Hotspotting

Victoria has become the state that property investors don’t want to know about, because its politicians at both state and local level appear to have declared open season on investors.

The State Government in Victoria has a budget deficit problem and has made the decision that many politicians in Australia make, which is to resort to the housing market as their favourite cash cow.

They can’t slug home-owners or first-home buyers with new or higher taxes because that’s politically unpalatable – but investor owners are relatively few in number so they can attack them with less damage politically.

It will result in fewer investors, therefore fewer rental properties, and therefore higher rents for tenants, but hopefully (in the minds of the state politicians) tenants will blame their landlords rather than the government.

So the State Government in Victoria has smashed owners of investment properties in the state with big increases in existing taxes – notably land tax – and with the introduction of new taxes.

It’s almost as if they see investors as a criminal class and they all need to be punished.

If that isn’t enough, now the State Government has announced it will mandate the upgrade of a range of components inside rental homes 

This would force landlords to install insulation, draught-proofing, cooling and heating systems and new shower heads – and the estimates for the cost impact of that range from $5,000 to $10,000.

Consumers Affairs Minister Gabrielle Williams, displaying the out-of-touch divorced-from-reality quality so common among politicians, says this is a relatively small cost for property owners to wear and won’t be a problem for anyone.

But for typical owners, an additional cost of $5,000 or $10,000 on top of huge increases in interest rates, insurance, maintenance costs and government taxes including land tax and council rates, this is a killer blow.

There is already an exodus of investors from Victoria because of the recent tax increases and this new imposition of enforced upgrades will compel many more to sell up and leave the state.

Veteran property commentator Jonathan Chancellor has described the Victorian State Government measures as “a lesson in what not to do” in the face of a rental shortage crisis.

He said that the state bureaucracy had admitted that Melbourne’s rental supply may contract as a result – keeping in mind that it’s already alarmingly low.

But it doesn’t end with this appalling state government. Local councils have already joined the increasingly popular political sport of demonising and punishing investors.

The Merri-bek Council, or elements of it, want to take the assault on property investors to a new level. The plan is to double council rates on investment properties and reduce rates for everyone else.

They say that, if it forces investors to sell and their properties are bought by owner-occupiers, that’s a great thing. In fact, according to the policy stated by the proponent, Cr James Conlan, that’s the main objective.

The logic, if you can call it that, is that it will make homes available for purchase by first-home buyers. But most suburbs in this LGA have median house prices well above $1 million. The three Brunswick suburbs are all around $1.3 million. 

How many first-home buyers in Melbourne can pay over $1 million as their first foray into the property market.

It’s simply not going to happen.

But, beyond that, where will the tenants of these properties go? Who will provide the rental properties if the local council forces all investor owners to sell, which appears to be the ultimate objective of this appalling proposal.

Vacancy rates in the postcodes of Merri-bek LGA are well below the already-low Melbourne average – many of them have vacancy rates around 0.5%, which is at crisis levels.

Looking more broadly across the state, the number of homes occupied by renters in Victoria has fallen by 10,400 in just three months and 15,600 in a year.

Government agency Homes Victoria’s most recent rental report, from the March quarter, reveals that the number of new lettings has dropped 12% in a year.

The rental supply fall has coincided with a shortage of new homes being built, because of labour and supply constraints.

It also coincides with an increase in land taxes paid by landlords and follows 13 interest rate rises since 2022.

Australian Bureau of Statistics figures released earlier this month revealed that housing loans taken out by investors in Victoria were well below the national average amid an exodus of investors from the property market.

Ultimately, in the end, who are the biggest losers?

Well, it’s the people who rent their homes. There is going to be considerably fewer of them in Melbourne and other parts of Victoria and there will continue to be upward pressure on rents.

Unless, of course, someone is silly enough to implement a rental cap, which will cause even more investors to sell and create an even bigger rental shortage.

A rental cap is no use to you if you can’t find a place to rent at any price, because nothing is available.

There are many so-called research reports in Australia which do a very poor job of providing useful, accurate, credible information to consumers – but the worst of the worst is a report called Demographia which pops up once every year to misinform Australians about affordability.

This report, which is a shameless propaganda exercise by a developer lobby group, sets out to portray Australia as a place where no one – and I do mean no one – can afford to buy real estate.

The lobby group is apparently trying to convince governments across Australia that the development industry is over-regulated and that this over-regulation is causing unaffordable housing everywhere – and I do mean everywhere – in Australia.

