With property prices high around the country and building costs not subsiding significantly any time soon, do prospective property buyers wait or act?
The cost of living and building has been steadily rising in recent years.
Economic fluctuations, market dynamics, and geopolitical factors all contribute to this trend, making it clear these costs are unlikely to decline anytime soon.
Consequently, individuals are urged to consider purchasing now, as property prices are expected to continue climbing.
Building costs have surged nearly 40 per cent over the past four years, posing a significant challenge to the Albanese government’s goal of constructing 1.2 million homes by 2029.
According to the Australian Bureau of Statistics, housing market inflation remains a key contributor to rising consumer prices. After mid-2023, building costs stabilised at a 5 per cent annual increase due to high demand for state government infrastructure projects, leading to higher prices for materials and labour.
Stephen Havas, Managing Director of residential building company Garth Chapman Queenslanders, noted substantial rises in material costs and regulatory changes resulting in an additional $70,000 to construction costs.
These rising expenses threaten to reduce demand and the viability of construction firms, potentially causing the government to miss its housing targets.
Several key factors contribute to the rising cost of living and construction expenses. Raw material prices have escalated due to supply chain constraints, increased demand, and trade policies.
Labour shortages in the construction industry have driven up wages and, consequently, overall project costs. Stricter building codes and environmental regulations further add to expenses. Moreover, incorporating advanced technologies and sustainable practices, while beneficial in the long run, increases initial building costs.
CoreLogic’s home value index indicates that rising costs have reduced the feasibility of new development projects, as reflected in monthly dwelling approval figures, which are running 38 percent below the decade average this year.
Many potential builders are hesitant to proceed given the uncertain cost landscape.
As inflation continues, the cost of goods and services will likely stay high, affecting various aspects of daily life and construction.
While some supply chain disruptions may ease, new challenges are likely to arise, maintaining pressure on supply chains and costs.
These ongoing issues can include geopolitical tensions, logistical bottlenecks, and raw material shortages, all contributing to sustained high prices.
The Federal Government’s recent stage three tax cuts, effective from 1 July 2024, aim to relieve cost-of-living pressures, offering an average annual saving of $1890 for 13.6 million taxpayers.
However, a potential interest rate hike could offset more than half of these savings for 3.2 million mortgage-paying households.
While the government promotes its economic measures, the Coalition criticises these as a “cost-of-living con job.”
With inflation unexpectedly high in May, economists predict the Reserve Bank of Australia will increase rates, adding $103 per month to the average homeowner’s mortgage repayments.
State-specific impacts include NSW homeowners losing 70 per cent of their tax cut savings due to higher repayments.
The tax cuts, initially proposed by the Coalition and modified by Labor, benefit low and middle-income workers more than high earners. Despite concerns these measures may fuel inflation, RBA Governor Michele Bullock suggests households might use the extra cash for repayments or savings.
Assets As Inflation Hedge
Given these trends, it is prudent for individuals to consider purchasing sooner rather than later.
Real estate and tangible assets often serve as a hedge against inflation, preserving value over time.
Investing in property could provide financial security in an environment of rising costs. As property values increase, early buyers have the potential to build significant equity, creating opportunities for their future.
Purchasing property now allows individuals to benefit from future appreciation, leading to potential wealth accumulation.
The cost of living, construction boom, inflation, migration, property values and affordability are all critical factors in property purchases.
History shows, however, that the key to long-term success in property ownership lies in staying in the market, making careful and affordable selections, and persevering through challenging environments.
By doing so, investors can reap medium to long-term rewards, as better-quality properties will eventually pay off.
East Coast investors are drawn to the perfect storm that is pushing up Western Australia’s house prices faster than in any other state.
With the property market continuing to heat up in Western Australia, investors from interstate have shown an increasing interest in buying Perth property.
At a recent presentation to UDIA WA members in Perth, REA Group Economist Anne Flaherty said investor activity in WA had ‘surged’, with the portion of investors in WA property increasing by 53 per cent over the year to May 2024.
Admittedly, this surge is coming off a low base, given investors have been scarce in the WA market in recent years, likely due to a range of factors including the five-year downturn the WA property market experienced in the lead up to 2020, rising interest rates, restrictions during the pandemic and rental reforms causing uncertainty.
