Great Ocean Report – September 2016

As Spring is upon us, it’s time to report on what has been an incredibly busy winter and look at what is probably the most fascinating property market and trading conditions that we have witnessed. There has, as usual, been a lot of commentary in the press as to the state of the Australian property markets and we will again try and demystify what is happening for you.

The best analogy we can give you to describe this winter, from our perspective, is like a duck swimming across a smooth lake. There doesn’t appear to be much going on on

the surface, but under the surface it is incredibly busy. As a company, we have experienced our best winter in our history and much of this has occurred off market. Those who have been watching the traditional mediums, such as the real estate web sites and newspapers, will notice a very low level of stock available for sale. In fact, this is a universal issue in both the metropolitan property markets and the coastal property markets within two hours of Melbourne. As we will explain later, this has been caused by linked but different drivers.

Firstly, to explain how off market sales generally occur. The most common scenario is that we match a buyer who has registered their requirements with us, with a property owner who has expressed an interest in selling, without the property being publicly marketed. These property owners are often past clients or have contacted us to have their property appraised. Commonly they are active sellers at a specific price and formally instruct us that if we can achieve a particular amount, they will sell. Others are scheduled to come onto the market publicly at a later date (for us it’s usually spring or summer) but we introduce a registered buyer earlier and an acceptable outcome is negotiated. We also regularly source specific properties for qualified buyers that have expressed a particular requirement and that we know that buyer has the ability to complete the transaction.

There are several factors influencing this situation. Interest rates are low and will stay low for an extended period and this always creates an acceptable platform where transactions can occur and therefore property market participation remains high. This market participation generally comes in two forms, planned and opportunistic.

The planned outcomes are commonly related to lifestyle changes and needs, particularly by the Baby Boomers who are entering their retirement or semi-retirement phase. We have witnessed those who are downsizing in Melbourne and buying on the coast (and often retaining an apartment in the city), we have seen those upgrading their coastal property now that they intend to spend more time there, and we have also seen people buying on the coast for the first time as part of a wider lifestyle strategy.

We have also seen an influx of younger property buyers who are looking to secure a home at an affordable price point after being priced out of the metropolitan market. Price differentiation between metropolitan properties and regional properties will continue to generate significant volumes of property transactions, especially while interest rates remain low, making renting less attractive. Many are happy to commute to avoid a massive mortgage and have the added benefits (in our case) of a coastal lifestyle.

The less documented element of coastal property market participation at present is the opportunistic purchase. We see this regularly and it is purely a result of low interest rates allowing the transaction to occur. They are often facilitated by a positive experience, like a great weekend on the coast with friends or the kids joining the Nipper program and have taken up surfing, or even a peaceful day trip down the Great Ocean Road where they fall in love with the beauty of the area. They then start exploring online and researching property values, then talk to the bank and realise that with finance being as affordable as it is, that a property on the coast is a real possibility.

To explain more clearly the generally low levels of available properties for sale, we need to look at the elements that are influencing this situation. As we have pointed out in the past, every different area has local factors that contribute to their market place’s performance and this is where we need to separate the metropolitan markets from the coastal markets. The main difference between these two markets is the buying demographics and this causes them to peak at different times (remembering that peaks can only be seen in hindsight). The coastal markets continue to see very few Asian buyers whereas they have been a significant influence in the metropolitan markets.

With the restrictions placed on money leaving China by the Chinese government in late 2015, we can now look back and see that the metropolitan markets peaked in terms of activity in mid 2015. The result of this though has a flow on affect to the coastal markets and from our coal face position, they are yet to reach their peak. This is simply because a significant increase in property values in metropolitan areas facilitates a positive flow on affect to the coastal and regional markets in the form
of price differentiation (as mentioned, we look affordable), Baby boomers taking advantage of a buoyant metropolitan market to sell and are buying on the coast after they have sold, and increased metropolitan equity facilitating a lifestyle purchase. This all being underwritten by the lowest levels of interest rates on record.

In terms of the overall trend of lower numbers of properties for sale in both markets (the REIV recently reported that in the June quarter there were approximately 300 less listings per week than a year before in Melbourne), we feel there are several factors at play. Property has been seen as a credible investment of choice of late with few current investment alternatives available. There are fewer forced sales because of lower interest rates. Melbourne’s population is growing by approximately 100,000 people each year and they need somewhere to live. There may also be an element of exhaustion in the metropolitan market after such a strong period of activity.

As you can see, it is quite a fascinating property market at present and we are all equally intrigued at how it will move forward. To make a firm prediction at present would be either brave or foolish and possibly both. We are comfortable to say that while the metropolitan property price levels are sustained (which they appear to be doing) then the coastal markets will continue to fair well.