Category: News

The year’s strong property price growth has also translated into the number of new million dollar median suburbs leaping by 17.5 per cent.

Data released Monday (1 July) by Ray White Group also showed that this benchmark median property price had quadrupled to 857 suburbs since 2014.

The current real estate market strength is largely attributed to the mid-sized capitals of Perth, Adelaide and Brisbane, which have again dominated the capital growth stakes.

CoreLogic’s Research Director Tim Lawless said the market was defying a range of potentially suppressive factors.

“The national index has found a groove, with persistent growth coming despite an array of downside risks, including high rates, cost of living pressures, affordability challenges and tight credit policy.

“The housing market resilience comes back to tight supply levels, which are keeping upwards pressure on values.”

A shortage of homes for sale is overwhelming those variables.

The growth trends are reflected in advertised stock levels.

Over the four weeks ending June, the number of homes advertised for sale in Perth were 23 per cent lower than at same time last year and 47 per cent lower than the previous five year average. Adelaide (-43 per cent) and Brisbane (-34 per cent) are also recording real estate listings that are significantly below average for this time of year.

The two-speed nature of the market’s performance is best highlighted by the gulf between Perth and Melbourne.

As these PropTrack property price heat maps show, the former is recording growth of 12 to 26 per cent around the metropolitan area, compared to Melbourne’s uniformly flatlining market locked into a tight range at or close to zero.

The Ray White House Price Report, using independent Neoval data, found Perth’s house median increased 3.6 per cent monthly and 26.7 per cent over the past year. The median has landed at $821,093, which means properties in Perth went up $985.31 a day, over a 30-day month.

Regional markets have shown a similar trend to the capitals, with regional Western Australia leading the pace of capital gains with a 1.5 per cent rise in June and 16.6 per cent increase over the financial year.

Regional South Australia and Queensland have also recorded strong growth conditions, while regional Victorian dwelling values fell by half a percent over the year and regional Tasmania recorded a mild 0.7 per cent rise

Queensland’s continued price explosion has led to first home buyers abandoning hopes of home ownership.

Antonia Mercorella, CEO, Real Estate Institute of Queensland, said the state has the lowest proportion of first home buyers in the country, and first home buyers make up less than one in five loans in the state.

“Relatively affordable price brackets are a magnet for owner occupiers and investors alike, and this broad popularity makes ‘bagging a bargain’ an unlikely scenario.

“Apartments have again forged ahead strongly, notably in the Greater Brisbane areas and relocation hotspots of the Gold and Sunshine Coasts, offering greater affordability, good locations and low-maintenance lifestyle compared to free-standing houses.

“The highest growth for apartments for the quarter was Logan (9.99 per cent) and similarly, Toowoomba apartments stood out in the regions (6.88 per cent) – both markets still sitting comfortably under the half-a-million sweet spot.

“In the housing market, the star performer over the quarter was Gladstone (6.59 per cent), followed by Toowoomba (6.55 per cent), Rockhampton (5.91 per cent) and Townsville (5.27 per cent) demonstrating the continued renaissance of the regions.”

More property price hikes expected

Eleanor Creagh, Senior Economist, PropTrack, said national home prices have cycled through 18 consecutive months of growth to hit a fresh peak in June despite the pace of growth slowing as winter begins.

“Although the number of homes hitting the market this year has lifted, strong population growth, tight rental markets and home equity gains continue to bolster demand,” she said.

“Meanwhile, building activity remains challenged, resulting in the chronic shortage of housing being exacerbated by a lack of new construction.

“Interest rate stability has sustained buyer and seller confidence, while the continuous rise in home prices is motivating many to overcome affordability challenges and transact with the expectation of further growth, and as a result, demand is outpacing supply, pushing prices and rents higher and offsetting the higher interest rate environment.

“From July, tax cuts will lift household incomes increasing borrowing capacities and buyers’ budgets, further supporting price growth.

Although home prices are expected to rise in the coming months, they will likely maintain a slower pace through the seasonally quieter winter period, particularly with increasing uncertainty around interest rates.”

Fitch Ratings has forecast nominal home prices to grow by 4 to 6 per cent in 2024 following likely growth of 9 per cent in 2023 from the trough in January 2023. More modest rises of 3 to 5 per cent will follow in 2025.

Analyst Timothy Groombridge said housing demand is high due to strong net migration and changes in household formation.

“Average household size has trended lower since the pandemic, leading to increased demand for housing.

“The low home listings seen in 2023 are expected to continue as homeowners are reluctant to sell due to fears of being unable to get a new mortgage assessed with high servicing buffers.

“New home construction has been decreasing as high inflation has resulted in increased building costs.

“Affordability constraints due to high home prices relative to income are expected to slow price rises in 2025.

“High interest rates for longer than our expectations may lead to home price movement below our forecast,” Mr Groombridge said.

With property prices showing little overall sign of slowing or retracting, the number of million dollar suburbs is set to rise further.

Atom Go Tian, Senior Data Analyst, Ray White Group, said of the six states and two territories, Queensland is the fastest growing with its count of $1 million suburbs growing by 25 times over the last decade from just seven to 174.

