Property market update: First home buyers & rushed builds
This week in what you need to know about property, first home buyers are back, conditions in Darwin aren’t improving and now is a good time to go to auction.
First home buyers remain buoyant
The latest ABS finance data from May continues to suggest that first home buyer activity is buoyant and this was the only buyer group that was up over the month.
So why are first home buyers so happy?
- Fewer investors – investors have backed off the market significantly with finance data showing lending to this group is 45% down from peak. Given investors and first home buyers often compete for the same types of properties, this has given first home buyers less competition when they go to buy.
- Price falls – first home buyers seem to be happier in softer markets; this may be because they can take their time in decision making.
- First home buyer incentives – who doesn’t love free cash? First home buyers are no different and they respond positively to Government incentives to get them into the market. In many places, these were made more generous during the housing boom. The place it made the biggest difference seems to have been NSW.
- Access to finance has become more difficult but first home buyers are still seen as a safe bet – for banks, first home buyers are seen as a relatively safe group to lend to. They are generally young, early in their career, often two incomes and they have a very long time to pay off a loan. They are also future repeat customers. The main challenge for first home buyers would be the scrutiny on their spending (like everyone), but they are finding it easier than many investors.
First home buyers are unlikely to abandon the market in the near future. For a start, investors are unlikely to come back in strong numbers any time soon. But also because the 5% deposit scheme will see strong take up in 2020 and will pull forward demand – it is quicker to get a $25k deposit together instead of a $100k deposit.
Could rushed building be to blame for Sydney’s defect problems?
Melbourne is an easier place to build than Sydney – not only does it have topography on its side (flat with few waterways), the planning system seems to be more straight forward.
How much easier it is becomes apparent when you look at building approvals from 2002 and compare what happened in Melbourne and Sydney post Global Financial Crisis (GFC).
Dwelling approvals began to accelerate in Melbourne post GFC as developers took advantage of growing Chinese interest in Australian property. In Sydney, the turnaround was very slow.
It wasn’t until 2012 that building really began to accelerate. This slow response to market conditions left Sydney with fast accelerating prices as developments failed to keep up with jobs growth.
What also seems to have happened is that some projects were potentially rushed and we are now left with a seemingly growing number of buildings with structural defects that aren’t apparent yet in either Melbourne or Brisbane.
While cracking buildings are a problem in Sydney, Melbourne is dealing with a large number of buildings with flammable cladding. Dealing with this will be a big deal over the next few years as the issue impacts not only a large number of residential buildings, but also commercial towers.
Asian buyers continue to abandon Australia
Contrary to some recent reporting, there is no evidence to suggest that Chinese buyers are back.
Compared to the same time last year, we have seen an almost 50% decline in property seekers from China looking at Australian capital cities on realestate.com.au.
The Foreign Investment Review Board (FIRB) data also shows that levels have dropped significantly.
To re-cap why they are gone;
- There are now additional taxes on foreign buyers in every capital city except Darwin. These include stamp duty surcharges, land tax surcharges, additional land transfer duties and ghost tax surcharges (for vacant buildings, not haunted apartments).
- The Chinese government continues to make it hard for developers to get approval to build residential projects outside of China. Chinese developers already in Australia are still completing projects but new developers are not emerging. Chinese developers were a big driver of investment in apartments as they sold to their established networks.
- Access to finance is difficult for overseas investors.
- Sentiment towards Australian property has shifted – negative reports about property market conditions from Australia were amplified in China and Chinese buyers shifted to countries such as Thailand and Japan.
- Many Chinese that have already invested in Australian apartments may have been caught up in falling prices, quality issues and difficulties in finding a tenant. This is likely to prevent repeat purchases.
- China continues to rapidly change – a lot of buyers seemed to be in Australia to buy close to Australian universities – e.g, Carlton, Clayton and St Lucia were popular search destinations. It is likely that Chinese universities are improving.
Darwin continues to be the nation’s toughest property market
Darwin property has lost a quarter of its value over the past five years. After a strong boost from mining, prices are lower than they were a decade ago – almost like the mining boom never occurred.
And unlike Perth, where we continue to see early signs of positivity, this is the less the case in Darwin. The only suburbs seeing price growth are Zuccoli and Karama, but this is pretty minimal and in the case of Zuccoli is being driven by new housing stock.
While the market remains very challenged, the generous first home buyer scheme has provided a bit of positivity. The new home market in particular seems to have had a boost, which likely explains the boost in prices in a place like Zuccoli. In terms of most popular suburbs, the northern suburbs of Darwin continue to be the pick for property seekers, with inner Darwin close behind. The highest views per listing on realestate.com.au are currently being seen in Nightcliff.
Still few auctions taking place
Clearance rates are high, auction numbers are low and buyers are flocking to premium suburbs – this will drive price growth. Despite buyer activity being high, we are yet to see a pick up in the number of people going to auction.
Auction numbers are less than half of what we saw in Sydney and Melbourne at the same time last year and this was right at the peak of the downturn.
Right now would actually be a good time to go to auction – very low stock volumes means that anyone trying to buy has very little to look at.
It is perhaps no surprise that a property in Erskineville sold for $350k over reserve across the weekend, despite being just over the road from an apartment block that had to be abandoned because of asbestos contamination issues.