It is also important to note that, according to the Australian Bureau of Statistics, the portion of investors in WA in January to May this year was still only 36 per cent, which, while up from 29.5 per cent last year, still remains far less than owner occupiers (42 per cent), combined with first home buyers (21 per cent).
According to UDIA WA’s Urban Development Index, 32 per cent of new land sales in the Perth metropolitan area were to investors in Q1 2024, with 34 per cent to first home buyers and the remaining 34 per cent to owner occupiers. This breakdown is compared with 2021, when the portion of investors in the new land market was just 17 per cent.
East coasters targeting WA property
East Coast investors are no doubt recognising the perfect storm that is pushing up WA’s house prices faster than any other state.
While Perth remains one of the most affordable capital cities in Australia, that mantle is slipping as, according to the PropTrack Home Price Index for June 2024, the annual growth rate for median house values in Perth was the highest for any other capital city, at 22.5 per cent over the last financial year.
Some of the most significant price growth has occurred in Perth’s northern and southern growth corridors, as well as regional centres such as Bunbury and Mandurah.
That growth is likely to continue as, according to Ms Flaherty, WA continues to grapple with our housing supply shortage over the next three years at least.
Ms Flaherty highlighted what many of us in the industry here in WA are already acutely aware of, and that is our booming population growth, strong economic growth and dire housing shortage that has been compounded by the longer time it takes to build a new house in WA compared to anywhere else in Australia.
This is heating up demand while we struggle to deliver enough supply. In fact, UDIA WA has forecast a shortfall in excess of 30,000 dwellings over the next five years.
The rental market is also experiencing escalating prices, with Perth rents growing 18 per cent over the last year to $640 per week according to PropTrack. This is in the context of a 0.5 per cent rental vacancy rate.
All these factors are contributing to investor interest in our market as they recognise the potential return.
Why investors should be welcomed in WA
While we have seen some negative press recently around the increased appetite from investors wanting to enter the WA market, it is important to understand that investors are a critical ingredient in boosting housing supply, particularly in the rental market.
We have seen the impact that an exodus of investors has had on the Perth apartment market in particular in recent years, with the challenge in securing sufficient presales stalling many potential projects.
According to Urbis, only 441 new apartments were available for sale in Q1 2024. That is compared to more than 1,500 in Q3 2021. New apartment approvals are also at their lowest level since 2009.
There are several factors influencing the lack of new apartment projects getting off the ground in WA, but a big factor is securing presales to appropriately finance a project.
Investors are an important source of presales and are desperately needed to assist with getting more apartments onto the local market.
While there is some fear mongering from some quarters about the impact of investors on our already tight housing supply, the fact is that investors are important in getting stock on the market.
This is especially the case if they are buying new house and land or apartments, as these contribute to getting more new stock on the ground and available to renters.
Tax reforms needed
UDIA WA continues to advocate for a range of recommendations to get more homes on the ground in WA, faster.
In terms of attracting further investment in the housing market, we believe there are property tax incentives that can be implemented in the short term, including making the transfer duty concession for pre-construction and under construction apartments permanent, extending it to grouped dwellings, and removing the purchase price thresholds.
We are also asking for the land tax exemption for build-to-rent projects to be increased, and for the Foreign Buyer Surcharge to be removed or at least frozen for two years.
We believe these particular changes could boost investment in the WA market and hopefully get more supply on the ground, meaning more homes for the people that so desperately need them.
Article Q&A
How active are property investors in Western Australia?
According to the Australian Bureau of Statistics, the portion of investors in WA in January to May this year was still only 36 per cent, which, while up from 29.5 per cent last year, still remains far less than owner occupiers (42 per cent), combined with first home buyers (21 per cent).
How bad is the housing crisis in Western Australia?
UDIA WA has forecast a shortfall in excess of 30,000 dwellings over the next five years.
Parental support for children trying to get a foot on the property ladder is gaining more traction every year but both parties need to be aware of the risks and rewards.
Recently the Bank of Mum and Dad was ranked the biggest player in the Australian property market.
According to Housing Monitor Research, 40 per cent of parents in 2024 aided their first home buyer kids with housing contributions.
The reality is that parental support has been around for a long time, but it’s changed recently.