Most of these existing suburbs are in New South Wales, which has at least twice the number of million dollar suburbs as any other state at 358 suburbs as of 2024. Victoria comes in second with 176.

“Assuming the growth rate of the last decade maintains its trend for the next 12 months, we can expect around 99 new suburbs to pass the $1 million mark,” Mr Tian said.

“Thirty of these will come from New South Wales, 24 from Queensland, and 18 from Victoria, which means Queensland has a very high probability of overtaking Victoria as the state with the second most count of million dollar suburbs.”

At the halfway point of the year, regional Queensland is one of regional Australia’s top property markets for 2024.

Regional Queensland was ranked in the Canstar 2024 Rising Stars report by Hotspotting as the top regional market for future growth and also ahead of several of the capital cities on five key market metrics, namely sales activity, recent price movements, vacancy rates, rental growth trends and infrastructure spending.

And it is primed to repeat that performance into the second half of 2024, with prices and rents likely to continue increasing in many regional Queensland markets this year.

There are still plenty of people relocating to Queensland from southern states leading to growing demand for real estate. This is backed up by lending data that shows loans to owner occupiers and investors are at all-time highs in Queensland.

This strong demand is being reflected in price data, with PropTrack figures showing regional Queensland unit prices rose by 12 per cent in the past 12 months and house prices by 11 per cent during the same period.

While regional Queensland markets have done very well since the start of the year, it seems unlikely they will slow anytime soon.

Since the start of 2024, there has been considerable impetus driving the Gold Coast, Gladstone, Townsville, Cairns, Rockhampton and Toowoomba, with growing signs of resurgence in the Sunshine Coast market

For investors, the markets still offer plenty of opportunities. The majority of investors are seeking affordability. According to Australian Bureau of Statistics figures, the majority of investors have incomes below $100,000. This dictates, for many, a purchase somewhere in the range from $400,000 to $600,000, a price range in which many regional Queensland markets sit comfortably.

High rental yields

It’s not just affordability that regional Queensland markets offer but also solid returns for investors with above-average rental yields in many locations.

Gladstone and Kingaroy are perfect examples of this.

Gladstone is one of Australia’s most promising regional markets. It has a diverse range of projects, either underway or proposed, including multiple hydrogen initiatives.

It has become a bustling regional centre with growing job opportunities, leading to a rise in demand for real estate.

House prices in the city remain relatively affordable, with properties ranging from the mid-$300,000s to mid-$400,000s. Rents are on the way up, with median asking rents for houses increasing by more than 16 per cent in the past 12 months according to data from SQM Research.

House rental yields are at a level that will please most investors, with the majority sitting in the 6 per cent range, while unit yields go as high as 8.5 per cent.

Closer to Brisbane, Kingaroy provides similar opportunities.

Despite its proximity to major cities, Kingaroy offers comparatively cheap land, very low vacancies, and rising rents, making it a desirable location for investors and home-buyers.

Its prime location, just two hours northwest of Brisbane, positions it for significant growth in the future.

The region has all the necessary elements for success, such as a favourable climate, a strong farming culture, and convenient trade routes. Its thriving transport and logistics industry, as well as the $31.4 billion Inland Rail Link, further contribute to its appeal.

Additionally, Kingaroy has embraced renewable energy projects, solidifying its position as a promising location for economic growth and future prosperity.

Median house prices start at just $380,000 while yields are all in the mid to high 6 per cent range and median asking rents have increased by 30 per cent in the past 12 months in some of its suburbs and towns.

Those markets alone show that the regional Queensland market has plenty of life left in it, and significant growth potential.

Massive taxes imposed on foreign buyers at purchase and in annual land taxes have been scrapped by the New South Wales Government after it was determined they were in breach of international treaties.

For now the other states have refrained from following suit, raising the question of whether legal battles may be looming if the taxes are inconsistent with the international tax treaties to which Australia is a signatory.

The abolition of the foreign surcharges related to residential land purchases apply to residents of eight countries that have a reciprocal arrangement with Australians buying in those nations.

Among them is India, from which a huge number of property enquiries emanate.

As Simon Gold, Director, Australasian Taxation Services, explained, the taxes were an enormous impost on foreign buyers and a strong deterrent to purchase in Australia.

New South Wales might now be well placed to attract more foreign investment in Australian residential property.

Mr Gold said there are two state taxes at play here.

“The first is a stamp duty surcharge, which for foreign buyers in NSW is set at a whopping 8 per cent of the purchase price.

“There is then a yearly land tax surcharge too, which for foreign investors in NSW stands at a massive 4 per cent.”

Other states levy a similar burden on foreign buyers.

Victoria and Tasmania are also 8 per cent, with the other states sitting at 7 per cent. There is no stamp duty surcharge in Northern Territory or ACT.

This applies even if the property happens to be exempt from ordinary land tax for example if the property was below the threshold. The other states and territories then range from a land tax surcharge between zero and 2 per cent.

Are foreign property surcharges legal?

Revenue NSW’s website has recently announced it was rescinding the two taxes because they were “inconsistent with international tax treaties entered into by the Federal Government with certain nations.”

