Great Ocean Report Lack of stock drives competition
AS WE MOVE into the latter stages of 2017, there are some conflicting reports around the state of the property market, and as usual, we will try and clearly explain what is happening.
It is an interesting market at present because we have seen media reports that auction clearance rates in Melbourne and Sydney (particularly Sydney) have dropped since the same time last year, hence this is seen as a cooling of the market.
This is very true, and it is a most welcome cooling from what were unsustainable levels.
Auction clearance rates are the most publicised measure of the market but are not the only measure and are quite specific to only a few property markets in Australia. They are still at traditionally high levels, particularly in Melbourne, and we expect to see clearance rates above 70 per cent for the rest of the year. The median house prices have slightly dropped in Sydney whereas Melbourne’s continue to grow, though the rate of growth has slowed.
What effects the performance of the coastal and regional markets close to Melbourne and Sydney is not whether the auction clearance rate has dipped, it is all about the equity that has been created in these metropolitan markets that has built up over the past five years of this very buoyant cycle.
This has fuelled the ability of those wishing to secure a lifestyle property, or cash in and move out of the city as part of a retirement or lifestyle plan to easily occur. In many ways, those close-to-retirement Baby Boomers cannot believe their luck in terms of timing.
Equity the key
To understand the scale of this increased equity now available to potential coastal buyers from Melbourne, there are now, according to the REIV, 131 suburbs with a median house price of more than $1 million.
When you look at that list and see suburbs like Altona and Wantirna South included, you can get tangible examples of how much the market has moved in this cycle.
Of course, many of the coastal buying demographic have traditionally come from some of the most affluent inner eastern and bayside suburbs where the medians are above $2 million.
When you compare the median house prices of some of the popular coastal towns, Torquay $720,000, Anglesea $753,000 and Aireys Inlet $782,500 (as of June 30) you can see that the ability to afford the purchase, either via selling or borrowing against equity, has been readily available.
These metropolitan buyers make up only part of the coastal buying demographic. However, they certainly underwrite the performance of the coastal markets.
This has led to significant shortages of properties for sale on the coast, especially around the median price points, with competition for properties becoming the norm rather than the exception.
It is not only that there is an active buying market, the size of the total number of properties in these towns is very small.
For example, Anglesea only has 3,272 properties in total and Aireys Inlet only has 2,045, and that’s when you include the Fairhaven, Moggs Creek and Eastern View areas.
Lorne only has 2,385 and all these towns are landlocked by a national park.
Even in the larger towns of Torquay and Jan Juc (10,118 properties) competition is fierce. When you compare this to the population of Melbourne (approx. 4.5 million) and even Geelong (approx. 240,000), you can see that the coastal towns provide very limited opportunities for willing buyers.
One of best examples we have seen to illustrate this is the recent sale of 10 Philip Street Aireys Inlet, a very modest dwelling in a popular position at an affordable price point.
During the five-week campaign, we had 52 buyers register their interest.
The property had been valued by a sworn valuer based on historical data at $550,000 with the reserve set at $575,000 due to the significant interest.
After an extremely spirited auction, the property was sold for $840,000 – an incredible $265,000 above the reserve.
No one could have foreseen this result but with the lack of stock now available, we expect situations like this to continue and for those considering selling, the current market conditions could not be more opportune.
Looking forward, despite the fall in auction clearance rates in Sydney and some moderation in Melbourne, we maintain our view that without a significant negative trigger event, the momentum in this cycle will continue (past trigger events include the GFC in 2008-9 and the European debt crisis in 2011-12). Much of the drop-in clearance rates can be attributed to tighter lending standards enforced by regulators (APRA) on investors, restricted outflows of money from China and low wage growth not keeping up with the capital growth of property prices.
We are not seeing a drop-off in intention, however; just a drop off in the ability to perform, particularly by investors.
For the reasons outlined, we expect to continue to see significant activity in the coastal markets in the warmer months, which traditionally occurs each year at this time.
As usual, the highest activity will occur around the median and lower price points simply from an affordability aspect.
As the price points get higher, buyers become more discerning despite the overall continued buoyant nature of the market, but this has always been the case, especially in the discretionary lifestyle markets.
We hope you found this Great Ocean Report informative, and if we can be ever of any assistance in any real estate matter please do not hesitate to call.