From pre-nuptial agreements to gifted deposits, the landscape is changing. Legal considerations are also a point of contention for some beneficiaries. Navigating the property ladder with parental support isn’t what it used to be.
I interact with the fortunate offspring and doting parents on a regular basis. I’m often asked, “How can I help my kids get into the property market?” I have witnessed all types of assistance, and some work better than others.
Let’s start with the parents who wish to gift their children a home.
It starts from an early age; in fact, some parents dream about what they’ll gift their children before they’re even born, and plenty of parents start mapping out their property investment journey when the children are pre-schoolers.
But for most parents who consider what their post-school children’s housing needs could be, their generosity usually kicks in during the high school years.
Things get exciting when the children actually want to pursue home ownership. Kids can ask their parents in all kinds of ways to assist, and parents aren’t always in a financial position to help.
Various Ways Parents Help Children Into Home Ownership
Assistance can range from outright gifting of a home to gifting of a deposit. Some assist with a contribution towards a deposit, while others may come up with a tailored loan arrangement.
And then there is the guarantor option.
Lenders cater well to the parental third party guarantor arrangement, whereby parents with available equity in their property lend a helping hand by releasing that equity to their child(ren).
The way that this technically operates has a lot of nervous parents flummoxed, and for good reason. Parents who have scrimped and saved to secure their home will be particularly nervous about risking that asset.
It’s more than just a financial product; it’s their security and the very roof over their head.
The thought of a loan arrangement going bad sends a shiver up their spine and has them fearing a mortgagee sale and homelessness.
The interesting thing about parental equity guarantees and associated risk is all about the percentage of the loan that is at risk to the parent, and the fear that such an arrangement can embed within a nervous parent’s psyche.
Guarantor Is No Gift
The guarantor arrangement is not well understood by parents and children.
Marketers pitch this to recipients as a no deposit option.
Parents get the request over a BBQ lunch, or an awkward coffee and they are often torn between aiding their kids on this all-important voyage and protecting their most valuable asset.
They fear several things; from reckless property decisions to bad partner selection, (and everything in between).
After all, these are the parents who have witnessed bad teenage behaviours and terrible financial mistakes in the previous decade. It’s little wonder many of them feel their blood run cold when their children ask them to consider going into a binding legal and financial arrangement for a property purchase.
But what does it really mean? These days, ‘Family Pledge Loans’ or ‘Parental Loan Guarantees’ are highly detailed, legally regulated and particularly effective for those parents and children who can take up the opportunity.
For parents, the deal can be sweet because they aren’t ‘gifting’ funds to their child(ren), but they are enabling them to take use of the equity they have built up in their home. Equity is best described as “the value of mortgaged property after deduction of charges against it”, or in other words, the amount that remains when the debt is subtracted.
Banks will generally allow an eligible borrower to access up to eighty per cent of the value of their home, and in many cases, parents have this amount available due to the combination of debt repayments and capital growth.
The part many assume wrongly is that their entire equity position is at risk when supporting a child.
In fact, lenders broadly rely on up to 25 per cent of a parent’s home for this equity. It represents the deposit and the stamp duty for the purchase of a home. In many cases, children have already amassed savings to cover a portion of the deposit obligation, so sometimes the parent’s equity obligation is even lower. The equity loan is just that, a loan. Children can access it, but they must pay for it.
Furthermore, most lenders require a lawyer to oversee and explain the documentation to the parent before they embark on the loan arrangement.
Mortgage Arrears And Risk
Importantly, the lender is clear about the risks that the guarantor takes on in the event of mortgage default (i.e. mortgagee not making their loan repayments).
The parental loan component is restricted to the percentage that they offer up in equity, being a limited amount, and not the full debt obligation. The security property (i.e. their children’s property) would be sold first in the event of mortgage default, not their property. As alarming as this sounds, Australian mortgage arrears are currently sitting below 1 per cent.
The young recipients are usually determined to pay down the debt and release their parent’s property at their earliest convenience. It is usually evident that they truly treat the parents’ contribution as a privilege rather than an expectation, and most are vitally aware of their parent’s sense of concern.
Thanks to rising house prices, many are able to release their parent’s security in a matter of two or three years as rising asset prices carry the loan to value ratio (LVR) above the required 80 per cent very quickly.