“These international tax treaties are related to taxation and other matters and have been given the force of federal law,” the website states.

Mr Gold told API Magazine that it would be interesting to watch how other states responded to the NSW move and whether they could somehow shirk the legal obligations to which the New South Wales Government felt compelled to adhere.

“It’s a good question, and in short who knows?

“As this is a state-based tax, each state and territory has the ability to review , modify and/or repeal this policy independently.

“NSW is the first state to proceed in implementing this change, while the other states and territories have so far decided against repealing the foreign surcharges.

“It will be interesting to see if that is ultimately challenged through the courts,” he said.

Under the new framework in NSW, individuals who are citizens of the above nations purchasing residential-related property or who own land in their own capacity do not have to pay surcharge purchaser duty and surcharge land tax.

Surcharge purchaser duty or surcharge land tax liability for non-individuals, such as corporations, trusts or partnerships that arises because of an entity’s affiliation with these nations may also be affected by the international tax treaties.

The state may now find itself refunding millions in taxes that it has collected against the terms of the treaties.

Refunds may be available for those from one of the nations concerned, who paid surcharge purchaser duty or surcharge land tax on or after 1 January 2021.

Will foreign property investors flock to NSW?

Given the critical rental shortage, encouraging foreign investment in housing (or at least, not discouraging it) would seem a sensible measure to boost supply and help ease what is fast becoming a desperate situation for many Australians trying to find a home in which to live.

While some bemoan the impact of foreigners on property affordability, in 2021-22 foreign buyers represented about 3 per cent of all transactions on new property, and less than 1 per cent of total property sales.

Mr Gold said that with housing affordability a current hot topic, it will be interesting to see if the transaction costs necessary to buy a property appear on the political agenda, whether it be the foreign buyers stamp duty surcharge, or even stamp duty in general.

As to whether the NSW measures will encourage a major influx of investment activity is yet to be seen.

“Ultimately time will tell, however, one would expect that foreign nationals from the eight listed countries may now look to invest in NSW as opposed to other states.

“Anecdotally – and perhaps coinciding with rising rents – a few of our clients from the affected countries have actually reached out expressing their desire to now buy their home as opposed to feeling they need to keep paying rent until such time as their permanent residency application comes through,” Mr Gold said.

South Australia made sweeping reforms to stamp duty last month, while NSW has also passed legislation in June granting increased stamp duty exemptions and concessions.

Depending on who you listen to, the Sydney property market has either started going backwards with growth prospects diminishing or is still inching upwards with pockets of the city shaping up for major capital growth in 2024.

According to PropTrack, Sydney home prices have been flat since September, declining a very modest 0.04 per cent in January after dipping very slightly in December as well.

CoreLogic paints a slightly rosier picture. Sydney’s property market capital growth has, according to their data, slowed from an annual rise of 11.4 per cent to just 0.2 per cent in the past month and 0.1 per cent over the past quarter.

Either way, when weighed up against the high-flying Perth, Adelaide and Brisbane property markets, the city’s real estate has taken a breather.

A Demographia study published last year indicated Australia was the least affordable housing market in the world, with Sydney the second least affordable market behind only Hong Kong. Other studies regularly place the Harbour City among the top five for unaffordability, which suggests affordability may reached a roadblock where income limitations cannot drive prices higher.

Price growth in Sydney’s housing market has been fuelled by population growth, an undersupply of housing and higher levels of investor activity. Geographical constraints and planning restrictions have also limited the expansion of the land stock suitable for housing.

While the prospect of Sydney delivering another double-digit property price gain in 2024 appears remote, there are some sectors of the market and suburbs with upbeat prospects.

PropTrack Property Market Outlook Report has predicted Sydney’s house prices are set to increase up to 5 per cent in 2024.

Allen Habbouchi, Head of Project Sales and Distribution, aussieproperty.com, identified six suburbs he expected to outperform the wider market but said units were in for a difficult year.

“There are several market segments that are underperforming, for instance, new off-market units are suffering the most in Sydney’s current property market.

“I believe units are underperforming due to the lack of buyer confidence evident in the building industry, with builders consistently going bust.”

“Ultimately, it is these areas that are oversupplied with units that are weighing most heavily on Sydney’s overall dwelling value trend, including suburbs such as Rouse Hill, Zetland, Schofields and North Sydney.”

Mr Habbouchi said the suburbs best placed to deliver above-trend capital growth in 2024 were Concord, Strathfield, Narwee, Beverly Hills, Kogarah Bay, and Hurstville.

There is still clearly some life in the Sydney market.

Sydney’s 615 auctions last week returned an early clearance rate of 80.4 per cent, the highest preliminary result since the week ending October 24, 2021.

Western Sydney is also undergoing a major infrastructure revamp that could push property in the area.

Matt Lahood, Real Estate CEO for The Agency in Sydney, said the city won’t see the rapid growth of previous years, but will retain price stability due to a peaking of the interest rate cycle.

He said there are still areas that would surprise on the upside this year.

“We will continue to see overall growth but at a far reduced rate.

“The middle-class mortgage belt is underperforming due to increased serviceability hurdles and cost of living increases, while most active in the market are first home buyers, who with the continually escalating rental prices are prioritising the security of finding somewhere to live.”