This ridiculous report has been claiming for 20 years that the whole nation of Australian is unaffordable.

And the latest edition of the report claims that significant chunks of Australia are and I quote, “impossibly unaffordable”.

Now, think about it for a moment. If this was true, no one could afford to buy homes in Australia at all. Because, essentially, that’s what they’re claiming - that no one can afford to buy real estate.

Clearly, that’s a ridiculous and preposterous claim because all over Australia there is a high level of sales activity and prices continue to rise in most locations.

The latest official lending figures show that loans to owner-occupiers, to first-home buyers and to investors have all risen substantially in the past 12 months.

There is high demand for homes and for investment properties and the high level of sales is causing prices to rise in most locations.

Now, none of that would be possible if the Demographia report was credible and accurate – because it says the whole country is unaffordable.

Indeed, it says our major cities are the most unaffordable in the world.

But here’s the thing – the report doesn’t cover the world. It only compares Australia will a tiny proportion of the nations on the planet.

There are over 200 countries in the world – and how many are included in this report? Just seven. Australia and six others.

And yet it maintains that it can justify the claim that Australian cities are the most unaffordable in the world.

Now, if common sense prevailed, you and I wouldn’t even be aware that this report exists because it’s so implausible and lacking in any merit whatsoever.

But we DO know about it because news media in Australia doesn’t care about ethics or accuracy or fairness or credibility.

Journalists, sadly, care only about the headline and don’t care that the information on which the headline is based is patently, blatantly and obviously false.

Michael Bleby, who apparently is the Deputy Property Editor for the Australian Financial Review, was happy to report that Sydney, Melbourne and Adelaide are all “impossibly unaffordable” and ran the headline “Impossibly unaffordable housing a social risk”.

Bleby stated that Sydney is the world’s second-least affordable city for housing, based on the content of the Demographia report.

Now, I’m assuming that Bleby has seen the report, because it would unprofessional and unethical in the extreme to make such claims without looking at the evidence.

So I can only conclude that he doesn’t care too much about the substance of what he is writing, so long as it generates clickbait.

News Corp journalist Aidan Devine put his name to an article that stated that three of our capital cities were ranked in the top 10 most unaffordable housing markets in the world – and then claimed that Australia was the least affordable housing market in the English-speaking world.

So these journalists and others were happy to make these outrageous claims despite what the facts show us.

I’ve read half a dozen different articles on this and only one of them mentioned, briefly, the small number of countries in the report.

In Sydney, claimed by the report to be “impossibly unaffordable”, there were 73,290 homes sold to buyers in the past year. And the median house price rose 8.2% in the past 12 months, according to CoreLogic.

In Melbourne, also claimed to “impossibly unaffordable”, 86,200 homes changed hands in 12 months, with house prices rising 2%.

And in Adelaide, which is actually one of our most affordable capital cities - but also dubbed “impossibly unaffordable” by this shameless document - over 20,000 houses and apartments were purchased by buyers who were apparently unaware that the homes they were buying were utterly unattainable.

And Adelaide house prices rose 14.3% in the past year, according to CoreLogic.

So, if they were impossibly unaffordable before, they must be catastrophically unreachable now, after a further 14% increase in prices overall.

Clearly the report on which all that media hot air is based is laughably and demonstrably rubbish.

But you can sure that this time next year it will pop up again and come up with new sensationalist claims that aren’t supported by any scientific evidence – and our hopelessly shabby news media will be happy to publish it, because they don’t give a toss about providing you with real information and useful data.

In this episode of "No Money Down: Smart Property Investment," Tim Graham is joined by Lucky Velasquez, the founder of FinanceBetter, to discuss innovative strategies for property investment with minimal initial capital outlay. 

Lucky shares his extensive experience in helping clients navigate financial hurdles and maximise their investment potential without the need for large upfront deposits.

Key Topics Covered:

Introduction to No Money Down Investing:  What it means to invest with little to no initial capital. Common misconceptions about no-money-down strategies.

Creative Financing Solutions: Alternative financing options and how they can be leveraged. Examples of successful no-money-down deals and the creative methods used to structure them.

Risks and Rewards: Analysing the potential risks and rewards of no-money-down investments. How to mitigate risks through thorough research and due diligence.

Market Insights and Trends: Current trends in the Australian property market. How economic conditions are shaping investment opportunities.

Case Studies and Real-life Examples: Detailed case studies from Lucky's clients who have successfully implemented no-money-down strategies. Lessons learned and actionable tips for aspiring investors.

