The property market is a compilation of trends, tricks and traps that consumers must navigate in order to transact successfully. Whilst some traps such as underquoting are widely known to consumers, other more subtle changes in the marketplace have and will continue to emerge.
The conditions in the property market have changed so quickly in 2019, meaning the dynamic has changed too. In this edition of the Real Estate Report, we aim to bring you up to speed with what you can expect on the ground, whether you are buying or selling.
Stock is tight, but ‘off market listings’ are booming. A quick glance on realestate.com.au or domain.com.au would suggest the market is being starved of stock. Whilst stock levels are at historical lows, it is worth noting that ‘off market’ listings and sales are at all time highs. In some parts of Sydney, sales being conducted ‘off market’ out number auction sales under the hammer. As internet advertising costs from the two main web portals skyrocket, agents and consumers are increasingly choosing to trade offline, away from the respective websites.
Agents criticising the opposition’s listings. Unfortunately, the real estate industry has adopted some low rank sales tactics over the years. The tactic some agents are currently adopting plumbs new lows though. Agents are bagging/criticising the merits of property’s which are listed with their competition, in an attempt to turn buyers off the respective property. The philosophy of, ‘if you don’t have it listed, you don’t bag it’ has gone out the window for some agents. Vendors who interview multiple agents prior to going on market need to be careful whom they allow to inspect their home. Prospective vendors need to ask themselves whether certain agents they intend on interviewing will go out into the marketplace and criticise the property if they are not granted the listing.
Buyers are savvy enough to sense when an agent is using such despicable tactics. In saying that, when you are making the biggest financial purchase of your life, it is disconcerting when an apparent professional conducts themselves in such a manner.
If agents are not granted a listing, they should be gracious and professional enough to wish the vendors, the agent and the home well during the sales campaign.
High price does not mean best price. On the current trajectory, the Inner West property market will test fresh highs shortly. The old age adage ‘the greatest losses occur at the time of greatest gains’ definitely applies when the property market is charging like it is now. Vendors need to know getting a high price does not always mean you are getting the best price. Indeed, this is one of the major risks with selling off market. A buyer can make a very good offer ‘off market’, but what would have happened if the listing went to the open market?
Sales values going up, rental values down. Whilst the media commentary has been largely centred on the property values in recent times, the continual underperformance of the rental market has been overlooked. Many landlords have not seen meaningful growth in rental returns for over 5 years. As nearly every expense involved in running and holding an investment property has risen in that time, landlords face a squeeze on their finances. Admittedly mortgage rates have come down significantly in that time. The exorbitant rise in land tax has crippled many investors cash flow though, wiping out the benefit of lower mortgage rates. The pain of lower rents is real for investors. Apartment oversupply would be the single biggest contributing factor to lower rents over the past 5 years.
Overlooking pertinent details in due diligence period. When listings are scarce and buyer competition is high, buyers often become more carefree in assessing risks and building inspection reports. This is why unrenovated properties sell at (or close to) the price renovated properties do in a boom. It is worth noting that a building issue or defect will last well beyond the market cycle though.
There are no guarantees about ‘next year…’. The resurgence in property prices has many people who are considering a sale or purchase to speculate on what 2020 may bring. Sellers will take comfort from the current trend, whilst buyers will point to the dislocation between prices and fundamental value as a reason why the market will settle down in 2020. The reality is no one knows how 2020 will unfold. If 2019 is anything to go by, it shows the market can experience both bust and booming conditions within a short time frame. The volatility is enough to give you whip lash.
More sales will happen in December than most realise. Each December, the number of sales achieved tends to surprise. There is a misconception that if you don’t sell by late spring you have missed your chance to sell until February of the following year. A qualified buyer is ready to act regardless of the season or festive celebration at hand. A seller in the property market tends to be more seasonal, but for those that find themselves either ready or willing to sell in December, they will be pleasantly surprised at how robust the market is at that time of the year.
Older style apartments in vogue – Just as you cannot review the Sydney housing market as one, neither can you review the ‘apartment market’ as one. It is just too nuanced to apply generic categorisation to it. Given the unfortunate revelations of the build quality with many high-rise apartments, older style low rise, low maintenance apartments are all the rage with buyers. If there is a common denominator with the modern buildings that experienced major defects, it was the issues came to the surface in the first 5 to 10 years after they were built. The insurance protection for high-rise apartment owners is lower beyond a certain height too. Hence the reason buyers are favouring older, lower built apartment buildings.
Vested interest within the market. Commentators selling doom, a forecastor wanting his or her forecast to remain relevant & accurate or the Government aiming to talk up and/or stimulate the economy. The consumer needs to be aware of the many vested interests in the market. Anyone who followed and accepted the uncontested ‘market crash’ messages being espoused by market pessimists on the internet, has completely missed the latest rally in the market. Some of those who have been pushing their ‘market crash’ and ‘economic Armageddon’ theories on the internet and in mainstream media now refuse to accept or even acknowledge the property market rebound. They are calling the respective market index and reporting methodology flawed and mistaken. Good grief. This is not to say the many market pessimists don’t have some good and relevant points to make. As a consumer, you will be better positioned if you read an array of opinions and forecasts to form your own view as to the risks and rewards in the market.
Government policy or regulatory changes. A minister or official talking things up (or down as oppositions tend to do) is just that. When Government policy changes, the market dynamics can too. As we have seen over the years, small policy changes can cause huge market reactions. Think Bob Carr’s investor tax in 2004, the Federal Government’s first home owners grant during the GFC in 2008, the APRA credit squeeze of 2017 or the RBA’s 3 interest rate cuts in 5 months in 2019 as examples, where Government policy was designed to drive market behaviours. There were lots of press conferences that changed nothing in between these events, yet the adoption of the respective policies/regulation changed the direction of the market at those times. The Morrison Government has recently followed through on an election promise to assist first home buyers into the market in a stimulative move.