Asked by API Magazine to single out some suburbs that are defying this slowdown and are positioned to deliver stronger than trend growth in 2024, Mr Lahood named Alexandria, Surry Hills, Coogee and Neutral Bay.

Old apartments have their upside

The first home buyers who are active in the market are among the cohort most affected by the plethora of building defects blighting the construction industry in New South Wales.

The ongoing probe into serious defects in four blocks of new apartments in the Lachlan Line’s complex at Macquarie Park adds to the litany of faulty new builds causing angst.

Against the backdrop of the savage rental crisis, the young and vulnerable are in danger of swapping one set of problems for another in the form of shiny new apartments.

According to a recent NSW government strata survey, more than half of newly registered buildings since 2016 have had at least one serious defect costing an average of $331,829 per building to fix. The research by the Strata Community Association NSW further reveals that waterproofing is the most common major defect followed by fire safety. Close to one in 10 buildings also had structural and enclosure issues such as defects in the roof or the facade.

Michelle May, Principal of Michelle May Buyers Agents, hopeful home buyers must be wary of not falling into the grievously damaging trap of buying properties that are too new or off-the-plan.

“As the market absorbs these lessons on the risks of buying new homes and apartments, well-preserved older properties will continue to rise in value.

“Built in an era where craftsmanship standards were higher, many of these vintage gems are located in established neighbourhoods with a strong sense of community and potential for steady appreciation and unlike cookie-cutter new apartments, older apartments tend to be in smaller blocks with less costly strata fee overheads for facilities that one wants or uses.

“Older houses offer opportunities for renovation due to bigger land blocks, more space and more flexible layouts, with high ceilings and period details always remaining in fashion and highly prized.”

Sydney rental market still tough for tenants

Over the last month, the vacancy rate for Sydney overall rose by 0.2 per cent to 1.7 per cent. Vacancies in the inner and outer rings of Sydney rose to be 2.0 per cent (+0.2 per cent) and 1.7 per cent (+0.5 per cent) respectively.

While not as savage for tenants as the 0.4 per cent seen in the likes of Adelaide and Perth, it is still a tough time to be a renter.

Melissa Morgan, Principal of property management business Progressive Property, told API Magazine they were seeing a potential moderation in rental demand as we near the end of the peak summer season but was not expecting any significant rent decreases, likely just more moderate demand and stable prices.

“Fuelled by immigration, student demand and people relocating for work that want to be near the city, the most demand is coming from renovated properties in the inner suburbs and lower price ranges, such as one- and two-bedroom properties around inner south like Alexandria, inner west like Glebe or inner east like Surry Hills.

“We are finding the rental growth is not as significant in larger properties, especially if they are a little older internally.

“The lower North Shore is still not experiencing as much growth but inner suburban modern units and townhouses, especially if they’re well located and with some outdoor space are really popular.”

These were among the revelations in the latest data releases from the major property market analysts.

Nationally, property prices in the capitals and regions alike were 0.6 per cent higher in February, up from 0.4 per cent the previous month.

CoreLogic’s Home Value Index for February has Perth on track to record growth in 2024 of more than 20 per cent at its current rate of knots.

Dwelling values shot up 1.8 per cent, ahead of the other reliably strong deliverers of capital growth, Adelaide (1.1 per cent) and Brisbane (0.9 per cent).

Sydney’s median property price of $1,128,155 belittles the rest of the country but speculation that the Harbour City’s lack of affordability would result in an inevitable price decline seems premature.

Steady growth of 0.5 per cent eclipsed its southern neighbour, but Melbourne’s 0.1 per cent monthly increase put an end to three months of continuous price falls. The Victorian capital has a median value of $778,941, fourth among the capitals behind Sydney, Canberra and Brisbane.

Adelaide’s continued strong performance, up 1.1 per cent for February, has seen its median dwelling value claw its way to within $50,000 of Melbourne’s.

Buoyed by a lack of supply and abundance of interstate investors, Perth’s real estate juggernaut is showing no signs of slowing.

Speaking to API Magazine, Julie Kelley, Global Sales and Marketing Manager for aussieproperty.com, said every indicator pointed towards continued growth and a possible acceleration as the year unfolded.

“Perth is not showing any signs of a slowdown, with population growth, housing supply shortages and high rents driving the capital growth.

“The east coast investor contingent is also hungrily purchasing property at rates we haven’t seen since the mining boom of the 2000s.

“These savvy buyers recognise Perth is extremely affordable, offers high rental yields, sub-1 per cent vacancy rates, has a strong economy, and the fastest housing value growth nationally.”

Perth’s median property price of $687,004 is narrowly ahead of Hobart’s ($652,645) and sits only above Darwin’s $500,000 among the rest of the capitals. The Western Australian capital’s rental crisis is as severe as anywhere in the country, with a vacancy rate of just 0.4 per cent (with 2-3 per cent regarded as a balanced market).

Ms Kelley said that in an attempt to accelerate residential land developments in Perth, the state government is slashing red tape and introducing initiatives to create more supply.

“The government is trying but we are still years away from housing and rental supply correction, so we can expect prices to continue to rise at the hasty rates we are experiencing now.