The parents who assist in non-direct financial ways are often those who spot the government incentive opportunities; and there are plenty of these in our various states/territories and national offerings.
Parental Guidance Recommended
Then there are the parents who help with the strategy, the inspections and the self-education. Sometimes these are the greatest gifts that parents can impart, because they teach their children how to ‘fish’.
From pocket money incentives for their young ones to moral support as their twenty-somethings embark on their home ownership adventure, they are the parents who are by their side, offering as much advice as they can muster.
But who gets it right? And can we adversely impact our best intentions with kindness?
Every child is different. Some need to run their own race and valiantly claim home ownership as their own. Others benefit greatly from a financial helping hand, particularly when we consider the negative impact of wasting time waiting for the right time to buy.
There are chose children who cherish the opportunity to have a deposit secured from parental equity, and I can relate to the prospective buyers who have mum and/or dad by their side, helping with the inspection checklist or backing them on auction day.
What we can’t underestimate is the power of self-achievement. Sometimes just cheering from the sidelines is the best gift we can give.
Recognising what our kids can achieve themselves, versus what is incomprehensible or unachievable for them is important. We can’t rob them of their own achievement, and nor should we. But if we can make that incredible difference at a time that is critical in life, why wouldn’t we?
Article Q&A
How common is usage of the bank of mum and dad?
According to Housing Monitor Research, 40 per cent of parents in 2024 aided their first home buyer kids with housing contributions.
How does the bank of mum and dad work?
These days, ‘Family Pledge Loans’ or ‘Parental Loan Guarantees’ are highly detailed, legally regulated and particularly effective for those parents and children who can take up the opportunity. Banks will generally allow an eligible borrower to access up to eighty per cent of the value of their home, and in many cases, parents have this amount available due to the combination of debt repayments and capital growth.
How risky is being a guarantor for a child’s home loan?
The parental loan component is restricted to the percentage that they offer up in equity, being a limited amount, and not the full debt obligation. The security property (i.e. their children’s property) would be sold first in the event of mortgage default, not their property.
If you don’t know what proportion of a property’s value should be land, or the difference between A-grade and investment-grade real estate, you need to read this article.
You’ve probably heard this before: if you want to beat the market’s growth rate, stick to A-grade properties as they always perform best.
Is this true? And what is A-grade anyway and how can you tell if the property you’re looking at is A-grade, B-grade or C-grade?
What Is A-Grade Real Estate?
Thirty years ago, the terms A, B or C grade were just catching on and it’s taken up to now for buyers to start asking agents about them.
A-grade property and investment-grade are different but related concepts – but we’ll come back to this.
Generally speaking, agents refer to A-grade properties as those having high emotional appeal because they are in a great location and don’t have any compromises.
B-grade properties are seen as an otherwise A-grade, with one significant compromise or a few small compromises.
But a C-grade property has multiple significant compromises affecting its appeal.
What Do We Mean By Compromises?
Compromises can be an ambiguous term but the way I think of it is something that will put off relevant buyer types for this property.
Some of the more obvious compromises are location, build quality, position and floor plan.
Location seems pretty obvious but it’s also a term with different meanings.
Let’s think about some often-mentioned great areas for property over the last decade, like Kedron in Brisbane, Brunswick East in Melbourne or Annandale in Sydney.
These are great inner suburban locations, but a property on a busy road or has neighbouring light industry fails the A-grade test. Similarly, investors need to consider how the property is positioned: is it far enough away from traffic noise and other uses which would interfere with quiet, amenable living?
But positioning goes beyond this and includes how a property is positioned on the street and how the building is located on its block.
If a house sits on top of a rise in the street that improves its view, that is certainly a positive. But if its position on the block leaves it too close to a neighbouring property, that can affect its outlook and privacy.
As an investor, you’re aiming to buy a property that doesn’t have anything to detract from the quality of life offered or saps buyer appeal on auction day.
The Property Itself
Moving past location and position, there are other compromises to look out for.
Inferior build quality is a serious factor that should count investors out of the bidding and give home buyers serious pause due to the expense of rectifying such issues.
