Welcome to this week’s edition of Property Edge, where we bring you a comprehensive roundup of the latest and most impactful news in the property world.

1. Rental Market and Economic Outlook

   This week ABC News delved into the critical concern in the Australian property market: the significant rise in rents.

   Key Highlights:

   • Rent Increase: Over the past three years, rents have surged dramatically, with an 8.3% increase last year alone, following 9.5% and 9.6% jumps in the preceding years.
   • Financial Stress for Renters: Nearly two-thirds of renters are experiencing financial stress due to these escalating housing costs.
   • Home Value vs Rent Growth: While home values have also increased, 2023 marked a rare occurrence where rent rises outpaced capital gains, without a corresponding fall in home values.

   Market Dynamics:

   • Ownership vs Renting: The rising home values benefit a majority who own their homes. However, the decline in homeownership rates, especially among younger demographics, paints a concerning picture.
   • Investment Returns: The average gross rental yield on residential property was 3.7% in December, significantly lower than the average interest rate on property investment loans, raising questions about the viability of such investments.
   • Capital Gains Focus: Australian landlords are increasingly reliant on capital gains rather than income generation, drawing parallels to a Ponzi scheme’s structure.

   Economic Implications:

   • Wealth Allocation: An enormous portion of Australian wealth is tied up in housing, overshadowing investments in stocks, superannuation, or other economic growth drivers.
   • National Wealth Impact: This heavy investment in housing is contributing to a less diverse and potentially more vulnerable economic landscape.

   Conclusion: ABC’s analysis suggests that the Australian property market’s reliance on continuous capital gains, underpinned by rising property prices and rents, poses significant risks not just to individual investors and renters, but to the broader economy. It underscores the importance of diversification in personal and national investment strategies.

   This is congruent with the Property Lover’s community where we manufacture our own capital growth buying and selling in the same market rather than passively waiting for the market to rise and do the heavy lifting for us, hopelessly losing money in holding costs and negatively gearing. Creating, improving and trading properties for cashflow in our real estate businesses!

2. The December 2023 Data is In

   Corelogic released its monthly chart pack this week.

   Key Insights:

   1. Annual Growth in Home Values vs Rent Values:

      • There has been noticeable fluctuation in annual home value growth.
      • Rent values, however, have consistently increased by more than 8% over the past three years.
      • Notably, in 2023, 2022, and 2018, rents outpaced home values.

   2. Residential Real Estate Value:

      • The estimated value of residential real estate stood at $10.3 trillion as of December, showing stability from the previous month.

   3. Capital City and Regional Market Growth:

      • Both the combined capital city and regional dwelling markets saw a 1.5% rise in the December quarter.
      • The growth trajectory for housing values in combined capitals has slowed since late May, with the rate of growth remaining steady through early January.

   4. Perth’s Market Performance:

      • Perth led the capital growth performance among major city markets, with home values increasing by 15.2% in 2023.
      • Additionally, Perth recorded the strongest quarterly growth, at 5.1%.

   5. Sales Trends:

      • 2023 saw an estimated 488,898 sales nationally, a 2.8% decrease from 2022. However, sales trends are now slightly above the five-year average

   6. Median Selling Time:

      • The median time to sell a capital city home increased slightly to 29 days in the December quarter.
      • For regional dwellings, the median selling time is 41 days, an increase from the previous year but still below pre-pandemic averages.

   7. Vendor Discounting Rates:

      • Vendor discounting rates narrowed in 2023, but there was a slight deterioration towards the end of the year.

   8. Clearance Rates:

      • Final clearance rates across combined capital cities trended lower at the end of 2023, averaging 58.9% in mid-December.

   9. Rental Market Trends:

      • Rent values increased by 0.6% in December, marking an 8.3% annual increase.

   10. Dwelling Approvals:

       • There was a 1.6% increase in dwelling approvals in November, primarily driven by a 7.2% rise in the unit segment.

   Implications for Property Entrepreneurs:

   • Market Analysis: Understanding these trends is crucial for making informed investment decisions.
   • Investment Opportunities: Areas with high rental growth could be lucrative for investors.
   • Strategic Planning: Consider these market dynamics in your long-term property investment strategies.



3. There May Be Financial Relief In Sight for Homeowners in 2024

   The Daily Telegraph predicted this week, after reviewing “Finder’s” latest survey data, that financial relief may emerge for homeowners in 2024.

   Key Points:

   1. Interest Rate Developments:

      • There are indications of potential pauses or cuts in interest rates, which could bring relief for homeowners. According to Finder’s RBA Cash Rate Survey, a third of experts predict a cash rate cut by August, while nearly half don’t see cuts until December 2024 or later.

   2. Current Financial Pressures:

      • Finder’s research highlights extreme cost of living pressures in December, with households reporting $3,000 lower savings balances compared to November.
      • Many homeowners (40%) struggled to pay their mortgage, and a significant percentage of renters and homeowners reported housing costs as a major stress factor.

   3. Inflation and Economic Outlook:

      • Despite high current pressures, falling inflation suggests possible relief ahead. Finder’s head of consumer research, Graham Cooke, anticipates a gradual decrease in these pressures over several months.
      • Peter Boehm of Pathfinder Consulting expects minimal change to the cash rate in the first half of 2024 but predicts a decrease of at least 50 basis points in the latter half as inflation moves towards the target range.

   4. Coping Strategies:

      • Homeowners have been employing various methods to manage high costs, including using credit cards for mortgage payments, taking out personal loans, renting out spare rooms, and cutting back on discretionary spending like ‘Buy Now Pay Later’ services.

   Implications for Property Entrepreneurs:

   • Market Watch: Keep an eye on interest rate trends and economic indicators for strategic planning.
   • Financial Planning: Consider how potential rate cuts could impact your property investments and personal finances.
   • Adaptive Strategies: Be prepared to adjust investment strategies in response to changing economic conditions.



4. Outlook from Top Property Bankers for 2024

   The AFR broke down insights from top property banking experts about the 2024 market and where they think profits can be made.

   Key Takeaways:

   1. Growing Sectors:

      • Industrial areas and alternative housing like data centres and build-to-rent are expected to be strong in 2024. These sectors are showing promising growth and might be worth considering for diversification.

   2. Market Value Trends:

      • The overall value of real estate is holding steady, which is a good sign. While the market has had its ups and downs, experts see potential in areas that have been overlooked lately, like office and retail spaces, though they still face challenges with the ongoing work-from-home trend.

   3. Investment Strategies:

      • There’s a suggestion that investing in well-located, high-quality properties, including those in the healthcare and storage sectors, could be smart moves this year. These areas are likely to attract interest due to their stability and growth prospects.

   4. Homeowners and Renters:

      • Both groups have faced financial pressures, but there’s hope that these might ease if interest rates stabilise or drop as expected later in the year.

   5. Future of Property Prices:

      • Prices might not rise as much as in recent years, but significant drops aren’t expected either. This could mean a more stable market for those looking to buy or sell properties.

   What This Means for You:

   • Diversify Your Investments: It might be worth exploring areas outside of traditional residential properties, like commercial or industrial spaces.
   • Stay Informed: Keep an eye on market trends and interest rates, as these will affect property values and investment opportunities.
   • Consider Long-term Investments: With a potentially stable market, now might be a good time to think about long-term property investments.

   Stay tuned to Property Edge for more updates and insights to help you navigate the property market in 2024.

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