The Realty Deal June 2011

“Isn't it interesting that the same people who laugh at science fiction listen to weather forecasts and economists?”
Kelvin Throop III

Capital city home prices have posted their biggest quarterly fall in at least 12 years, as more stock in the housing market allows prospective buyers to wait for bargains, a recent survey by RP Data shows. Capital city dwelling values fell by a seasonally adjusted 2.1 per cent in the first quarter of the year, according to the latest RP Data-Rismark Home Value Index. The quarterly change was the steepest since the index series began in June 1999, (Source: RP Data Research Director Tim Lawless).

Part of the reason for the fall in property values is simply the lack of property transactions over the past 12 – 18 months. (Ie. In many suburbs, ‘higher end’ houses and units have been turning over less often since the GFC hit whilst properties under $400,000 have continued to sell).

Prices were flat in the month of March and down 0.6 per cent over the past 12 months, with the national city dwelling value median price at $455,000. The numbers were being dragged down by a recent rapid build-up of housing stock into the market, Mr Lawless indicated. "The amount of properties being advertised for sale is about 30 per cent higher than what it was last year," Mr Lawless said. With more dwellings available for sale, prospective buyers are negotiating for lower prices much more than they used to. Mr Lawless also explained: "The simple fact that there's so much stock to choose from for prospective buyers is resulting in more negotiation in the markets and sellers are having to sell at lower than what their expectations were”.

Sellers were now selling properties about 6.5 per cent lower than the original asking price on average, compared with about 5.2 per cent the same time last year. (Source: RP Data May 2011). Recent extreme weather events, including the flooding in Queensland, may also be impacting on the lower numbers, Mr Lawless said. "Also, you have the fact that interest rate speculation seems to be building that they're going to be going up sooner rather than later, particularly with the CPI figures out just recently."

We may have managed to get a temporary reprieve on an interest rate rise with recent employment figures not looking as good as hoped (or predicted). Nationally, the tourism industry is suffering from the high Aussie dollar and very poor weather conditions over the summer of 2010/2011. Large scale natural disasters such as the earthquake/s in New Zealand and the earthquake/tsunami in Japan have also impacted on people’s spending habits – both practically and psychologically. (ie. people are generally feeling somewhat nervous and are more likely to hold onto/save their money in times of uncertainty and upheaval).

On a local level, house prices in Rainbow Beach have dropped by up to 20 per cent since the peak of the market in 2007/2008 whilst Tin Can Bay property prices are down approximately 10 per cent. It has also been revealed that Gympie and the Mary Valley haven’t been immune from the slight weakening of the housing sector either. John Logan and Associates Valuer, Blair Fuller, recently indicated that the number of house sales in Gympie had slowed during 2010 and this had led to a slight dip in real estate values, of approximately 10 per cent.

Mr Fuller also indicated that in Gympie, the lower end of the market had been hit harder by the drop in prices while high end executive homes had held their value, “there are a lot of homes under $250,000 on the market at the moment and a lack of buyers. - It is a buyer’s market – no doubt about it.” He also believes that if home owners wanted to sell their properties they would have to meet the market and that unfortunately meant some property owners would have to reduce the price of their properties or risk not selling them.

Many local real estate agents agree with this sentiment and believe that right now is a great time to grab a bargain in the Rainbow Beach/Gympie area and surrounds. Essentially, buyers in this market are price driven and it is a matter of owners meeting that market. If they get an offer, they have to decide whether to act on it or risk maybe having to wait another six to twelve months to sell.

The major banks appear to have reviewed their lending practices and criteria as a result of the Global Financial Crisis and this has also impacted on some prospective buyers’ ability to purchase (particularly for an investment property). Despite evidence to suggest that not everyone is doing great financially in the current economic climate, the resources boom continues to go ‘gangbusters’ and there are plenty of people out there with money – they just don’t appear to be spending it on coastal properties right now!

Locally, the Developers of the Plantation Resort Apartments are looking to liquidate some of their assets within the complex with four of the top quality apartments going to Auction on the Queen’s Birthday long weekend in June (Auction scheduled for Saturday the 11th of June at this stage). With very few property transactions in excess of $500,000 occurring over the past three years; the Auction will provide a good gauge of current buyer sentiment and the level of demand for ‘high end’ units. The Auction will certainly provide an investor a great opportunity to snap up a bargain with the price point expected to be almost half of that which the apartments where originally marketed at off the plan.

Most local property owners recently received their land valuation notices in the mail and generally speaking, most property owners are a bit perplexed as to how the Queensland Valuer-General, Neil Bray, worked out his figures. Most regional land values had increased (on paper) since the last assessment in 2008 yet property owners are not seeing any evidence of an increase in sale prices in the current market. In fact, arguably it is very difficult to justify increases or decreases in current land values based on the lack of sales data from the past two years.

Overall, the first six months of 2011 have seen very little property sales activity on a local level and reduced property transactions across the state. Various events and sentiments have influenced the market during that time; probably most significantly, nature itself. In an article entitled ‘Nature calls the shots’ which appeared in the March 2011 issue of the magazine ‘Smart Property Investment’, the chief economist of AMP, Shane Oliver, predicted that the combined impact of the Queensland floods and Cyclone Yasi will add to inflation across the March and June quarters. He also indicated that the Federal Government’s response of sourcing rebuilding funds from a temporary levy on taxpayers will not increase consumer spending. Such issues will obviously have an impact on the Reserve Bank of Australia’s interest rate decisions over the next couple of months.