A floor plan that doesn’t deliver open plan living is another but assessing layouts requires a little more thought. For example, small bedrooms in suburban or regional houses are a definite no-no but may be okay in inner suburban apartments.
The same applies to aspect. You always want a property to deliver a pleasant outlook and plenty of natural light inside but the necessity of this for a family home in a prestige suburb than a townhouse within walking distance of the CBD when it comes to assessing value.
Working Out If A Property Is A-Grade
Given the way the pricing for Australian real estate works, strong demand for not enough properties sees most of the value uplift accumulate in the land price.
That means A-grade properties are characterised by a property with a high land value as a proportion of the overall price.
For A-grade houses in major metro markets, that typically equates to land value of around 65 to 75 per cent of its overall price. That can be difficult to assess as land values and building costs shift and swing, so investors should seek expert advice.
Similarly, for A-grade units in the suburbs of major cities, the notional land value should make up around 45 to 60 per cent of the property’s price.
With B-grade properties, the test is whether you can economically fix a glaring compromise and turn your purchase into an A-grade property.
For C-grade properties, its compromises can’t be fixed. No matter what an owner does, they can’t change the volume of traffic going past the door or the train line over the road.
A similar impact is true for newly built units and house and land packages.
Because these developments need to provide a sufficient return for the builder and have been designed to maximise tax breaks, it can take up to a decade for the land value equation to add up; and that will only be in the best opportunities.
How Different Properties Move Through The Cycle
In classic theory, real estate prices move through what’s called the property cycle.
In this model, values fall, then dawdle for a period before accelerating, moving into a boom before being checked as too many buyers find themselves priced out.
The classic property cycle looks like this model below, although Australians should note, we haven’t seen a genuine property recession since the early 1990s, resulting in our S-shaped graph mostly moving upwards.
C-grade properties struggle throughout the cycle except at the pinnacle of a strong boom, where more buyers struggling to get into the market find that the only homes they can afford have significant compromises.
A-grade properties tend to do the best across the rest of the cycle, followed by B-grade.
Tend to do best, but not always. Even outstanding A-grade properties can get caught out in a downward or stagnant part of the cycle.
This is where the difference between A-grade and investment-grade comes to the fore. Because investment-grade assets are being sought by several types of homebuyers and investors, their prices are more immune to downturns and are the first to rise during a recovery.
Some A-grade properties – think expensive family homes, properties in coastal resorts and prestige apartments – need a buoyant market to return before their performance starts beating the market, due to their limited pool of buyers.
So, if you’re out hunting for an investment, limit your search to A or B-grade properties – then be ruthless in eliminating those that don’t make the investment-grade mark.
Article Q&A
What is A-grade property?
A-grade properties are characterised by a property with a high land value as a proportion of the overall price. For A-grade houses in major metro markets, that typically equates to land value of around 65 to 75 per cent of its overall price. Similarly, for A-grade units, the notional land value should make up around 45 to 60 per cent of the property’s price.
What separates A-grade property from B-grade and C-grade?
A-grade properties are characterised by a property with a high land value as a proportion of the overall price. B-grade properties are seen as an otherwise A-grade, with one significant compromise or a few small compromises. But a C-grade property has multiple significant compromises affecting its appeal.
How does the property cycle work?
C-grade properties struggle throughout the cycle except at the pinnacle of a strong boom, where more buyers struggling to get into the market find that the only homes they can afford have significant compromises. A-grade properties tend to do the best across the rest of the cycle, followed by B-grade.
Locating the best prospective property investments without breaking the bank is difficult with prices having risen so sharply, but this meticulously researched list, and interactive map, makes the task a whole lot easier.
Uncovering the best affordable property investment regions in one of the world’s least affordable national property markets is no easy feat.
Sydney has had the first, second or third least affordable housing of any major market in 15 of the last 16 years. Melbourne is the seventh least affordable of 94 markets measured, while Perth and Adelaide’s rental markets are among the very worst in the developed world when it comes to vacancy rates.
Although rental pain around the country is only worsening, housing affordability has improved for the first time since the start of 2021.
According to the Real Estate Institute of Australia, the proportion of income required to meet average loan repayments fell 1.0 percentage points to 46.7 per cent to mid-2024. The improvement can be attributed to stronger wage growth and a pause on interest rate hikes.