“I would not be at all surprised to see month-on-month growth above 2 per cent at some point this year.”

The city’s southern coastal suburbs were performing particularly strongly.

CoreLogic’s Research Director, Tim Lawless, agreed that Perth’s runaway property market had few inhibitors.

“The underlying fundamentals of the WA housing market look set to continue for some time, with Perth and parts of regional WA continuing to show an affordability advantage alongside solid demand from high levels of interstate and overseas migration.

“With substantially higher rental yields and prospects for capital gains, WA is likely to be a favourite among investors.”

Renters struggling to find properties amid rapidly rising rents have little cause for optimism.

“Similar to the trend in housing values, Perth stands out among the capital cities with a substantially faster rate of rental growth that is showing little evidence of slowing down,” Mr Lawless said.

“The same underlying factors that are rapidly pushing home values higher across Perth are at play in the rental sector, with demand substantially outweighing supply, keeping rental growth well above average levels.”

On a national scale, the slowdown in home price growth recorded toward the end of 2023 has reversed this year, with prices hitting a new peak in February.

According to PropTrack, national home prices lifted 0.45 per cent to hit a new record in February, marking the largest monthly rise since October 2023.

Eleanor Creagh Senior Economist, PropTrack, said more homes have hit the market this year, but demand has kept up with that increase. She said prices would keep rising in 2024.

“The expectation that interest rates will fall in the second half of 2024 is likely providing a positive tailwind for activity.

“Housing demand is also being buoyed by population growth, tight rental markets, resilient labour market conditions and recent home equity gains and meanwhile, the sharp rise in construction costs and labour and materials shortages have slowed the delivery of new builds, hampering the supply of new housing.

“Looking ahead, the positive tailwinds for housing demand and a slowdown in the completion of new homes are likely to offset the impact of reduced affordability and a slowing economy.

“As a result, prices are expected to lift further in the months ahead,” Ms Creagh said.

Brisbane’s hot market and hotspots

On an annual basis, Perth is only narrowly ahead of Brisbane, with prices up 18.3 and 15.6 per cent respectively, according to CoreLogic.

Ms Creagh said Brisbane has been one of the strongest-performing markets since the pandemic onset, with prices up 60.7 per cent since March 2020, according to PropTrack data, putting dwelling values on par with Melbourne.

Ms Kelley of aussieproperty.com said Brisbane’s 2024 fortunes would be buoyant throughout 2024, driven by the many of the same variables as the West’s hot market, namely population growth, interstate migration and housing supply shortages.

“The Brisbane market experienced exceptional house price growth through Covid, so I don’t anticipate Brisbane overtaking Perth this year in terms of month-on-month capital growth, however, Brisbane and Perth will still continue to dominate the top spots this year.

“I would be surprised if Brisbane’s house growth over the coming 12 months was in the double figures but it will perform solidly.”

Ms Kelley identified a clutch of suburbs that were well positioned to generate higher capital growth than the wider city average.

“Our investor clientele are still attracted to the inner city and middle-ring suburbs of Brisbane and prefer homes and townhouses over apartments and house and land packages in outskirt locations.

“Investors are typically shopping in the $1 million to $1.5 million price range knowing they may need to increase their budgets for quality properties.

“The suburbs of Camp Hill, Holland Park, Carindale, Carina and Carina Heights are in high demand.

“Our clients that are searching for homes in which to live generally have high budgets in excess of $2 million and have preferences closer to the city, such as Highgate Hill, Paddington, Hawthorne, Hamilton, Bulimba and St Lucia.”

East Coast buyers agents are overinflating price tags for eager eastern states buyers, first home buyers desperate to escape the nation’s most stressed rental market are pushing prices at the lower end of the market through the roof, and villas, flats and townhouses are being embraced like never before.

Perth property overall, already the fastest growing market in the country, is forecast to rise at least another 10 per cent this year, on the back of 18.3 per cent growth in the 12 months to the end of February.

Some investors are now asking if the market is still delivering investment potential when competitive buyers are outbidding each other on listed prices by 10 per cent or more.

With that 10 per cent get-in-the-game increment potentially erasing a year’s growth, and stamp duty and other transaction and settlement costs, where does long term value lie?

Supply, a strong economy and population growth remain the key drivers of Perth’s market.

But if global economic and geopolitical factors were to quell the current high levels of demand and persistent global inflation continued to keep interest rates locked in, investors could feasibly be looking at lengthier times to recoup their investment.

Top 10 unit and house suburbs for price growth

Whether its location, price range or property type, there are sectors of the market that are in greater demand than others and with resilient prospects going forward.

Most of the action is in the upper and lower portions of the market in terms of price, with outer suburban houses in the $400,000 to $550,000 price range experiencing annual price growth of more than 25 per cent, while suburbs in the $1.1 million to $1.4 million range are moving at that same rate of knots.

TOP SUBURBS BY ANNUAL CHANGE IN MEDIAN HOUSE PRICE

Price growth in the year to February 2024 (28 or more annual sales; <1HA) Source: REIWA.

Buyers who still want some land are driving strong demand for villas.

