C21 Market Pulse | Summer 2023 | Australia

TO THE SUMMER 2023 ISSUE OF C21 MARKET PULSE

PUBLISHER

Century 21 Australia Pty Ltd

CONTRIBUTORS

Tim Lawless Chris Gray Realestate.com.au BMT Tax RealtyAssist

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Century 21 Australia (02) 8295 0600

ADVERTISING ENQUIRIES

Century 21 Australia (02) 8295 0600

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C ORELOGIC HOME VALUE INDEX: NATIONAL DWELLING VALUES FELL -1.0% IN NOVEMBER, THE SMALLEST MONTHLY DECLINE SINCE JUNE

CoreLogic’s national Home Value Index (HVI) moved through a seventh month of decline in November, down -1.0% over the month to be -7.0%, or approximately -$53,400, below the peak value recorded in April 2022.

The decline comes after national housing values surged 28.6% higher through the recent upswing, adding roughly $170,700 to the value of the average dwelling.

Although values are continuing to trend lower, the rate of decline has been consistently moderating since the national index dropped by -1.6% in August.

CoreLogic’s research director, Tim Lawless, said the easing in the rate of decline is mostly emanating from the Sydney and Melbourne markets, but is also evident across many

of the smaller capitals and most regional markets.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3%. That has now reduced by a full percentage point to a decline of -1.3% in November. In July, Melbourne home values were down -1.5% over the month, with the monthly decline almost halving last month to -0.8%,” he said.

“The rate of decline has also eased across the ACT (from a -1.7% fall in August), and is no longer accelerating in Brisbane. Most of the broad rest-of-state markets have also seen the pace of declines decelerate.

“Potentially we are seeing the initial uncertainty around buying in a higher interest rate environment wearing off, while persistently low advertised stock levels have likely contributed to this trend towards smaller value falls. However, it’s fair to say housing

BY TIM LAWLESS, HEAD OF RESEARCH, CORELOGIC

risk remains skewed to the downside while interest rates are still rising and household balance sheets become more thinly stretched.

“There is still the possibility that the pace of declines could reaccelerate, especially if the current rate hiking cycle persists longer than expected. Next year will be a particular test of serviceability and housing market stability, as the record-low fixed rate terms secured in 2021 start to expire,” Mr Lawless said.

Across the capital cities, Brisbane and Hobart (both down -2.0%) led the monthly rate of decline in November, while at the other end of the spectrum, Perth values held firm and Darwin nudged 0.2% higher over the month.

Click here to read the full article

W ILL THE PROPERTY MARKET TURN IN 2023

BY CHRIS GRAY, CEO, YOUR EMPIRE

If you saw the latest property predictions from Louis Christopher from SQM Research a couple of weeks ago you might be in for a shock. Whilst all the other media reports have been doom and gloom all year, depending on what happens to inflation and interest rates, there could be a very good chance that many of our property markets might be bouncing back next year.

While many of the sceptics will be on their naysayers wagon, if you look back over the last few years, it might be simply a case of history repeating itself.

In my May 2022 article I talked about timing the market and how no one was buying in 2018/2019 as we had the credit crunch and Royal Banking Commission. They

also didn’t buy in 2020 due to Covid and the banks predicting the market was going to drop 20–30%. It didn’t drop by that much and if anything, temporarily dipped 5-10% in places.

In 2022 the banks predicted it would grow 5-10% and it didn’t, it grew by 20-30%.

It's very similar to now. The banks predicted 2022 would see a 20 -30% drop due to rising interest rates and that hasn’t happened. It’s dropped 5-10%. Now there’s predictions of inflation starting to come down, interest rates to rise a bit more and then start falling off in early 2023 and hence the potential turnaround in the property prices.

People don’t think it can turn that quickly but often it does. It’s not so much the financial side, it’s consumer confidence that makes a large part of the change. Many borrowers have managed to keep up with the interest rate rise. Many of them did have spare cash or equity buffers to cope with that change and the lenders had factored in 3%

rate rises when assessing their serviceability when they took out the loan years ago.

If you wait and interest rates rise in 2023 your serviceability will go down and you’ll be able to afford less. If prices do rise and you delay, you’ll be able to afford even less again.

Whereas if you can get in in Jan/ Feb and have the buffer to ride any interest rate rises, then you’ll get more for your money and take advantage off every day off the rise.

