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SQM Research Residential Newsletter - Tuesday 1 October 2019
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Property Valuations
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Boom and Bust 2019 Report

Black Dragon's
Words for the Week

“The trouble with the future is that it usually arrives before we are ready for it.”

Arnold H Glasgow
Real Estate Realities 

Why the German concept of Passivhaus is the future of sustainable housing

Passivhaus is a German approach to home design that uses a combination of high-performance glazing, insulation and an airtight building envelope to regulate a home’s internal temperature without relying on artificial heating or cooling.

It’s a whole new way of looking at how we live, and it offers huge environmental credentials and dramatically reduced power costs – no matter where you live. The Passivhaus methodology is underpinned by five key components relating to how the home is designed and constructed. Let’s take a look at how it all works.

What is Passivhaus?
Can you imagine living in a home that keeps you warm and cosy all winter, without running the heater 24/7? Can you imagine a home that stays cool and comfortable even in the tropical midsummer heat? A home that’s quiet, free of draughts, mould and dust, costs very little to run and reduces your carbon footprint?

This is what Passivhaus design can achieve, and it’s something that more and more Australian architects and builders are becoming accredited in. Some experts say this innovative – yet achievable –  design and construct methodology represents the future of sustainable housing.

Read More...

Property Listings record abnormal decrease in September 2019

by Louis Christopher

Figures released today by SQM Research reveal national residential property listings decreased in September by 4.0%, from 325,693 in August 2019 to 312,754.  Compared to 12 months ago, listings were down by 6.9%.

All states experienced a decrease in property sales listings over the month, with Hobart experiencing the highest decrease at 6.4% followed by Melbourne and Perth both with a 5.8% decrease. Sydney was not far behind with a 5.7% decrease. The lowest decrease was Canberra of 1.1% over the month. 

Year-on-year Sydney’s listings declined by a significant 20.4%.  Perth and Darwin both recorded a 9.0% yearly decrease.  Melbourne, Brisbane and Adelaide declined by smaller margins.

Perth and Darwin’s year-on-year listings also saw declines of 4.6% and 3.6% respectively. Canberra and Hobart’s year-on-year listing increased by 3.1% and 8.4%, respectively.



September’s decline in listings was an abnormal result. Listings normally rise for the first month of the spring selling season. New listings did rise. It just that older listings recorded a large decline. It suggests stock is being absorbed at a quicker rate.

Turning to Sydney, the evidence, by way of the fall in listings, the rise in auction clearance rates and the accelerated rise in asking prices, all suggest that the city has indeed entered into a new housing boom. Melbourne is not that far behind the mark as well. I think we can expect to record rapid rises in dwelling prices for our two largest cities at least in the December quarter and likely beyond.


Asking Prices

Capital City asking prices increased marginally by 1.5% for houses and 1.4% for units, over the month to 1 October 2019. Unit asking prices are now $568,300 and houses $942,400.  

Compared to a year ago, the capital city asking prices posted declines of 0.1% for houses and declines of 0.7% for units.

Over the month, Sydney, Melbourne, Brisbane and Hobart all recorded increases in both houses and units, with Melbourne showing the strongest growth of 2.1% in the housing market and Hobart recording a 3.8% growth in the unit market.

Perth’s house and unit market has declined marginally by 0.5% and 0.1% respectively.  As did Darwin’s asking prices, declining 0.9% for houses and 0.8% for units.

Sydney’s median house asking price has increased by 1.9% for houses and 0.8% for units.  Median price for houses is now $1.305m in Sydney, not far behind its peak in Jan 2018 of $1.39m.

Melbourne current median house price is $959.6k for houses, inching closer to its $1.008m high in April 2018.
Brisbane’s median house price has hit its peak of $627.1k since 2009.


 
SQM Research Weekly Asking Prices Index
Week ending: 1 Oct 2019 Asking Price     Chg on
prev wk
   Rolling month
% chg
  12 month
% chg
Sydney All Houses 1,305.1 5.1  1.9%  -0.6% 
All Units 698.1 2.4  0.8%  -1.4% 
Melbourne All Houses 959.6 4.3  2.1%  -0.9% 
All Units 547.9 1.2  1.4%  -0.2% 
Brisbane All Houses 627.1 1.2  1.2%  2.2% 
All Units 371.2 0.4  0.3%  -2.6% 
Perth All Houses 649.8 0.0  -0.5%  -1.7% 
All Units 378.6 -0.1  -0.1%  -2.5% 
Adelaide All Houses 516.8 1.3  0.7%  2.1% 
All Units 297.3 -0.6  -0.4%  -1.4% 
Canberra All Houses 809.7 -4.2  -1.2%  -1.1% 
All Units 440.3 2.6  2.1%  4.5% 
Darwin All Houses 588.2 0.4  -0.9%  0.9% 
All Units 349.5 -0.0  -0.8%  -5.7% 
Hobart All Houses 521.8 0.3  0.9%  5.9% 
All Units 330.9 4.7  3.8%  8.3% 
National All Houses 578.2 5.7  0.2%  0.9% 
All Units 381.8 1.7  -1.6%  3.0% 
Cap City Average All Houses 942.4 5.7  1.5%  -0.1% 
All Units 568.3 1.4  1.4%  -0.7% 
 