To get in contact with Lucky, please visit www.financebetter.com.au

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About Melinda Jennison

From a very young age Melinda developed an interest in real estate because her parents were property investors, so she learnt a lot from the conversations that they often had growing up. Melinda says she has been fortunate to have never rented, but instead bought her first home in Brisbane at the age of 18. This was the beginning of her own property journey.

Melinda came from a research background, having completed a PhD in 2001. Instead of staying in academia she moved into real estate, with involvement in the building and construction industry and property development. Now as a buyers advocate and QPIA®, Melinda uses the skills she has acquired over the years to make evidence based property decisions, to accurately interpret data and translate that in an easy way for clients to understand, and analyse all sorts of property deals for herself and others.

In September 2023, Melinda’s outstanding expertise in the property sector was recognised when she was elected President of the Real Estate Buyers Agents’ Association (REBAA).

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The latest lending data from the Australian Bureau of Statistics finds that loans to investors in New South Wales in April represented a 44% increase on the same time last year.

That’s a major jump in buyer demand, but it does not surprise the team at Hotspotting, particularly after the analysis we have done on market trends for the Winter edition of The Price Predictor.

Our research shows there is heightened buyer activity in selected locations, both in Sydney and in Regional NSW.

The Price Predictor Index finds that some of the nation’s regional areas are the leading markets in the nation, including the Wollongong/Shoalhaven region in NSW.

In the Winter edition of the PPI, we have nominated the Shoalhaven LGA as the strongest market among the nation’s municipalities, while the City of Wollongong also makes our National Top 10.

The Price Predictor Index for several years has charted the trend we call The Exodus to Affordable Lifestyle and our latest analysis suggests the demographic drift from the biggest capital cities is still pumping strongly.

In some cases, the NSW regional markets of note are what we call “second-wind markets” -locations across Australia which were at the peak of their up-cycles in 2021 and then subsided in 2022 and 2023 – but are now showing signs of embarking on the next up-cycle, with improved activity late in 2023 and early in 2024.

A prime example is Byron Bay which previously had a boom which, in reality, overshot true value – with property values doubling in two years. The median house price peaked at $3.5 million in mid-2022, but dropped markedly since to as low as $2.4 million. Now we see evidence in the sales data of a pickup in activity and also the first signs of prices recovering.

The strong Albury-Wodonga regional city at the NSW-Victoria border was a boom market until mid-2022 – and now, after a flat period, is showing early signs of revival. The suburb of Albury is one of our National Top 50 Supercharged Suburbs in the Winter edition of The Price Predictor Index.

Other standout locations include Newcastle and nearby areas such as Lake Macquarie and Port Stephens. Mid-coast centres like Forster and Taree are also travelling well.

In Sydney, the top end is undoubtedly leading the Sydney market while the cheaper areas are struggling to maintain their previously high sales levels.

Locations where houses sell for multiple millions of dollars are the strongest clusters for buyer activity, in a Greater Sydney market where sales levels have moderated a little but continue to be solid.

Our analysis reveals three stand-out clusters of suburbs where sales activity is most vibrant, all of them at the upper end of the market – the municipalities of Woollahra, Waverley and Bayside.

Within these LGAs, suburbs classified as rising markets include Bondi, Darling Point and Paddington.

Inner-city areas which have been boosted by strong demand for apartments in the past year or so – Sydney City and the Inner West LGA - continue to generate good buyer demand.

Rising suburbs in the City of Sydney include Surry Hills and Woolloomooloo, while Chippendale stands out for its consistency of performance.

At the opposite end of the market spectrum, outer ring areas including the municipalities of Blacktown, Hills Shire and Penrith have lost momentum and have significant numbers of suburbs classified as declining markets.

This is part of a notable trend nationwide which finds that new development areas are among the struggling markets with sales activity falling.

The problems within the housing construction sector are well-documented, with building companies going broke amid rapidly rising costs and shortages of tradespeople and materials.

We note that sales levels in the City of Blacktown, which has been a star performer in Sydney in recent years, have faded notably. It’s noteworthy that many of the declining suburbs have median house prices well above $1 million and no longer provide relative affordability, including Rouse Hill, The Ponds and Schofields.

In The Hills Shire, an even more expensive market in the far north-west, sales activity generally has dropped notably and half its suburbs are now rated as declining markets. They include a number of suburbs which all have median house prices above $1.7 million and in some cases above $2 million.

Listings of homes for sale have been trending upwards in the Hills District recently, so low sales volumes cannot be attributed to a shortage of properties.