There is never a guarantee of what the future holds but do you think a unit or a house in the area you’re looking to buy will really be worth less in 10 or 20 years time?

Be very careful making decisions based on one simple summary graph. To get a really good picture

of what might happen next year, before you buy, invest just $59.95 and download the full report: https://sqmresearch.com.au/ boombustreport.php

ABOUT THE CONTRIBUTOR

Chris Gray is CEO of Your Empire, a buyers’ agency that buys homes and investments for time-poor professionals – searching, negotiating, renovating and managing property on their behalf. Chris has spent over 10 years as the host of ‘Your Property Empire’ on Sky News Business channel, where he’s interviewed various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker. For more information, visit www.yourempire.com.au and follow Chris on Facebook: @ChrisGraySydney

W HAT HAPPENS TO THE HOUSING MARKET IN A RECESSION

In the current economic climate of rising interest rates, rising inflation and supply chain issues many Australians are uncertain about making their next move when it comes to property.

And while a future recession is by no means confirmed, it can be helpful to understand how it could impact the Australian housing market. Here are some potential outcomes that could be likely to occur in the Australian housing market should economic uncertainty take hold.

1. HOUSE PRICES MIGHT DECREASE

Some analysts foreshadowed that property prices could fall by as much as -30% if we experienced a severe recession. However, as Australia looks likely to avoid the worst impacts, a figure of -10% or below is now more widely forecast.

2. THE GAP BETWEEN PROPERTY PRICES CAN ALSO REDUCE

If all property prices fall by the same percentage, then the more valuable the property is the more it should fall.

BY REALESTATE.COM.AU

For example, if a home worth $1 million falls by 10% it loses $100,000 and is now worth $900,000. If a home worth $500,000 falls by 10% it loses just $50,000 and is now worth $450,000 – making the gap between the two properties $450,000 rather than $500,000, which is great news for someone looking to trade up.

3. THE RISK OF NOT BEING ABLE TO PAY YOUR MORTGAGE INCREASES

One of the biggest risks during a recession can be losing the ability to pay a mortgage through things like job loss or salary cut.

Always look to build a home loan buffer and limit yourself to borrowing only what you can genuinely afford to repay.

4. PRICES COULD FALL FURTHER

If you buy in a recession, there is always the risk that prices could fall even further.

That said, Australian property prices usually tend to rise in the long run, especially in capital cities. So if you’re prepared to spend some time owning your property, you’re likely to come out ahead.

5. DIFFERENT PROPERTY MARKETS REACT DIFFERENTLY

It’s always worth remembering that, despite the data, Australia’s property market isn’t really one market at all. Prices don’t move in unison between states, cities, or even suburbs. Different types of property – i.e. apartments vs houses – also rise and fall at different speeds.

That means some properties are likely to weather a recession better than others. In fact, some suburbs and property types may even rise in value while others fall.

6. INTEREST RATES CAN CHANGE

The RBA can use interest rates to stimulate the economy or to stifle it. During periods of low economic growth – such as during a recession – the RBA usually chooses to keep interest rates down to encourage borrowing and boost economic activity.

The current environment of rising interest rates has come about as they try to react to rising inflation and a hot property market, which has

meant that borrowing rates peaked dramatically during 2021, and are not as high in the current market.

Should you sell your home during a recession: Pros and Cons

PROS

1. CASH IN ON CURRENT EQUITY

One of the outcomes of the pandemic restrictions was that many households weren’t as able to spend their incomes, which resulted in huge levels of household savings.

Add to this the increase in property values seen across 2020-2021 and you’re looking at a considerable amount of equity.

If you were one of the lucky households that managed to get ahead during the lockdown years you could find yourself in an enviable position when making your next move on the property ladder.

2. PAY LESS IN CAPITAL GAINS TAX

Capital gains are made when a property accrues value, but if that doesn’t happen or the value drops by the time it comes to sell (and you sell it for a smaller amount) then you won’t have to pay so much in tax.

3. TAKE ADVANTAGE OF HIGH DEMAND

There’s a lot of talk about the drop in borrowing capacity, but not as much

has been said about the continued rise in demand for property in Australia.

Demand is currently around 46% higher than pre-Covid levels (comparing data from the first week of October versus the week of 19th Jan 2020).

This means that, if you’re prepared to meet the market as a seller, you’ll find plenty of willing buyers.