CHART OF THE WEEK

Residential Lending Rates and Property Rental Yields

With lending rates on the long term decline in Australia and (up until recently) property prices stagnating in recent years, what has become particularly interesting is the effect of the widening gap between lending rates and property rental yields. As average lending rates for home-buyers continue to decrease following on from multiple rate cuts, the gap between these lending rates and rental yields has continued to grow, literally to the point where some cities are effectively offering cash-flow positive investments after interest expenses. But as mentioned in previous weeks, while tempting, cash-flow property investments maybe offering such good yields for a very good reason.

Let’s first look at Hobart:



The chart above presents the gap between the average property yield in Hobart and average variable basic rate across Australia. This shows that there has been an overall uptrend in the gap from the beginning of 2015, and this gap is still rising. It currently stands at 1.75%. Meaning a typical fully geared property in Hobart is still offering a gross 1.75% yield after deducting interest expense.

Now in recent years, Hobart has had a boom on its housing market. Both prices and rents have risen in dramatic fashion. However, rents more so.  
Hence why acquisition yields have actually gone up.  Arguably, one would want to see yields rising to reflect the fact that there is increasing risk (in our opinion) that the Hobart housing market is now in its very late stages of its three year upturn.

There has been a similar trend in Canberra, as shown in the charts below.



Like Hobart, Canberra is also experience a positive gap between yields and interest rates, lending itself to the opportunity of purchasing a cashflow positive property. Mind you, the yield gap is not as large as it is in Hobart,

In this instance, rental yields itself in Canberra have been fairly stable, running at about 5.5% for units and about 4% for houses for a number of years now.  So the positive yield gap has simply occurred due to the reduction in lending rates.

Brisbane is also now offering a positive yield after interest rates which is quite significant for a larger capital city. It has occurred due to a rise in rents in the last two years while housing prices have been rather benign, therefore increasing yields. Yields for units are running at about 5.3% gross. While for houses they are running at about 4.1%. As with all other cities, it is the reduction in lending rates that have created this reality. But in this instance the rise in rents In recent times has also been a contributing factor.




So overall, the charts reveal this is not a normal occurrence. While the data we have run only goes back to 2010, in my memory, I cannot recall a situation where a number of our capital cities are offering cash-flow positive residential properties.
 

DISTRESSED PROPERTY OF THE WEEK

405/61 Galada Avenue, Parkville VIC 3052

click to enlarge

On offer is this modern 2 bedroom apartment in the ‘Thrive Parkside’ apartment complex in the inner-city suburb of Parkville, 4km north from Melbourne’s CBD. 
 
As part of Parkville Gardens, Thrive Parkside is surrounded by Royal Park, with the Capital City Cycle Trail running through Royal Park giving you access to Melbourne Zoo, Melbourne Aquarium, Docklands, Southbank, Federation Square and Melbourne Crown Casino.  The complex is also conveniently close to Melbourne University, Royal Melbourne Hospital, Royal Women's Hospital, Royal Children's Hospital, Queen Victoria Market, Lygon Street and public transport.  Thrive Parkside was once the site of the 2006 Melbourne Commonwealth Games Village which has been transformed into a modern high-density community.
 
This 73 sqm apartment features a contemporary design with two bedrooms, an open-plan living/dining/kitchen area with stone benches, stainless steel appliances, pantry and a central bathroom.  Also included in this inner city pad is a Euro-laundry, secure swipe/intercom entry, split system heating/cooling and one secure car space.
 
Residents also have access to 'The Park Club' which features a 25 metre heated indoor pool, state-of-the-art gymnasium and outdoor BBQ area.  The Owners Corporation Fee is approx. $2,400 p.a.
 
The apartment’s current asking price is $410,000 to $440,000 after initially being advertised for $450,000 to $490,000 in November 2018.  It last sold for $492,800 in April 2017.  Based on current data, you would expect to pay between $450,000 and $530,000 for apartments in this area. 


Asking Prices for 2 bedroom apartments in postcode 3052 have marginally increased by 0.6% over the month, after a 3 year increase of 5.9%.   
 
In contrast, Parkville’s house asking prices has increased by a massive 62.5% over 3 years, but has since slowed to a 1.2% increase over the month.  The median house price is higin this area due low stock of houses and its proximity to the city centre and parklands. The precinct along Royal Parade is the oldest part of Parkville and includes Victorian era buildings, terrace houses and tree lined streets. 
 

