A 68% clearance rate was about as good a result as vendors could have expected. Anything more would show a market on fire, and the rate could easily have been much lower if the numbers of private sales hadn’t dropped so dramatically. There were only 449 private sales this week reported to the REIV and this is the lowest number since the start of the February reporting season.
With another 880 auctions scheduled for the last weekend of the Financial Year, I would expect to see a clearance rate in the mid 60%.
As we are nearing the end of the financial year, we should start to think about the next twelve months and what the property market is likely to do. If we move away from the usual “the market will drop 40%” or “property prices in Australia are double what they should be”, we can begin to look critically at what is likely to happen.
Firstly, if we make an assumption we will see about three 25 basis point interest rate rises by early next year. I believe two will come from the Reserve Bank and the equivalent of one from the banks raising their own margins. This will put the average first home buyer out of the established market and all but out of the “building new” one as well. The state government is still offering $13,000 on top of the federal $7000. This may keep some of our builders happy but not as many as we need. It is the property investors that will be the new winners in this.
We are still desperately short of the required number of dwellings we require to house our growing population. I know I have spoken about this many times, but it is still the underlying issue that will drive property prices up over the next five years. To keep the status quo we need to build about 3500 new dwellings in Melbourne each month. This will house the 2000 people (approx) per week that Melbourne’s population is growing by.
If we look at the 40,000 odd dwellings we are short, then if we increased our building by 30% (Yes!!! Build another 1000 dwellings per month) it will still take just under 4 years to catch up. We could only do this with State and Federal government intervention.
With property availability shrinking and more people coming into the city, it is very obvious where property prices have to go. And investors will be there to cash in. The small upward surge we have seen over the past 8 months will pale into insignificance over the next 5 years. Property prices are set to double over that time unless the State and Federal governments give massive incentives to new purchasers to build dwellings. Investors, who have now learnt that stock markets don’t only go up, they can also plummet to the depths which no property in Melbourne has ever seen, will be the big influence on available properties during this time.
We can expect to see a paradigm shift in property ownership; at least in Melbourne. Those that currently own property will dramatically increase there holdings and those that do not will struggle to ever enter the property market without “family” help. We will see shifts of 75% ownership (Australian average) moving steadily towards 25% property ownership (European average). This will not occur in the next five years but the irreversible trend will start unless the government steps in early. This will create the advent of longer leases, bringing its own issues to the Residential Tenancy Laws
We also need to look at the fastest growing sector of Superannuation. Self Managed Super Funds are changing the way we invest for retirement. There are now 422,000 SMSF in Australia and plenty of the trustees are moving money out of cash and into shares and property. With the recent advent of borrowings in super funds, we now see larger share portfolios and also many more property purchases.
In summary, we can assume property prices in Melbourne will go up at approximately 12% – 13% p.a. We can assume property ownership for those starting out will become far more difficult. We can assume longer leases will become far more prevalent and we should, at some stage, see new dwelling construction become a major election issue for both the State and Federal Governments.
If you are interested in getting into the property market, please contact us to arrange a no obligation meeting.
Ian James