4. HAVE MORE OPTIONS AS A BUYER

For those looking to buy and sell at the same time, you might find yourself scoring a good deal on the home you buy next as others, who might not have as much deposit, are scared off.

5. HISTORICALLY, PRICE DECLINES HAVE BEEN SHORT-LIVED

Putting the current economic climate in perspective, historically price dips – while not uncommon – tend to be short-lived.

Most people stay in their homes for many years, and it can take them a long time to find the perfect one so taking a long-term view is important.

CONS

1. IT MAY BE HARDER TO GET AFFORDABLE FINANCE IF IT’S REQUIRED

One of the outcomes of the number of interest rate rises lately is that home lending activity has slowed down dramatically as people’s borrowing capacity fell.

Banks increased their interest rate buffers to 3% in October, which effectively tests borrowers’ ability to pay back the same principal against a much higher interest rate.

2. YOU MIGHT NOT BE ABLE TO SELL FOR AS MUCH

Depending on the local market conditions and property type on

offer sales prices have softened since the frenzy of 2021, so in this post-peak period sellers can expect their homes to sell for less than what they would have previously.

3. THE PROPERTY COULD TAKE LONGER TO SELL

Similarly to sales prices, this buyer’s market is seeing days on market levels rise as they no longer feel rushed into purchasing the first thing they see.

4. YOU MAY HAVE TO BE FLEXIBLE WITH YOUR SALE CONDITIONS, CATERING TO A BUYER’S MARKET

One of the cards sellers have up their sleeves when it comes to making a good deal on their property is the settlement terms they offer.

If you can be flexible then do your best to create an easy option for sellers by negotiating a settlement term, providing access for inspections, and even providing property reports up front.

5. YOU MAY NEED TO DO MORE TO APPEAL TO BUYERS

A side effect of the supply chain issues brought about by Covid and the war in Ukraine is that building supplies aren’t as reliable as they were previously.

This has dampened the appetite of buyers when considering purchasing a home to renovate versus a home that’s ready to move in.

For this reason, it’s more important than ever to take care in preparing your home for sale to make it as appealing as possible for buyers if you want to get the best price possible.

What strong

F OUR REASONS YOU SHOULD CLAIM DEPRECIATION IN 2023

With the start of the new year fast approaching people are formulating their annual New Year’s resolutions.

You may be thinking of the ways you can reduce the costs of owning an investment property while boosting your cash flow. Claiming depreciation deductions on your investment property may be the answer.

Around eighty per cent of investors don’t maximise their depreciation deductions, therefore it’s important to speak with a quantity surveyor to discuss the benefits of ordering a tax depreciation schedule.

To help you plan the new year, BMT Tax Depreciation have put together four reasons why investors should order a depreciation schedule.

1. YOU DON’T HAVE TO SPEND ANY MONEY TO CLAIM IT

Depreciation is the natural wear and tear that occurs to a building and the assets within it over time. Property depreciation is a non-cash deduction which means you don’t have to spend money in order to claim it.

On average, BMT finds residential investors almost $10,000 in deductions within the first full financial year alone. The Australian Taxation Office allows investors to claim capital works deductions on the building structure over the effective life of the property (forty years) and depreciation for plant and equipment assets based on their individual effective life. By claiming property depreciation, you’re reducing your taxable income and can benefit from receiving more in your annual tax return or avoiding having to pay additional taxes.

2. EVERY PROPERTY INVESTOR CAN BENEFIT FROM A DEPRECIATION SCHEDULE

Some investors think their investment property is too old to attract depreciation deductions however this is untrue. Both new and old properties will provide some depreciation deductions for their owners.

In November 2017, the federal government made changes to the way investors claim depreciation for plant and equipment assets. If you exchanged contracts on a second-hand residential investment

property after 7:30pm on the 9th of May 2017, you can no longer claim depreciation for any previously used plant and equipment assets within the property.

You can still claim depreciation for any brand-new assets they install once the property is income -producing. You can also claim qualifying capital works deductions relating to the

building’s structure and any items permanently fixed to the property. These deductions typically make up between 85 and 90 per cent of a total depreciation claim.

3. ADJUST PREVIOUS TAX RETURNS

If you haven’t been claiming or maximising depreciation for your investment property, previous tax returns can be adjusted and claimed back.

4. THE FEE IS 100 PER CENT TAX DEDUCTIBLE

Although there is a cost involved in arranging a depreciation schedule, the fee is 100 per cent tax deductible.

