SQM Research Weekly Newsletter
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SQM Research Newsletter - Tuesday 13th May 2014
Property Valuations
Research Reports
Discounted/Distressed Properties
Funds Research
Black Dragon's
Words for the Week

"We make monsters where there are none, and then go in fear of the things we ourselves have created."
- Anon
Rude Real Estate Realities 

Is this the cheapest town in Australia? News Reporter Kirsten Craze focuses the lens in on Broken Hill -

Broken Hill - Australia's Cheapest Town
ABS Housing Quarterly Update and What's in the Budget for Housing, with MD Louis Christopher

Today, the ABS updated their official quarter dwelling price series for the March Quarter. This is one of two preferred series for SQM Research, the other being the APM house price series. Sadly, judging by the lack of media coverage it received today, you wouldn't know it had come out. I guess there is much focus on the budget tonight but I also fear that the media places too much reliance on the RP data series given it comes out immediately after the end of the reference period. Yes sure its great for timing but is it accurate?

Once again I feel I need to highlight the problems with the RP data index. As we have stated previously there is strong evidence this index is a backward looking index. Rather than giving us an indicator of what is happening on present date it is merely just informing what we already knew on the previous quarter. That’s right, it is actually that far behind. This is because in collating the daily index for the present day, it uses sold records on properties that exchanged months ago but which were only now sent to RP Data by the Valuer General.

We wrote some articles on this in 2012 and 2013. There is more here (Throwing Darts at the Data Board part 1 and Throwing Darts at the Data Board part 2) as to why the index is actually backward looking.

For the record, I do believe RP Data do a lot of things right. For example their updates on auction clearance rates are becoming quite respectable in terms of their transparency and relative low % of unreported results. All credit to them on this.

Of course, if I am going to criticize RP’s index, then I think its also a worthwhile to consider the disparity in SQM Research’s asking prices index for the quarter. We have proven in the past there is actually a strong correlation between the SQM asking prices series and the ABS quarterly house price update. But for this quarter, no such strong result! Sydney and Melbourne appear to have contributed to a rather mute change in asking prices for these cities. If there is one weakness in the asking prices index, it is the fact that the index needs advertised prices to be published!  We noted some weeks back that there has been a surge in ads without a price guide, and it had become particularly noticeable in Sydney where now 35% of Sydney properties are being advertised without a price guide - this might be influencing our index.  But for now the jury is out.
So what do the official, ABS results tell us?

Houses – March 2014 Quarter Change


It really does depend upon the city. Quite clearly Canberra continues to struggle (we think it has been falling) and Perth is slowing. I think the Melbourne results are a little too optimistic and I suspect that the 2.8% rise reported by the ABS will be revised down on the next quarter. Sydney still had a strong March quarter but growth appears to have eased a little from the crazy last months of 2013. Brisbane is not rapidly picking up as hoped by some of the bulls, but I am a believer momentum is building in South East Queensland and future quarters may well record faster price rises.

What is interesting to note is that according to the ABS data, the march Quarter has historically been the weakest quarter in terms of house price rises. On average house prices rise
just 0.8% for the march quarter. Whereas the December quarter records the strongest result at 2.3%. By the way, we took this data back to 2002 whereupon the existing ABS series finishes.

Average Quarterly Price Change Back to 2002

Source: ABS

Why does this happen? Well I think it must be related to the fact that the March Quarter is really based on two months worth of data as January is largely a closed month due to the holiday season.  And those properties that do sell in January tend to be discounted properties that failed to sell in the previous year. But I am also happy to hear other views on this.
So far the annual result suggests we are on track with our 15-20% forecast for Sydney with house prices rising 16% for past 12 months to March. And our national 7-11% forecast with the ABS index as the benchmark, is looking the goods.

Houses – Yearly Change


What’s in the Budget for Property?

Well we don’t know yet, but next week we will do an analysis of it as it relates to real estate. As mentioned some time back we had strong evidence the Government was looking at changes to negative gearing. Indeed we heard it from the horses mouth! But since then, not a peep from the government and you would think that something like that would be leaked on more than one occasion if there was going to be some real change. Assuming there are no material changes on housing then it will be a matter of how the budget will affect consumer confidence as there is a strong relationship there. As reported last week, consumer confidence has slumped in recent months, perhaps in anticipation of a hard budget or unfounded expectations of imminent rises in interest rates, which once again the real expectation now is no rate hikes for the foreseeable future.

One Set of Rules for Tenants, Another for Landlords
With Guest Blogger, Eynas Brodie

Here at SQM HQ, we've decided to add another dimension to our weekly residential newsletter by bringing in guest bloggers to write segments on a variety of different real estate issues, with this week's piece from Eynas Brodie being our first.
Eynas Brodie,an experienced investor, the former editor of Australian Property Investor magazine and founding editor of Profitable Small Developments magazine has worked closely with SQM Research for some years now and we hold the utmost regard for her. We hope you find value in her words and continue to enjoy our new "guest blogger"section!

Did you know that in Queensland landlords have to give tenants two months’ notice to vacate a property during a periodical lease, while tenants only have to give landlords two weeks’ notice?

