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Market News Archive

• January 2012

 

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The coastal property market could really not have had a better lead into the Christmas and Summer period with two interest rate reductions by the Reserve Bank with the likelihood of more on the way. When dealing with potential property buyers we know (within reason) that it is not so much about the amount of interest but the trend of the rates. As property markets are cyclical what we see from potential property buyers is more and more caution on upward trending interest rates and then at first curiosity followed by engagement as interest rates trend down.

The early engagers are usually opportunists that are ready to go and are satisfied that their mission is clear and that is to capitalise on what they perceive as the bottom of the market. The next to engage on the downward trend of interest rates are investors in the metropolitan markets where their cost to income ratio (borrowing costs versus rental return) are now at satisfactory levels. Then once the herd sees others buying they join in. This is of course underwritten by the normal buying and selling of people who just want to buy a home for themselves or upgrade or downsize or whatever their need is at the time.

To use a simple generalised illustration of market participation if the auction clearance rates in Melbourne are in the 50% it is probably just the normal buying and selling as per the needs of the population including some investors. If it is in the 60% range then there are a larger layer of investors on top of those buyers and if it is in the 70%+ the herd is engaged mainly because that's what everyone else is doing.

In each cycle there are particular causes but the trends are usually similar in each cycle. The last time this occurred was in the 2008-2009 period post GFC. The market peaked in late 2007 and retreated in 2008 as the GFC took hold. The Reserve Bank slashed 3% off interest rates and the foreign investment rules were changed to allow easier access for foreign buyers to secure residential property in Australia. In 2009 a notable example of early opportunists in that cycle was the increased activity of Chinese buyers (under the newly allowed rules) in the eastern suburbs of Melbourne buying what they regarded as affordable and stable real estate. Once the general public (the herd) started seeing properties selling they felt compelled to jump into the fray. Similar to the share market everyone does what everyone else does.

In this cycle we are at an opportunist stage right now. The interest rate trend has been set the auction clearance rates in the inner eastern suburbs are rising as opportunists take advantage of a flatter market to upgrade. At some stage on this downward interest rate trend the property investors will engage. They have been waiting for the market to bottom and now their costs are reducing. The volatility of the current share market holds little appeal and the cash they have been hoarding is now earning less (due to reduced interest rates on deposits). There will be continued negative sentiment from overseas but as they belong to the luckiest 22 million people in the world (being an Australian) they will realise our position in Asia seems pretty secure and anyone who wants a job seems to still have one. It is difficult to predict levels of capital gain but the volume of sales will definitely increase.

Specifically for the Great Ocean Road market we are now in new territory. The Geelong Ring Road has finally been completed to a stage that there are now no traffic lights between Melbourne and the Great Ocean Road. It will be interesting to monitor what will occur but our predictions are these:

1. Anglesea Aireys Inlet and Lorne will benefit more than Torquay and the Bellarine Peninsula because the access is so direct. The Otway hinterland and Apollo Bay will see more benefit when the later stages are complete with double lanes all the way to Winchelsea.

2. People who have existing lifestyle properties are likely to use them more often and therefore are less likely to sell and that will restrict supply.

3. There is greater justification for purchase of a lifestyle property because the perception at point of sale is that they (the buyer) will use the property frequently.

4. The ratio of people seeking to sell in Melbourne and move to the coast rather than just holiday will increase from historical levels. Aireys Inlet is now a seamless 90 minutes from the CBD - this is the equivalent of some outer suburbs of Melbourne. Psychologically people considering the move do not feel that they would be isolated from their original community because of the ease of access. We are already seeing this.

5. Flexible working arrangements via technology will allow people to live on the coast and commute only 2-3 days a week to the CBD or meetings in Melbourne generally. We are already seeing this also.

Access is everything. You only have to compare the difference between the Mornington Peninsula and the Surfcoast now. For years the Mornington Peninsula enjoyed better access but now it has been loved to death as anyone who has driven from Melbourne to Portsea recently will tell you.

Until recently there were 30 sets of traffic lights to negotiate to get to the Great Ocean Road now there are none but the planning controls are also in place so that from the Bellbrae roundabout onwards the Great Ocean Road cannot over develop and therefore insuring its ongoing appeal.

A nice footnote to this report is the reopening of the Aireys Inlet Hotel or the Aireys Pub as it is now officially called (and unofficially forever). Well done to all involved it is a great example of locals taking charge of their destiny. Not bad timing either pre Christmas post ring road.

We hope you found this report informative and if we can ever be of assistance in any real estate matter please do not hesitate to call on 5220 0000. Have a great Christmas.