If you would like more information on how you can benefit from a depreciation schedule, Request a quote or speak with one of our expert staff on 1300 728 726.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Please contact 1300 728 726 or visit bmtqs.com.au for Australiawide service.

F INTECH COMPANY TAKES PRESSURE OFF VENDORS

BY REALTYASSIST

Selling your property can be a costly exercise. Fortunately, new solutions by fintech company RealtyAssist are taking some of the financial burden off of vendors, and making the selling process a whole lot easier.

Traditionally, real estate agencies invoice vendors for marketing fees upfront. This can leave vendors out of pocket, sometimes struggling to scrape together the necessary funds. Often, vendors face having to under-market their property as they can’t afford a premium campaign. With RealtyAssist, vendors can now advance the amount required to afford their property the marketing campaign it deserves, and defer repayment until settlement* when they are in a better financial position.

Say you have Beth and Tony, a young family with two kids who are looking to sell their home and move closer to their kids’ school. In a competitive market, they could be looking at marketing fees of around $4,500. If their agency is a RealtyAssist member, they can defer their marketing payment and have RealtyAssist advance the funds upfront to the agency on their behalf. Beth and Tony can then repay RealtyAssist when their property settles*.

For many vendors, selling a property can be a stressful experience. However, RealtyAssist has a range of financial solutions to help make the process as painless as possible. RealtyAssist may be able to provide funding to cover any necessary home improvements or repairs required before selling. This could include anything from a fresh coat of paint, through to completing some long overdue home maintenance or having the interior expertly furnished by a professional staging supplier.

For example, say you have Ben, who was slowly renovating his home, but suddenly has to sell and move interstate. Instead of selling his home in a half renovated state, Ben may be able to use RealtyAssist to secure additional funds, and get his renovations finished quickly before he goes to market.

Likewise, Sarah and Jane might be heading towards settlement. During a building inspection, a structural issue might be identified that must

be fixed prior to settlement. The repair might cost $17,000, which Sarah and Jane cannot afford to pay for out-of-pocket. Instead, RealtyAssist could potentially save the day by providing them with the funds to finance the repairs, which Sarah and Jane can then repay when their property settles*.

RealtyAssist prides itself on removing obstacles and putting the power back in the vendor’s hands; without the stress, delays, and arduous application processes that can come with tradi-tional lending. Best of all, RealtyAssist’s fees are extremely competitive.

To find out more, visit www.realtyassist.com.au or call 1300 355 729.

Note: All case studies are provided for illustrative purposes only.

All applications are subject to credit assessment, approval and acceptance of terms & conditions. *Settlement or 62 days, whichever occurs first.

H OW TO DECORATE A SMALL SPACE FOR OUTDOOR ENTERTAINING

With sunny days and warm nights, the Summer holidays are the peak time for outdoor entertaining. Even though you don’t have a sprawling backyard, that doesn’t mean you can’t enjoy entertaining outdoors. No matter the size, you can make the most of your space, turning it into your own slice of paradise. Here are our tips for how to decorate small spaces for outdoor entertaining.

ARRANGE FURNITURE THE RIGHT WAY

The best way to maximise space is to arrange your furniture around the perimeter of the deck or patio. Think twice before placing a table in the center, and instead give your guests plenty of room to stand or move around.

ADD EXTRA SEATING WITH LARGE PILLOWS

Get a few extra spots for guests to sit without taking up too much

space by throwing in some large floor pillows. They add an extra element of coziness, plus they’re easy to add or subtract.

USE COLOR WISELY

Color can make all the difference when decorating, especially in such a small space. Keep things fresh and airy by sticking to a monochromatic palette in whites or grays. Or add a bit of fun by using colorful accents in eyecatching patterns.

BE STRATEGIC WHEN CHOOSING FURNITURE

Save space by investing in twofor-one pieces of furniture, such as nesting tables, storage ottomans and benches (which can also be used for seating), and folding tables and chairs.

BRING ON THE PLANTS

There may be plenty of foliage outside already, but use it strategically in your entertaining area. Plants are a simple way to liven things up and make your modest space feel like an exotic retreat.

HANG UP LIGHTS

Strings of bistro lights can instantly open up a small space. Plus, that warm glow will give things a cosier vibe.

Get ready for a summer full of outdoor entertaining!