REIWA data released Tuesday (12 March) showed that within the broader unit market, villas, flats and townhouses are the top performers.

CEO Cath Hart said the overall median sale price for units was rising, but growth wasn’t uniform across the various segments of the unit market.

“When we break down the figures we can see the segments that have the most growth, which reflects buyer demand,” she said.

“Villas were the top performers for price growth, closely followed by flats and then townhouses.

“This is understandable, buyers generally prefer houses – we all like our own patch of land – however competition for houses is high.

TOP SUBURBS BY ANNUAL CHANGE IN MEDIAN UNIT PRICE

Price growth in the year to February 2024 (28 or more annual sales; <1HA) Source: REIWA.

Villas and townhouses are fairly similar to houses. They may not be set on their own block, but they often come with some land, usually in the form of private courtyards, and the low-maintenance aspect also appeals to buyers.

“There is often talk about density in Perth and these stats show buyers are quite willing to embrace medium density living, we just need to build more of these types of homes and in locations where buyers want to live,” Ms Hart said.

The growth in the median sale price for flats reflected their affordability.

“Flats are often a great way for first home buyers to enter the market,” she said.

“They also offer good value for investors.”

Units are now selling 13 days faster than they did a year ago.

The growing demand for units is seeing prices start to rise at a greater rate. The median unit sale price increased 1.2 per cent in January and was 3.8 per cent higher year-on-year.

The median house sale price rose 0.8 per cent to $605,000 over the month. This was 10 per cent higher than February 2023.

Perth’s hotspots that could outperform market

Perth owner occupiers have an appetite for landed property, more so than owner occupiers on the East Coast who have become accustomed to unit living just to be closer to the city centres.

Julie Kelley, Global Sales and Marketing Manager for aussieproperty.com, said a trend was emerging of buyers compromising to be within 10 kilometres of the CBD and shifting their search to townhouses, villas and apartments.

For investors this can be favourable as there is often less maintenance, higher rental yields and lower vacancy rates, in addition to a lower purchase price and reduced stamp duty.

In Burswood, for example in the The Crest development, and Como, buyers can purchase a two-bed, two-bath, two-car apartment in a complex with resort-style facilities in the $660,000-$770,000 bracket.

When it comes to houses, Ms Kelley said many buyers with a budget of $1 million or less and wanting a large four-bed, two-bath, two-car family home on a good-sized block are expanding their searches to beyond 20 kilometres of the CBD.

Suburbs south of the city’s famous Swan River divide were attracting strong investor interest.

“Suburbs such as Canning Vale, Harrisdale and Piara Waters, Treeby and Hammond Park south of Perth are popular,” Ms Kelley said.

“They are well established suburbs, with good amenities and schools, lovely parks and a great sense of community.

“The houses in these suburbs were typically built as house and land packages in well-designed leafy estates from the 1990s into the 2020s, with land releases and new builds continuing even now.”

Buyers with similar budgets and goals looking for homes north of the river and content to settle outside a 20 kilometre range from the CBD, were making houses in suburbs such as Hamersley, Greenwood, Kingsley and Darch highly sought after assets.

Supply crunch to linger despite government efforts

Driving the Perth market is an unprecedented housing shortage, with supply and demand disparities at historic levels.

In response, the Western Australian government has launched initiatives such as the Builders’ Support Facility (BSF), applications for which opened on Monday (11 March), to help boost supply.

Western Australia’s population increased 3.1 per cent in the year leading up to June 2023, the highest growth rate nationwide.

Peter Gavalas, a buyer’s agent from Resolve Property Solutions, said this has far outstripped housing supply, which has been plagued with low completions and dwindling approvals.

“Initiatives like the BSF facility are a positive step but don’t fully address the underlying issues affecting Perth’s housing supply, and as a result Perth’s property prices and rents are likely to continue rising, adding yet more pressure on potential homebuyers and tenants.

“Perth’s property market is in dire straits.”

According to recent REIWA data, the number of listings for sale across Perth plummeted to a record low of 3,648 at the end of December, marking a 23.4 per cent drop from November and a staggering 49.0 per cent decline compared to December 2022.

“The gap between the number of homes available and the number of people wanting them has never been wider, fuelling intense competition among buyers and driving up prices,” Mr Gavalas said.

“Meanwhile, homes are flying off the market, with houses selling in just 10 days on average.”

William Shakespeare may have penned the line “To be, or not to be, that is the question.” For professional accountants, the (arguably) equally profound question we are commonly asked is, “To negative gear or not to negative gear?”

Most investors have a basic understanding of what negative gearing is and how synonymous it is with property investing. This article will expand upon these concepts by discussing positive gearing, non-property investment assets, and the differences between cash flow and tax position.

Positive versus negative gearing

The term “gearing” refers to the use of leverage, otherwise known as a loan, with which to fund an investment acquisition. Interest costs incurred on monies borrowed for investment purposes are tax deductible, so it is often seen as an attractive option in reducing tax.

Negative gearing is, in essence, a tax deduction created due to expenses incurred in owning the investment (with interest costs typically being one of the larger expenses) exceeding the income earned from the investment.

