Two-tier property market

Tim Lawless from CoreLogic RP Data, talks about the July Home Value Index

Introduction: Two-tier property market.

Ross Greenwood:  The other thing I want to talk to you about tonight, is house prices. Now it seems as though right now after Sydney has led the housing market nationally for the past two to three years, that Melbourne is not only playing catch-up but is actually going past as we speak. Over the past month, the house prices in Melbourne have jumped by 3.1% compared with Sydney’s prices, which are up 1.3%.

However in Brisbane, in Perth, and in Darwin, prices have continued to fall, they are pretty soft. Brisbane is the big surprise amongst all of those, it’s housing prices pretty good. Adelaide, well, I’ve got to say, it’s an under performer but it’s very steady over a long period of time, and as I say, it’s just interesting to spot which capital cities are moving which way.

To help explain it, Tim Lawless the head of research at CoreLogic, that puts out those numbers. Tim, many thanks for your time. We should try and get the overall thing into straight on hold today, again. It’s not as though the housing markets on the east coast of Australia are falling in a massive hole as many people predicted, are they?

Interview: Tim Lawless, Head of Research, CoreLogic

Tim Lawless: No, not at all. I think what we’re seeing is probably more described as a controlled slow down, particularly in the case of Sydney. To put this into context, in the March quarter, Sydney dwelling values are rising at 5% over that three month period. We’ve seen the growth split back by in July to just 2.2%, still really strong. I think it’s undeniable but we have seen it slow down and say that probably where their growth is, is about halved over that time-frame but Melbourne hasn’t.

Melbourne has been much more resilient. We’ve been seeing Melbourne growth back in March, it was tracking at 4.2% over the quarter, the last three months it’s at 4.1%, so virtually unchanged and I think we can attribute that to just the strong jobs growth in Melbourne, the really strong population growth, right? Particularly during this immigration and the fact that Melbourne is not showing the same sort of affordability constraint as what Sydney is.

Ross Greenwood:  Okay, so affordability is the key but then explain to me Brisbane, because if they were looking for jobs, looking for places where population is rising, looking for places where there is opportunity, you’d actually imagine South East Queensland would be one of those and yet if you go and have a look at Brisbane prices and let’s take say, for example, house prices is a good example, down 0.6% for the month, down 0.8% for the quarter, year to date only up by 0.1 of a percent and for the year on year number, just 2.6%. It is very modest.

Tim Lawless: It is really modest and to add to that, the median house price in Brisbane is 528,000 is roughly half of what Sydney do at just over a million. I think the missing ingredients in Brisbane’s house price growth story it simply comes back to jobs growth. But as you mentioned, that is starting to wrap up now and so is interstate migration. A lot of those interstate migrants coming out of New South Wales into Queensland.

I think Brisbane’s time is probably just around the corner and I wouldn’t be surprised if this time next year, I think I’ve probably said this before, this time next year I wouldn’t be surprised if Brisbane is back up in one of the better performance.

Ross Greenwood:  Yes, that just is — it’s almost counter-intuitive but even if you go out there and have a look say, for example, well let’s do the yield as compared with Melbourne’s side for example, Mel, the yield on a house in Melbourne on average is 2.6%, in Brisbane, 4.1%. The yield on a unit in Melbourne 4% or 3.7% in Sydney. The yield on an apartment in Brisbane 5.3%.

Even though we know there’s a glut of apartments in Brisbane which might curtail the price, even as an income plague can generally borrow at less than 5.3%, you’re not really putting your hand in your pocket terribly much.

Tim Lawless: Yes, I think for investors, the yield scenario is going to become all of the more important. We are seeing lenders really focusing much more now on serviceability as well as making sure that you have a deposit, 20% or 10% deposit is becoming more important. I think for those investors that are active in the marketplace and looking for some growth opportunities, Brisbane it ticks the yield box, that’s for sure, but then also is very early in the growth cycle and much more affordable.

Ross Greenwood:  Okay. The one market that really does surprise me at all times is Canberra. Let’s go, for example, we’re talking about Melbourne and Sydney prices being very, very strong while say, for example, you’ve got Darwin and also Perth prices continuing to fall but have a look at Canberra, it’s just been absolutely a beauty.