In New South Wales the minimum notice period landlords can give a tenant to vacate if the fixed lease has expired is 90 days, but if the tenant finds a property sooner they can hand the keys back at any time they like without giving any notice.

In Victoria if a landlord has issued a 60-day or 120-day notice to end a periodical tenancy, the tenant can up and go in as little as 14 days.

If a landlord has a nightmare tenant, the legal process to remove them – even if they’ve trashed the property, stopped paying rent and are continuing to live there illegally – can take months under the existing system. In cases like this, where a tenant is eroding a property’s value – not to mention the landlord’s finances – the landlord is forbidden from changing the locks or even gaining access to the property that they own without navigating a maze of red tape first.

This ‘them and us’ approach has financial consequences for landlords, many of them - ordinary folk working hard to stretch their ordinary incomes to achieve a comfortable retirement.

I’m not saying tenants should have their rights watered down (although I do believe there are some provisions unfairly stacked against landlords). I’m simply saying that landlords should be allowed to share the same rights. There shouldn’t be such a huge disparity.
Why not let both sides give a flat one-month or two months’ notice to end a periodical lease?

Contrary to some people’s views, property investors aren’t all flush with cash, and
government tax incentives aren’t making them rich. Property investors are one of the most heavily taxed groups in our economy and governments rely on them as a key source of revenue through imposts such as land tax, transfer duties, capital gains tax etc.

The vast majority of investors are hardworking, ordinary Aussies on average incomes trying to create a better future for their families. They’re making sacrifices now to achieve financial security in retirement; to become self-sufficient and not rely on the aged pension. 
This country is already looking down the barrel of being unable to afford the aged pension for future generations. Why then, when governments should be relieved that some Australians are taking steps to avoid draining the public purse in their twilight years, do they impose these unfair double standards?

Private landlords supply approximately 23.4 per cent* of rental housing in Australia, while state or territory housing authorities, community and church groups provide about 4.8 per cent*. This high figure tells us private landlords are a necessary cog in the rental housing machine and vital to providing roofs over people’s heads, so why can’t they be treated not better, not worse, but the same as tenants?

Eynas Brodie
Freelance journalist and editor
Follow me on Twitter: @Eynas


Distressed Property of the Week -
Elizabeth Bay Reno
This week's distressed property comes from the inner ring of Sydney - a one bedroom renovator's dream in Elizabeth Bay. 'Under Instructions from the NSW Trustee and Guardian', this distressed property is coming up for Auction very soon and judging by the property's online advertising, potentially at an 'affordable' price.

Pictures of the place will quickly alert any potential buyer as to its poor condition, however quality aside - those with a knack for renovating may find great opportunity is scooping up this apartment located in the prestigious suburb of Elizabeth Bay.

Of course with Auctions, there is no guarantee as to what price the property will go for until the moment it is sold, however your chances of attaining fair value for a home is often heightened when there is an element of "distress" in the sale. In this case, being 'under instructions from the NSW Trustee and Guardian' as well as being a 'complete renovation project' may present opportunity to potential buyers to purchase a place in a locale that may otherwise be priced extravagantly.

To get your hands on other distressed properties for sale - check our our Distressed Properties Report HERE.


Top Ten Most Discounted Properties Nationwide

Well if someone had told us at this time last year that the number one property in our Top Ten Most Discounted Properties List would come from Victoria, we probably would have laughed! There was such a long period where NO properties from Victoria even featured on this list, let alone took first place. Yet, here we have this week - 32 Virginia Court, Cranbourne 3977 being discounted a further $15,000 taking it all the way to the top spot. 

You will also notice that the Pearl Beach palace we mentioned recently is not on the list this week. This is certainly not because it has been sold, but rather that its asking price has been changed to "Price Guide on Request" as you can see from its online advertising here and thus we can't actually use it as it doesn't have a dollar figure attached to it at present. 

These properties do have a way of resurfacing though as without a price tag, they can sometimes fail to attract buyer interest. Let's see how it goes!
Rank Address Suburb Postcode   Initial price Now asking Reduction Days on Mkt     Link
1 32 Virginia Court Cranbourne 3977   $390,000 $235,000 40% 314     link
2 116 Perseverance Road Vista 5091   $565,000 $365,000 35% 973     link
3 22/138 Coachwood Road Matcham 2250   $1,750,000 $1,180,000 33% 343     link
4 21 Cotton Court Strathalbyn 5255   $498,000 $339,000 32% 1001     link
5 99 Green Point Drive Green Point 2251   $1,150,000 $795,000 31% 1316     link
6 1/23 Albuera Street Battery Point 7004   $2,200,000 $1,500,000 32% 866     link
7 53 Kalinda Road Bar Point 2083   $280,000 $195,000 30% 525     link
8 230a Lower Esplanade Aldinga Beach 5173   $1,390,000 $970,000 30% 859     link
9 12 Bilyara Rd Tanunda 5352   $850,000 $600,000 29% 1379     link
10 343 Woodlands Drive Thornlands 4164   $1,200,000 $850,000 29% 679     link

Want to see where potential bargains could be hiding in your neighbourhood? SQM Research lists all the houses for sale in your chosen postcode that have spent over 60 days on the market, with all the information given above in one report - our Home Discounts Report. To find out more info and get a free sample, click HERE!
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