A simple example to illustrate:
$20,000 income received
$25,000 expenses incurred
————————————-
$5,000 negative gearing loss
————————————-

Positive gearing, by contrast, occurs when investment income received exceeds the expenses incurred, with the resulting profit more usually being taxable.

To illustrate:
$25,000 income received
$20,000 expenses incurred
————————————-
$5,000 positive geared profit
————————————-

Why is negative gearing so popular?

The reason negative gearing is so prevalent with property investors is twofold.

First, the sheer cost of buying the property itself would frequently be completely unattainable without a mortgage.

Second, it is to do with the differential between interest rates and rental yield. A bank may charge 6-8 per cent p.a. as the interest rate but the gross rental yield (which is the yearly rent received as a percentage of the property’s market value) may be between 3-5 per cent p.a. and this is before other ownership costs (such as rates, levies, insurance etc.) are factored in, inevitably creating a loss position.

So why then would an investor be happy to lose money via such a strategy?

A key driving force, dare it be said, is taxation. The tax deduction brought on by negative gearing is directly correlated to how much income tax someone needs to pay.

A taxpayer earning above the top marginal tax rate of 47 per cent will therefore save (such as via an additional tax refund) 47 per cent of their negative gearing loss.

To quantify this, a $10,000 negative gearing deduction equates to $4,700 tax saving. By extrapolation, a $50,000 negative gearing deduction will generate $23,500 in income tax savings.

The higher someone’s taxable income, thereby their marginal tax rate, the greater the tax benefit that can be obtained.

The other driving force behind why investors opt to implement a negative gearing strategy is capital appreciation. Put simply, the investor anticipates the investment growing in value.

To illustrate, let’s assume a property investor buys a $500,000 property and sells it 10 years later for $1,000,000. Transaction costs to buy and sell may be $50,000, thereby the investor has made a pre-tax profit of $450,000 (i.e. $1,000,000 – $500,000 – $50,000).

If $10,000 of negative gearing losses arose each year for 10 years, then over the life of the property $100,000 (i.e. $10,000 x 10) of negative gearing losses have been derived. So, a $100,000 “cost” led to a $450,000 profit.

Gearing into non-property investment asset classes

The term “margin loan” is a strategy of being able to leverage, or gear, into shares.

In recent times it has become increasingly common for share investors to utilise their residential mortgage to fund share investments owing to the advantages of lower interest rates as well as removing the risk of margin calls brought about by adverse price volatility.

Investors can either positive or negative gear into shares/managed funds/ETFs and will do so for the same reasons as property, that being to reduce tax and for the investments owned to increase in value.

Certain shares also have the added tax benefit of what is known as franking credits, or imputation credits, which can enhance the investors’ after-tax rate of return.

It is also possible to borrow money at one interest rate and invest it at another. This strategy is colloquially known as “playing the margin”.

To illustrate:
$100,000 invested at 10% p.a. = $10,000 interest income
$100,000 borrowed at 7% p.a. = $7,000 interest expense
————————————-
$3,000 profit
————————————-

There is no (or perhaps very little) capital appreciation when investigating in higher yielding fixed interest type securities, and accordingly this approach to investing will inevitably be positively geared.

Cash flow versus tax

In the world of investing, it is common that there will be differences between what the investor physically receives as income and pays as expenses, compared to the numbers reported within their income tax return.

Of particular relevance when it comes to borrowing money to invest are the mortgage repayments themselves. Loans can be classified as either “interest only” or “principal and interest”.

Principal and interest repayments will be higher due to having to pay down a part of the remaining loan balance with each payment. While the principal component will affect cashflow, it will not affect someone’s tax position, as it is only the interest component that is tax deductible.

Investment in real estate may have added tax deductions such as depreciation and building write-offs. Investments in dividend paying shares may, as stated above, benefit from franking credits.

To be or not to be (leveraged)?

It can certainly be financially advantageous to be able to borrow money to invest. Any decision to use leverage to invest needs to be weighed up carefully against the risks.

Interest rates can and will change. Economies will prosper as well as enter recessions. Wars will break out, pandemics will occur, and changes in economic policy and tax laws by different governments of the day are all inevitable.

The use of leverage to gear into investments most certainly has the potential to improve an investor’s rate of return. But all coins have two sides; an unsuccessful investment can magnify your losses and leave you servicing a loan for many years after the investment has been sold or wound up.

Receiving sound investment advice in addition to quality taxation advice before entering any gearing strategy would be wise.

As Shakespeare’s Sir John Falstaff says in The Merry Wives of Windsor, “Money is a soldier, and will (work) on.”

In 1602, that was his way of saying “money is a good soldier to have in your corner and you should be putting it to work for you.”

It’s probably as true now as it was more than 400 years ago.

The head of the company that looks after more Australian landlords than any other accounting firm in the world has argued that despite recent property rises, Australia’s capital cities real estate was still far more affordable than comparable major centres globally.

While the biggest cities Sydney and Melbourne were worthy of buyer attention, it was the smaller state capitals that represented the best investment value for international and local buyers alike.