House prices, year on year up 13.2%, year to date, up 7.2%, even the last month up 2.3% it’s pretty robust and the average price of a house 683,000, is more than Brisbane, it’s more than Darwin, it’s more than Hobart, it’s more than Perth, it’s more than Adelaide, and the only markets that are stronger then, are Melbourne and Sydney.

Tim Lawless: Yes, Canberra is a great market at the moment and it’s come out of a bit of a slump. If you recall back around 2010 when there was some job shedding or just speculation that the government be job shedding, the market did actually fall and it’s really started to bounce back now on the back of a very strong economy in the ICT, as well as the fact that it is very affordable. Not just in the sense of the prices are quite low compared to say Sydney, but also incomes are quite high across Canberra, we are seeing public wage rises actually outweighing or outpacing the private sector.

Ross Greenwood:  In regards to the Reserve Bank interest rates, it’s not making much difference, it’s not really what the Reserve Bank does at the moment, it’s actually what the lending institutions are doing and it’s really effect that investor, in particular, have just got to be able to afford the loans that they have got and be able to keep the ball in the area as it were.

Tim Lawless: Well, lenders are doing much of the heavy lifting here for the Reserve Bank in slowing down the markets so even though we haven’t seen the cash rate move since August last year, we have seen mortgage rates rising particularly for investors and now more so for more recently interest only loans. If you are an investor now, you’re probably paying about a 50 basis point premium over and now interest-only loans are also attracting about a 50 based point premium as well so if you are an interest only paying investor, you’re generally paying about 100 basis points higher than a principle of an interest owner occupier.

Ross Greenwood:  That might just help our next caller Rob who’s on the line, jumped on the line right now, good day Rob, you’re talking to Tim Lawless, how are you?

Rob calling into the conversation.

Rob: Evening gentlemen. Look, I’ve just got a query about the commercial side because houses, you look at houses and you have spend 700,000 or more, but a commercial property like an office or something like that, you might pick up one of those for maybe half that. How would the yield go on some of those smaller commercials?

Ross Greenwood:  Go on Tim, you keep yourself across this stuff as well as the housing stuff, what do you reckon? Because this is always the argument, why don’t people go ahead and buy commercial properties instead?

Tim Lawless: It’s a great question and I’m surprised more people don’t actually invest in the non residential sector. Maybe it’s because it is a little bit more foreign to some people or it could be a little bit more sophisticated, but you generally find in the non residential sector, particularly small office space, the yields tend to be higher. You generally expect a yield upwards of say 5% but the more commonly up are around a seven or 8% mark but the capital growths rates do tend to vary very much based on economic conditions, white collar jobs growth and so forth, but absolutely for a yield play and particularly for a lot of people investing in superannuation or self-managed in superannuation fund, then the commercial sector is very popular.

Ross Greenwood:  Yes, it’s going to be interesting to watch that, the other problem also is of course when you buy commercial property Rob, you’re not only taking a property risk, you’re also taking, you feel like a business risk because you’re going to pick the right tenant to make certain they don’t go bust and leave you as the owner in a hole and that is always one of the reasons why banks can be a little it more circumspect in lending to commercial property investors as compared with lending to residential investors where they think they have basically got almost a guarantee on you wages as well.

Rob is enduring just outside of Melbourne and Rob we appreciate your call and also to Tim Lawless the head of research at CoreLogic. Tim as always, a great report and we’ll talk to you next month as well.

Tim Lawless: Thanks Ross.

Other two tier property related articles and interviews with CoreLogic

03-07-2017 9News: House Prices bounce back in June

03-07-2017 Property gains over the second quarter of 2017 is losing steam

01-06-2017 House prices fall for the first time in 18 months

01-05-2017 Two hottest housing markets show signs of slowing down in April

20-04-2017 Investment Properties to be reigned in

11-04-2017 9News: House Prices set to fall in 5 years

10-04-2017 House Price Fall Looming

03-04-2017 Property prices surge – Core Logic

28-03-2017 Top 25 Best and Worst Performing Areas Over The Past 25 years

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