But beyond that hiccup in the outer Sydney market, New South Wales broadly presents as a place that is attracting strong buyer demand, both in Sydney and in regional markets, with an uplift in investor activity a key factor.

Home builders and property developers make their money creating new dwellings for Australian households.

If they get it right, they can make lots of money doing what they do.

When they decide NOT to do what they do, you have to ask why.

Why are the builders of major projects of housing or apartments walking away from their plans?

Why are big companies who have spent years and millions of dollars planning a major project making the decision not to build it?

We’ve seen many instances recently. An example is the decision by AVJennings to abandon a major housing development near Caboolture in the outer northern suburbs of Greater Brisbane. This project would have added 3,500 new homes to a market where there is a desperate shortage.

Brisbane is a market with high demand and a serious shortage of homes. Why would a big developer with a proven track record and the capacity to deliver these kinds of projects make the very big decision to walk away from the project?

All that time and money wasted.

The answer is: it’s simply not viable.

AVJennings said massive cost escalations – including the infrastructure charges and delays in getting approvals imposed by local councils – meant the project was no longer viable.

I have had discussions recently with developers who say that the cost of creating big residential projects is so high, it’s not economically and financially feasible.

They would have to place such a high price on the end product that few households would be able to afford to buy the homes.

A number of developers have spoken out about the impact that the cost impositions of local councils have on making projects difficult or unviable.

Orchard Property Group managing director Brent Hailey says the major infrastructure costs imposed on them make it too expensive for them to build homes.

Hailey said that, for example, developers in that Caboolture West precinct that AV Jennings has rejected had to pay for council infrastructure charges and also state government charges because it’s in a Priority Development Area.

Hailey says: “We’re at this point now in SEQ where unless the solutions are put in place quickly, there’s going to be a rapid decline in affordability, forced by supply not meeting demand.”

He says: “The problem facing developers is the cost of delivering the infrastructure and the balance between fully servicing those costs and trying to get an affordable home. There’s the normal council charges and the Priority Development Area (PDA) charges. During Covid-19 costs went through the roof, so now infrastructure is costing a lot more.”

Here’s another issue which is preventing the creation of affordable homes in Australia.

Prime Minister Anthony Albanese’s pledge to build 40,000 affordable homes through the Government’s $10bn housing fund will struggle to deliver any houses at all in Labor’s first term of office because only a handful of builders in Australia are eligible to participate in the program.

Rules written into the Housing Australia Future Fund legislation require builders contracted to work on new social and affordable homes under the scheme to be accredited for working on government-funded projects.

However, of the more than 400,000 construction companies registered in Australia, only around 500 are accredited by the Federal Safety Commissioner under the Work Health and Safety Scheme for eligibility to bid for head contracts funded directly or indirectly by the government.

There are few if any residential builders accredited under the scheme in Tasmania and only a limited number in regional Australia.

The industry claims the limitation threatens to severely hamper or stall Housing Australia’s ability to deliver its target of 40,000 social and affordable homes.

This comes at a time when the new construction code being imposed by governments is adding $30,000 to $40,000 to the already-high cost of building new homes in Australia.

These are just the latest events adding to a substantial list of situations which create the inevitable conclusion that we have a serious housing shortage in Australia, and very expensive new homes in this country, because of the short-sighted policies of politicians at all levels of government.

Home loans to property investors jumped for a third-straight month in April, rising at a faster pace than loans to owner-occupiers.

The value of new loans to investors rose 5.6% to $10.9 billion in April, to be up 36% compared with a year ago, according to the Australian Bureau of Statistics.

Part of that increase, according to the ABS, is an increase in the size of the average loan.

The average size of an investor loan for the purchase of an existing home grew almost 10% since April 2023, from $592,000 to $648,000.

The strongest markets were New South Wales (where investor lending increased 44%) and Queensland (where investor lending climbed about 46%).

The higher rate of investor activity comes at a time when rents continue to rise, underpinned by very low vacancy rates, to compensate (partly, at least) for higher interest rates, as well as higher council rates, higher insurance costs and higher maintenance costs.

Figures from property consultancy CoreLogic earlier this month showed rents recorded an annual rise of 9% in Sydney and 10% in Melbourne – which means rents in the two big cities are rising faster than prices at the moment.

The rate of price growth is higher in smaller capital cities like Brisbane, Adelaide and Perth, but rental increases are as high, or close to being as high, as the rise in sales prices in those cities.