Speaking in Singapore at the aussieproperty.com Annual Market Update Seminar, Steve Douglas, Chairman of SMATS Group and Managing Director of Australasian Taxation Services and aussieproperty.com, said the idea that Australian property was overpriced was very much an Australian perception.

Citing the price of property per square metre around the world, he said it was clear Australian property had the capacity and conditions to continue rising in value.

“Australians are complaining about property prices but if you look at prices internationally it is incredibly cheap by global standards,” he said.

“Buyers in the likes of Hong Kong and Singapore are realising that living in a small apartment as opposed to a large house in Australia is an overwhelmingly attractive proposition.

“Cities like Perth and Adelaide are less than a quarter the price of Hong Kong and around a third of Singapore’s price per square metre.

“Melbourne and Brisbane aren’t far behind, and even Sydney, which does have far higher median dwelling vales than the rest of the country, is a bargain compared to comparable business hubs like New York, Shanghai, Singapore and Hong Kong.”

Mr Douglas agreed with the broader consensus among financial institutions that Australia’s current real estate market recovery had plenty of steam left in it yet.

KPMG’s latest property report on Australia’s capital cities predicted house prices would rise nationally by 4.9 per cent over the next nine months and then surge by 9.4 per cent in the year to June 2025.

Apartment prices across the country were tipped to see an average rise of 3.1 per cent by next June, then a 6 per cent increase in the next 12 months.

But there will be important regional differences, with Perth houses rising the highest – by 8.4 per cent – in the rest of 2024’s financial year (FY) but then Hobart overtaking other cities in FY25 and surging by 14.2 per cent.

Hobart units are also forecast to outperform all other capital cities with rises of 8.7 per cent and 10 per cent respectively over the next two years, followed by Sydney, Melbourne and Adelaide.

Mr Douglas said population growth was the major driver of the national property market.

“I’ve been saying for 30 years that the number one driver of property prices growth is population.

“Three million migrants have come to Australia over the past 11 years and this is one of the key reasons why the country is in fundamentally good economic shape.

“Where this is strategically important is that the quality of migrants is high, comprising young and highly skilled people.

More than half of Australia’s migrant intake is skilled, with the average age being 38.

“Australia doesn’t have to go find tomorrow’s migrants because many of them arrived yesterday as young kids and are now active economic contributors.

“There’s 500,000 of them coming out of university, starting out in the workforce and wanting housing, and that’s on top of the record numbers arriving this year and into the coming years.”

Australian dollar luring overseas buyers

Since January the Australian dollar has slipped from above 71 cents to the US dollar to just 63 cents.

With the exception of a brief but sharp plunge at the onset of Covid, it’s as low as the Aussie has been in ten years and a far cry from the near parity of a decade ago.

But with sound economic fundamentals, Mr Douglas argues the Aussie dollar’s inexplicably low value and the high likelihood it would inevitably rise again, is another major attraction for overseas buyers, particularly from China, who are increasingly turning to Australian property.

“In many countries around Asia, property prices are relatively flat, or like Hong Kong, falling, so Australia’s promise of capital growth is only enhanced when buyers factor in the potential for their Aussie property asset delivering a currency-linked dividend as well.

“Add in interest rates at or near a peak, and I foresee Australian property being in high demand from international and expatriate buyers,” Mr Douglas told the Singapore seminar audience, at which API Magazine was in attendance.

Where should property investors be looking?

National property prices had a 0.8 per cent rise in September as the recovery trend moved through an eighth consecutive month of capital growth.

With the exception of Hobart, every capital city and the nation’s regional property markets all enjoyed strong growth in September.

Adelaide, Brisbane and Perth have been the standout performers over the past quarter but over a year Sydney is up 7.3 per cent and Perth an impressive 8.8 per cent.

Mr Douglas said a case could be made for most of Australia’s capital city property markets.

“If you look at Sydney and Melbourne, there’s 130,000 extra people heading into those population centres and that’s a powerful stimulus for housing demand.

“If you think Aussie property prices are high now, you’ve seen nothing yet; with supply stagnant, prices will rise, mark my words.”

But he saved his biggest praise for the prospects of Brisbane and Perth.

“Brisbane and Perth are going to be the dominant markets for the next couple of years; as much as I love Adelaide it doesn’t have the same population growth but there is limited supply there so I’m satisfied that will also continue to perform almost as well as it has over the past year or so.”

Chronically low vacancy rates around the country are also pushing property prices higher, as renters claw their way into the market to avoid high rents, while investors are returning to markets like Perth’s to capitalise on high rental yields.

“I think the property market across the board is going to have a very good 12 months, with Perth probably the standout for investors,” Mr Douglas said.

“There’s a massive, acute undersupply of property and the vacancy rates are nuts!

“I expect plus-five per cent growth and perhaps double-digit growth in Perth and Brisbane.”

The cost pressures on developers were contributing to this lack of supply and price pressure, he said.

“Housing loan commitments are still low, and private residential approvals are still on the decline, why? – because developers are too scared to build because the costs are too high, so if that’s not going to get fixed, where is the supply going to come from?”

“Unless the market is willing to lift the price on new stock by 10, 15, 20 per cent, to allow developers to make decent profits, we are going to have a slow delivery of much-needed stock.”