Asking Rents for 2 bedroom apartments in this area has increased 4.3% over 3 years however, over the month, rents have dropped 2.4%.  You can expect rents of $420 to $442 per week for 2 bedroom apartments in this area. This property was rented for $420 per week in August 2019.  Investors can achieve gross rental yields of 4.4% for 2 bedroom apartments. 
 
The
Vacancy rate in this area sits at 2.7% increasing from 1.8% in July 2019.  According to the ABS 2016 data, this area has a high 66.8% of renters in this postcode.   The population of Parkville in 2011 was 6,192 people, by 2016 it grew to 7,417, showing growth of 19.8% in the area during that time.
 
There are currently 54 properties
listed for sale in this area.  Half of these (27) have been listed for over 180 days and 40 of these are units compared to 14 houses for sale. 
 
This area has had significant development of
apartment blocks since 2011, increasing from 1068 apartments to 1505 in 2016.  Could this once old heritage suburb with character homes be over developed? 
 
This property would be best suited for investors.  
SQM website features free property data that is now more interactive, easier to navigate and user-friendly, so keep monitoring this market’s growth at SQM Research’s free property data. Also consider the Property Valuation product for more in-depth data and property price estimator.
 

SQM RATINGS NEWSLETTER

Did you know that SQM Research doesn’t only provide residential property data, we also provide research on all asset classes.  We have data and analytics on over 10,000 funds in Australia.  To find out more and to subscribe to our Fund Data tool click here.

If you would like to subscribe to our Ratings Newsletter, click here.  The newsletter provides regular updates on all funds including ratings changes and media releases, and valuable Insights into the point of view of our analysts on a variety of ratings research related topics.  And it’s completely free!
 

SQM RESEARCH HOUSING INDEXES
 
SQM Research Weekly Asking Prices Index
Week ending: 1 Oct 2019 Asking Price     Chg on
prev wk
   Rolling month
% chg
  12 month
% chg
Sydney All Houses 1,305.1 5.1  1.9%  -0.6% 
All Units 698.1 2.4  0.8%  -1.4% 
Melbourne All Houses 959.6 4.3  2.1%  -0.9% 
All Units 547.9 1.2  1.4%  -0.2% 
Brisbane All Houses 627.1 1.2  1.2%  2.2% 
All Units 371.2 0.4  0.3%  -2.6% 
Perth All Houses 649.8 0.0  -0.5%  -1.7% 
All Units 378.6 -0.1  -0.1%  -2.5% 
Adelaide All Houses 516.8 1.3  0.7%  2.1% 
All Units 297.3 -0.6  -0.4%  -1.4% 
Canberra All Houses 809.7 -4.2  -1.2%  -1.1% 
All Units 440.3 2.6  2.1%  4.5% 
Darwin All Houses 588.2 0.4  -0.9%  0.9% 
All Units 349.5 -0.0  -0.8%  -5.7% 
Hobart All Houses 521.8 0.3  0.9%  5.9% 
All Units 330.9 4.7  3.8%  8.3% 
National All Houses 578.2 5.7  0.2%  0.9% 
All Units 381.8 1.7  -1.6%  3.0% 
Cap City Average All Houses 942.4 5.7  1.5%  -0.1% 
All Units 568.3 1.4  1.4%  -0.7% 

Next update: 8 Oct 2019

SQM Research Weekly Rents Index
Week ending: 28 Sep 2019       Rent          Chg on
prev wk
  Rolling month
% chg
   12 month
% chg
Sydney All Houses 675.5 -1.5  -0.6%  -4.3% 
All Units 496.2 -0.2  -0.3%  -3.5% 
Melbourne All Houses 525.2 -0.2  -0.1%  -0.5% 
All Units 414.1 -2.1  -1.3%  1.3% 
Brisbane All Houses 465.5 -0.5  -0.0%  3.1% 
All Units 378.7 0.3  0.8%  2.1% 
Perth All Houses 442.9 0.1  1.2%  4.8% 
All Units 337.9 0.1  -0.2%  5.1% 
Adelaide All Houses 398.1 -1.1  -0.4%  2.5% 
All Units 310.3 -2.3  -0.0%  4.0% 
Canberra All Houses 609.8 5.2  0.7%  -3.4% 
All Units 461.4 2.6  0.8%  3.8% 
Darwin All Houses 521.3 3.7  2.7%  0.6% 
All Units 379.6 0.4  0.9%  -6.2% 
Hobart All Houses 439.5 1.5  -0.9%  7.7% 
All Units 403.6 -6.6  1.8%  10.7% 
National All Houses 442.0 0.0 0.9%  1.1% 
All Units 365.0 -3.0  0.0% 2.2% 
Cap City Average All Houses 544.0 -2.0  -0.2%  -1.1% 
All Units 435.0 -1.0  -0.5%  -0.9% 

Next update: 4 Oct 2019

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