CoreLogic research director Tim Lawless says: “For most investors, higher yields will be welcome considering variable interest rates for investor loans are averaging 6.7%.

“Given the high cost of debt, a large portion of leveraged investors are probably recording a cash flow loss despite the substantial rise in rental income.”

The increased activity from investors is welcome, after a period of being well below historical averages – which, in simple terms, is why we have a rental shortage, given that investors provide over 90% of the homes rented by tenants in this country.

The rise in buying activity by investors confirms the anecdotal evidence we have seen at Hotspotting.

Right from the start of 2024, we have observed that many investors started this year with intent – and are taking action.

This is desperately needed across Australia, as it’s the only way that the chronic shortage of rental homes will be improved.

Where’s the strongest suburb for future price growth in Australia?

What’s the most consistent location for sales activity in the nation and therefore likely to deliver superior price growth?

And what’s the absolute worst place to buy real estate right now?

The answers to all those questions and a whole lot more are revealed in the new Winter edition of The Price Predictor Index.

Now, we publish a lot of great reports with unique insights into property markets across Australia - but this is undoubtedly our best report.

The thing that’s so special about this report is that we do something that no one else does in Australian real estate - we chart trends with sales activity and use that to predict likely future movements in prices.

We apply a rating to every suburb and town in the nation - whether the market is rising, or recovering, or fading, or declining.

Our analysis of this data allows us to pinpoint the locations with the strongest trends in real estate across Australia - the ones most likely to deliver superior price growth.

We also identify the places to avoid, the ones where market trends are negative.

We pinpoint the best clusters of growth suburbs in the nation - the local government areas where suburbs collectively have the most positive trends with buyer demand.

We also identify the winners and losers among the big market jurisdictions - the eight capital cities and six state regional markets.

It’s fair to say that many of the findings will surprise a lot of people.

There is so much priceless market intel in this one report - so, if you buy just one research report this year, this is the one to get - the new Winter edition of The Price Predictor Index.

I’m about to tell you what’s going to happen with property prices this year and I’m going to tell you why.

The information real estate buyers MOST want to know is where to buy for superior capital growth, both in the short term and the long term.

The problem for investors is that the research companies and the media don’t tell us that.

They tell us what’s recently happened with property prices. They inform us about the past.

And while that may be interesting, it doesn’t provide us with the really key information: what will happen with prices in the future.

That’s where Hotspotting comes in. Our proven methodology has a track record of predicting the future successfully and often.

And one of our core techniques is used to create the best of our stable of reports: The Price Predictor Index.

The underlying principle is really simple but wonderfully effective.

We don’t spend our time charting price movements - we devote our resources to following what’s happening with sales volumes - the number of sales in each location and whether they’re rising, flatlining or falling.

History tells us that sales activity is a forward indicator of what will happen with prices.

And the new Winter edition of the report provides important clues about which markets are rising and which ones are falling.

Here are some of the key pieces of market intelligence that our new analysis provides:-

• The Perth boom has likely peaked and we urge caution for the many investors diving into this market after three years of big price growth.

• Melbourne prices will perform a lot better in 2024 than they did in the past two years.

• Some of the regional markets have stepped up as likely national leaders on price growth in the next 12 months. They include places like the Wollongong region, including in particular the Shoalhaven LGA; Gladstone in Central Queensland; and Albury-Wodonga at the Victoria-NSW border.

• Smaller capital cities which have been weak lately are showing solid signs of recovery and will do better in the next year, including Canberra and Darwin.

• Some of the iconic markets which had spectacular booms up to 2022 and have been in a correction phase since then, are now showing signs of moving into their next up-cycle. They include Byron Bay, the Sunshine Coast and the Mornington Peninsula.

• Other former boom markets that look to be heading into another period of growth include Albury-Wodonga, Ballarat and Bendigo in Victoria, Hervey Bay in Queensland and Launceston in Tasmania.

• Apartment markets in good locations in our biggest cities continue to attract buyers in large numbers with improved capital growth performance - Sydney City and the Inner West nearby are among the stand-outs.

The Winter edition of The Price Predictor Index has other priceless intel - including the National Top 50 Supercharged Suburbs list, the 50 most consistent growth markets in the nation, the 10 leading local government areas in Australia and the 50 worst declining markets, the ones to avoid. 

From these lists, we nominate the No.1 best supercharged suburb, the nation’s most consistent location which is delivering big price growth - and the worst place to buy right now.

And, if you want to know what they are, you’ll need to get a copy of the report.

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