Attwood Marshall Lawyers Property and Commercial Special Counsel Barry van Heerden reviews the recent property market trends and the financial and legal obstacles real estate agents, buyers, and sellers may face.
Introduction
News headlines continue to offer mixed messages as the real estate sector remains in the spotlight, with everyone trying to predict what will happen next. Here are just a few you may have seen:
‘Kicking myself, I didn’t move faster’: fear and panic grips housing market
Sydney’s North Shore trophy-home market exploding
Sunshine and Gold Coast properties have boomed since 2020: Now they’re leading the real estate downturn
‘Worst case scenario’: Fears house prices could plunge by 43.5 per cent
But what is really going on? Are sellers racing to offload their property before prices bottom out? Are there still more buyers house hunting than what we saw pre-pandemic? Can few people borrow now that interest rates and living costs have increased?
From what we have seen concerning enquiries, there has been a reduction in the activity of people ready to buy or sell. However, there has been an increase in enquiries from people wanting advice on loan documents and going guarantor for family members who are trying to secure their dream home as banks scrutinise home loan servicing.
The property market during Spring 2022 is unlikely to be as strong as the previous year, which saw a record-high number of new listings and record-breaking auction volumes during a peak point in the pandemic. The market conditions are very different this year, with buyers curtailed against higher interest rates and falling sale prices.
The slight decline in housing prices presents an opportunity for long-term owner-occupiers to sell, as they are at a lower risk of making a nominal loss, and their home values have trended higher over time; that’s if they are able to secure another suitable property when downsizing.
Needless to say, the market continues to be in the buyer’s advantage, and not as beneficial for sellers.
Queensland land tax changes cancelled
Queensland Premier Annastacia Palaszczuk has decided to axe the state’s controversial land tax following weeks of negative publicity.
The tax, which was scheduled to start in 2023, would calculate owner liability for land tax accounting for the total value of their Australia-wide land holdings, not just property located in Queensland.
If the land tax was introduced, it was anticipated that it would affect approximately 10,000 investors. There were significant concerns that if the tax was introduced it would only result in rent prices being increased further, adding more pressure to the current housing crisis.
However, the tax met a wall of negative comments from investors, other states and territories, and even some members of the Queensland Labor Party.
It seems the confidence of investors and renters has been shaken with many Queenslanders losing faith in the Palaszczuk government.
Market overview and RBA cash rate
There was a further decline in housing values through September, with the national Home Value Index (HVI) recording a -1.4% decline. Though values continue to trend lower, the rate of decline alleviated from a -1.6% fall in August.
The disruption in the momentum of the pace of declining values was apparent throughout most capital cities and broader regions, with a few exceptions. The decline in housing value accelerated in Adelaide and Perth this month. However, both cities record only a mild reduction relative to the other capitals. Sydney’s monthly rate of decline eased, Melbourne tapered, and Brisbane fell slightly. Darwin is the only capital city without housing values trending lower.
According to CoreLogic’s research, it is probably too early to suggest that the housing market has moved through the worst downturn. The initial shock of a swift rise in interest rates has passed, and most borrowers and home buyers have now budgeted for further rate hikes. Although, if interest rates continue to rise as swiftly as they have since May 2022, the rate of decline in housing values could accelerate further.
Additionally, auction clearance rates trended upwards this month, albeit subtly, and consumer sentiment nudged a little higher alongside solid labour market conditions.
The Reserve Bank of Australia (RBA) raised rates by 25 basis points at the start of October to 2.60 per cent, which was the fifth rate hike in five consecutive months.
We are once again sitting at interest rates like those seen in 2016. Inflation has been at its highest in Australia since the early 1990s.
The RBA is primarily focused on combatting inflation. It is prepared to dismiss any temporary deceleration in economic activity or weakness in housing demand as the cash rate approaches a deflationary setting. It aims to return inflation to target and balance supply and demand while stabilising housing prices.
The good news is that the RBA suspects inflation will reach its peak at the end of the year, insinuating that the cash rate should stabilise around the same time.
The direction of home values will depend on how quickly and how high-interest rates move, coinciding with the performance of the wider Australian economy, demographic trends, and labour markets.
Inventory levels
Properties for sale
Properties are takings longer to sell. This is evident with the median days on the market being 33 days in the three months leading up to August. This is a dramatic increase from the recent low of 20 days in the three months to November 2021.
Seller discounting has increased from a low of -2.3% in April last year to -4.0% this August 2022.
In the four weeks to 4 September 2022, 35,213 newly advertised dwellings were listed for sale nationally. In September, the flow of new listings had a seasonal slowdown; however, recent weeks have seen a rise.
While more properties are on the market for sale this month, there is still a shortage of premium properties.
Properties for lease
Our rental markets have continued tightening, with vacancy rates for houses and apartments extremely low across the country.
Panic continues to be expressed across the industry, with rental vacancy rates falling to the lowest level on record. In addition, there continues to be a power imbalance between landlords and tenants. As a result, tenants are copping significant and constant rental rate hikes or being forced to move after no longer being able to afford a property they may have lived comfortably in for many years.
Median weekly advertised rents have increased by a historic high of 4.3 per cent over the September quarter, bringing the year-on-year rise to 10.3 per cent, the highest on record.
That’s not to say that landlords do not have their challenges. Many are only increasing rent to meet the additional costs associated with rising interest rates and the cost of living, including significant increases in the cost of insurance and council rates. All these factors are contributing to a severe housing crisis.
Queensland Premier Anastacia Palaszczuk released further details on 13 September 2022 about how the state government intend to tackle Queensland’s housing crisis. The Premier hosted a roundtable with advocates and stakeholders in mid-September. The roundtable was the first step ahead of a Summit to be held, focusing on unlocking land supply and strategies to fast-track social housing. All levels of government are expected to be involved in the roundtable.
Lender’s attitudes
Refinancing has been accelerating recently, with many mortgage holders looking to switch to more affordable home loans after five months of rate hikes. While low-rate home loans are becoming more difficult to find, there are still competitive rates available by some lenders that could offer immense value to the right borrower.
While finding a low-interest home loan is not as simple as it used to be, the interest rate on a mortgage is not the only factor that needs consideration. In addition, the fees, features and other benefits of home loan products can also impact the overall value that a mortgage may offer mortgagors in diverse financial situations, whether refinancing their home or investing in new property.
Regulators and policymakers are carefully monitoring lending standards. For example, the September Housing data indicates lenders are becoming more cautious in their approach to higher debt-to-income ratio lending and high loan-to-value ratio lending.
Attwood Marshall Lawyers – an experienced team ready to help facilitate successful property transactions
Our experienced property lawyers enjoy working with real estate agents, investors, buyers, and sellers to ensure they achieve their property goals and that transactions progress without any unexpected issues. We offer FREE pre-signing advice on Queensland Contracts and can assist with drafting special conditions and conducting negotiations between parties to help property transactions proceed seamlessly.
If you know someone eager to buy or sell who would benefit from expert legal advice and support throughout the conveyancing process, contact our Property and Commercial Department Manager, Jess Kimpton, on her direct line 07 5506 8214, mobile 0432 857 300, or email jkimpton@attwoodmarshall.com.au
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