Polls, ‘Proptech’ and Property Hotspots
LJ Hooker looks deep into its crystal ball for 2019
Within a country of the size and breadth of Australia, where hundreds of marketplaces function independently and simultaneously, it’s no surprise that real estate is a dynamic industry.
The past 12 months have been no exception: Sydney and Melbourne, the largest metropolitan markets, have softened after prolonged growth; activity in regional markets has grown as buyers seek affordability; investor activity has slowed; the banks tightened lending criteria in the wake of the Hayne Royal Commission; and state legislators moved to give tenants more rights in their rental properties.
So, what’s around the corner in 2019?
Here, Mathew Tiller, Head of Research at leading real estate group LJ Hooker, outlines the top five issues to shape the national real estate market next year.
1. The voting booth
Polling points to a change in government in 2019. As constituents did in the Wentworth by-election, analysts believe the public will again queue up at polling booths to punish the Coalition for an unstable year of leadership.
But, focusing on property, Labor is taking to the election the same negative gearing and capital gains tax policies it proposed at the 2016 election.
Labor wants to restrict negative gearing to new builds and halve the current capital gains tax discount on investment properties. Over the last three years, opponents to the policy have said it will turn investors away from property, jeopardising the availability of rental stock and making tenants compete for remaining rentals.
Research undertaken by LJ Hooker has shown negative gearing is an important part of the public’s investment strategy with a poll of 1,700 landlords indicating 31% would sell some or part of their property portfolio if negative gearing was abolished or restricted.
Labor’s policy originated in 2015 at the height of property growth in Sydney and Melbourne, where property values grew around 15% and 10% respectively, over a 12-month period.
But over the past year, both cities have seen prices decline by -8% in Sydney and -5% in Melbourne. Elsewhere, Brisbane (0.3%) and Adelaide (1.4%) recorded modest gains while Perth (-4.2%) has neared the bottom of a prolonged downward cycle. Hobart (9.3%) and Canberra (4.0%) are the only capital cities that made considerable gains.
Additionally, removing negative gearing creates less demand for real estate-based employment. The real estate industry would require fewer strata and property managers; rental properties require regular maintenance to be compliant and a fall in demand would impact trades people, handymen and other service providers.
Interfering with how people choose to invest while the market is self-correcting will could pose a major challenge for the wider market in 2019.
2. FHBs march to OFIs
After several frustrating years on the side-lines, First Home Buyers (FHBs) have been a good news story of 2018.
Data from the Australian Bureau of Statistics (ABS) show FHB activity rose 14.9% in the year to October. Indeed, not since 2009 have more FHBs been involved in the marketplace.
FHBs came to the fore as tighter lending restrictions – a product of the Royal Commission into Banking, Superannuation and Financial Services Industries - made it difficult for investors to compete for the same sort of entry-level stock. Softening house prices in the major metropolitan markets provided the best levels of affordability for FHBs for several years.
The final Hayne Commission report will be handed down in February, with a Federal budget and election following soon after.
Lenders will no doubt be chastised in the final Report, as they were in the Interim volume. We expect investors will continue to feel the immediate fall-out from the Report which - along with tightened residential yields – will make it harder for them to maintain real estate within their wealth strategy.
Consequently, FHBs will have less competition at auctions around the country enabling more to make the leap from renting to owning.
FHBs are an important part of the real estate ‘food chain’. When FHBs are active, they enable second, third and fourth home buyers to sell their homes and upgrade.
Expect to see FHBs out in force again in 2019.
3. Users tap the digital marketplace
Technology plays a greater role in our lives every year. We no longer need to go to the shops to buy clothes – we simply order them online; apps allow us to invite complete strangers to do odd jobs around the house for the right price; and we no longer need to queue at the travel agent to book a holiday at the Gold Coast.
So, if we don’t even need to deal with a bank teller to switch money between our accounts, how come it’s so hard for vendors to find out what’s happening with the sale of their property?
In 2019, LJ Hooker will overturn the communication channels between the industry and customers which sellers find so frustrating.
LJ Hooker has been at the forefront of proptech and its latest development – coinciding with its 90th year of innovation in real estate - is the LJ Hooker Vendor App.
The app is an industry-first product, allowing sellers a birds-eye perspective of the selling process in real time. The LJ Hooker Vendor App provides sellers with immediate information on how many people attended their open home; the number of impressions their property received online; and even tips on how to best present their property for buyers.
We expect more from technology in every aspect of our lives and 2019 will be the year in which real estate sets a new benchmark in this space.
4. Regional radar
Despite a correction in prices, buyers will continue to look outside the capital cities for better value.
Proximity to Melbourne’s corporate hub, mixed with the coastal lifestyle and its own transition from a blue collar to white collar economy has underpinned Geelong’s fortunes, with the median house price increasing 16.6% to $579,000 over the past 12 months.
The introduction of new infrastructure to support the Commonwealth Games on the Gold Coast this year saw the median house price rise to $655,000 in November, up from $627,000 at the same time last year, according to CoreLogic (4% increase), while the Sunshine Coast median increased 7.7%.
Also, government polices encouraging people to relocate to regional centres will increase demand in these areas. For instance, the Andrews Government’s first home buyer grants encourages renters to make the transition to ownership by building in a regional area with a $20,000 incentive. In NSW, Premier Gladys Berejiklian has flagged incentivising students which are a part of the state’s $11 billion international education sector to head to universities outside Sydney.
Markets to watch in 2019 will also include the resources regions. In 2018, the mining state of WA posted its first net population growth figures for several years. It had an immediate impact on the rental market in Perth with the Real Estate Institute of Western (REIWA) reporting a 3.4% vacancy rate in the September quarter - the best performance for the state’s investors since March 2014.
Perth is a launchpad for Fly-In, Fly-Out workers in the iron ore hub of the Pilbara. The Pilbara’s median house price has increased 4.3% to October ($240,000). Whilst it has struggled since the mining boom (the median house price has dropped 69.2% over the last five years) the local employment opportunities bode well for a continued property recovery in 2019.
Central Queensland was likewise a former darling for property investors with areas like Moranbah and Dysart returning massive rental returns as mining propelled the Queensland economy. Production is starting up again and the wider Mackay market posted a 12.6% increase in its median house price to $310,000 this year.
Consequently, many regional markets will outperform their capital city counterparts over 2019.
5. Global forces and regulators
Buyers and investors have become accustomed to the monthly Reserve Board of Australia (RBA) meeting passing with no fanfare; it’s been 28 months (August 2016) since the Board changed the official cash rate.
However, the Central Bank’s influence goes only so far with several of the Big Four lifting their variable rates independent of the RBA’s decision making since then. Global forces – Brexit, the controversial Trump presidency and the ambitions of China – will cause economic reverberations around the world at the same time that Central Banks are increasing cash rates. These two things will combine to push up the costs of financing for banks which will, in turn, increase mortgage expenses.
The Hayne Royal Commission will also conclude and release recommendations which may also see lending criteria tighten and borrowers jump through more hoops to get a mortgage.
For leading advice on how your local market is performing, contact your local LJ Hooker agent today or visit ljhooker.com.au to find an agent or office near you.