Is the property slump behind us?

Oct 3, 2019

By Matthew Hyder, CEO Legacy Property

5 minute read

Consumer sentiment is a powerful thing in the property world. And right now we’re seeing signs that buyer confidence is returning. A recent spike in auction clearance rates in Melbourne1 and Sydney2  suggests buyers are coming back in numbers even as the Spring rush begins in earnest.

So does this mean the market has definitely turned? Or are the media overdoing it on reports of a recovery, just as they have with their gloomy slump stories in the past year or so?

Well for once I actually agree with the media on this, but my belief in a turnaround is more to do with a number of key drivers rather than the increase in auction clearance rates.  

If you’ve been following my newsletters for a while you’ll recall how bullish I was back in March about a relatively quick turnaround in the market. Since then, I’ve only become more confident thanks to a steady uptick in enquiries to our Legacy Property projects. Nick Duncan, Director at Home & Land Agency tells me he’s seen enquiries increasing month-on-month for new Sydney projects as sentiment has improved. This is now turning into some very encouraging sales momentum as we move through Spring.  

David Milton, Managing Director for Residential Property at CBRE agrees buyers have been biding their time but are coming back in numbers. “They’re seeing a return to value and low interest rates which are boosting affordability,” says David. “We’re continuing to see increasing levels of sales, with many tenants starting to enquire about buying. In developments where the first stages settled at the end of last year, the tenants who moved in are now keen to buy into the second stage.” 

But my confidence in continued growth isn’t just based on what we’re seeing in property development. There are three critical factors behind the recovery and a couple more reasons why I think it’s here to stay. Let’s take a closer look at these.

Key points

  • A politics and policy trifecta has created ideal economic conditions for recovery.
  • Population growth and unprecedented infrastructure spending are dialing up demand in Western Sydney.
  • With apartment oversupply and defects making the headlines, demand for land is also running high.

The trifecta driving recovery in residential property

Regardless of where you stand on politics, a coalition win has been good for confidence in residential property. Without any threat to negative gearing looming, investors have taken it as a sign that property is back on their menu. Back this up with APRA easing loan serviceability restrictions for the banks, and two interest rate cuts in as many months, and you get a positive environment for home lending.  

So it’s no wonder owner occupiers and investors are beating a path to the banks for finance. Latest household lending figures released by the Australian Bureau of Statistics (ABS) show just how much these changes have heated up demand for finance. July saw the biggest month-on-month increase in property loans since 2013, with a 4.7% rise in investment loans and 5.3% for owner-occupier mortgages3.

According to Troy Phillips at Firstpoint Mortgage Brokers there are more specialised lenders in the mix, making property finance possible for even more buyers. “We’re seeing a lot of non-bank lenders coming into market, catering to borrowers who are self-employed,” says Troy. “So the growing number of contractors and gig economy workers are finding they can get finance more easily.”

But can we expect this finance fire sale to continue feeding buyers’ appetites? Surely rates will have to head north eventually? Keith Balmer, Director of Svelte Finance says fixed rates being offered by the banks suggest more rate cuts could be on the cards. “We’re seeing fixed rates as low as 2.79,” says Keith. “Lenders would have to be confident in their cost of borrowing remaining low to be offering these terms.”

Follow the infrastructure for value and growth

Fixed rates are one key indicator that sustained recovery in property values will continue across the board. Population growth is another. An oversupply of apartments in Melbourne and Sydney has been another axe for the media to grind of late. But the sheer volume of people settling in these cities is making it challenging for housing supply to keep up.

In Sydney, we’re enjoying a once-in-generation infrastructure bonanza. Much of this is in the West, creating a new frontier for massive population growth. New roads and rail services, hospitals and schools, not to mention the Western Sydney International Airport, are enticing more and more people to buy further away from Sydney CBD.

“In the next few years Westmead is set to become the biggest public hospital in the Southern Hemisphere,” says Keith. “Any buyer, investor or owner-occupier, can be confident in strong capital growth and yield from the working population it will take to staff this facility.”

Buyers seeking benefits of lifestyle and land

Troy Phillips shares Keith’s optimism about a population and property boom out West. And he’s seeing buyers motivated by more than the prospect of a shorter commute or more local jobs. “The lifestyle factor is definitely leading buyers to set their sights on the Western suburbs,” says Troy. “They’re discovering they can access quality community living and get value for money in a property in these locations.”

While Nick Duncan agrees the amenity of master planned communities is a draw card for owner-occupiers, he’s also expecting more interest from investors in land and home packages. “There’s no doubt that young families are drawn to great amenity locations such as the Legacy project at Caddens Hill in Penrith,” says Nick. “Negative concerns about apartment buildings has translated into stronger investor demand for land and home properties in the short to medium term.”

Over at CBRE, David has also seen a narrower price gap between apartment and house and land turning the heads of buyers. “Land value has always been more stable,” says David. “Whether you’re a family wanting a backyard or an investor seeking a better overall return, land is an attractive option right now.”  

The fact is property finance is now insanely cheap and set to stay that way. Although there may be more hoops than ever for borrowers to jump through, lower rates and a lift in their capacity to borrow are making it more than worth their while. So I’m convinced we’ve moved beyond the bottom of this market cycle and are heading back towards growth.

Sources:

  1. Domain. Melbourne Auction Report Card: August 2019. 4 September 2019.
  2. AFR. Sydney auction clearances jump to two-year high. 25 August 2019
  3. Australian Bureau of Statistics. Lending to households and businesses, Australia, July 2019. Released 9 September 2019

Image credit is Photo by Francesco Gallarotti on Unsplash

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