, mate, it worries me that his salary is so dependent on paying that mortgage.
What happens if he’s decides to have a child or she’s just loses her job or whatever the case is. Mate, they will struggle to pay that mortgage. They say that the younger generations, the millennials and all this have got it lucky. To be quite honest it’s a tough call. My daughter at 23 has, said to me, “Dad, we’ll never be able to buy in Sydney.” That’s a tough saying to say. This market adjustment that were having, well, some sort of adjustment in my opinion in the next twelve months to give some of the young Australians hope to still be able to get into the market.
But if the interest rates go up, we’re going to see what I saw in the 80’s and the 90’s. It could be carnage with that and obviously that statement that 10 second grab is gone everywhere in the last 24 hours right across the world. I’m referring to the amount of units that are being built everywhere at the moment. The reality to that is when you got an oversupply of units being built. Most of them are not selling them off the plan. If you go in there at the moment they’ll rollout the red carpet for you. They’ll give you every sweetener in the world. Do you you want a car with that? You want televisions with that? Whatever it takes at the moment to get the transaction is what’s occurring, as opposed to what was happening twelve months ago, Ross.
Ross Greenwood: I tell you what, really interesting stuff. Great to have you on the program tonight. Rob Klaric, as I say with the property experts, that’s the business which advises buyers and sellers but it’s interesting to note, when you have people inside market so close, like Rob, actually saying, “That’s it, we think it’s all over.” You know that really 2018 probably for housing in our major capital cities, is going to be a lot tougher than it’s been for the last three or four years. Rob, we appreciate your time on the program this evening.
Rob Klaric: Always a pleasure, Ross, always a pleasure. Thanks mate.
Interviewed Cameron Kusher, Head of Research, Corelogic RP Data titled ” Is Sydney in a property market crash? .”
Interviewed Merv Peacock, Former Chief Investment Officer, AMP titled ” Stock Market crash of 1987 .”