Rental affordability declined, however, in all states and territories. Declines ranged from 0.2 percentage points in Victoria to 0.7 percentage points in Tasmania. Nationally, the proportion of income required to meet median rents increased 0.5 percentage points over the quarter to 24.4 per cent.
So where does that leave investors who don’t have an unlimited budget?
To unearth the top 20 relatively affordable investment prospects in Australia, a range of factors have been examined and their combined impact assessed, including price and trajectory, supply, rental income and yields, affordability and lifestyle.
The top 20 list is compiled from the Australian Bureau of Statistics’ (ABS) 358 SA3 geographical areas, and singles out particular hotspot suburbs. SA3s are essentially the functional areas of regional towns and cities with a population in excess of 20,000 or clusters of related suburbs around urban commercial and transport hubs within the major urban areas.
The results, below this interactive map, are listed by state, with Western Australia landing seven locations in the top 20 list, while just one is in Victoria. The map provides a wealth of property market information about the SA3 regions throughout Australia (just click on the zone or search your area via the magnifying glass icon).
Australia’s Top 20 Affordable Investment Markets
Queensland
1. The Hills District
The Hills District, in Moreton Bay – South, offers an attractive median house price of $962,000, with a recent 10 per cent increase over the past 24 months. The inventory forecast is low at 2.24 months, signalling strong demand. With a median rent of $670 per week and a rental yield of 3.6 per cent, suburbs such as Albany Creek and Ferny Hills are highly sought after for their blend of affordability and lifestyle. The area’s rent affordability index is 28 per cent, making it accessible for many renters.
Rockhampton, located in Central Queensland, presents a more affordable option with a median house price of $470,000, up 27 per cent over the last 24 months. The low inventory forecast of 2.42 months and a median rent of $490 per week result in a rental yield of 5.4 per cent. Suburbs like Berserker and Frenchville offer family-friendly amenities and strong rental demand, with a rent affordability index of 32 per cent.
3. Toowoomba
Toowoomba, with a median house price of $610,000 and a 29 per cent increase in the last 24 months, has a low inventory forecast of 2.59 months. The median rent is $500 per week, yielding 4.3 per cent. Popular suburbs such as East Toowoomba and Highfields provide excellent schools and parks. The rent affordability index is 33 per cent, ensuring it remains accessible for both renters and buyers.
4. Darling Downs – East
Darling Downs – East, in the Darling Downs – Maranoa region, offers a median house price of $405,000, which has increased by 33 per cent over the past 24 months. With an inventory forecast of 2.68 months and a median rent of $440 per week, the rental yield is 5.6 per cent. Suburbs such as Dalby and Pittsworth are known for their rural charm and affordability, with a rent affordability index of 33 per cent.
Located in Brisbane – East, Capalaba has a median house price of $880,000, with an 11 per cent increase over the past 24 months. The area has a low inventory forecast of 1.79 months and a median rent of $680 per week, yielding 4.0 per cent. Suburbs like Alexandra Hills and Birkdale are popular for their coastal proximity and community facilities, with a rent affordability index of 35 per cent.
6. Ipswich Hinterland
The Ipswich Hinterland region offers a median house price of $600,000, with a significant 36 per cent increase over the past 24 months. The inventory forecast is higher at 3.98 months, and the median rent is $525 per week, yielding 4.6 per cent. Suburbs such as Fernvale and Lowood provide a semi-rural lifestyle with strong community ties. The rent affordability index is 37 per cent, making it an attractive option for renters.
South Australia
7. Adelaide Hills
Adelaide Hills, part of Adelaide – Central and Hills, offers a median house price of $775,000, with a 19 per cent increase over the past 24 months. The inventory forecast of 2.77 months and a median rent of $550 per week yield 3.7 per cent. Suburbs like Mount Barker and Hahndorf are known for their scenic beauty and community lifestyle, with a rent affordability index of 29 per cent.
8. Lower North
Lower North, in the Barossa – Yorke – Mid North region, has a median house price of $365,000, increasing by 30 per cent over the past 24 months. With an inventory forecast of 2.85 months and a median rent of $345 per week, the rental yield is 4.9 per cent. Suburbs like Clare and Balaklava are notable for their historical charm and wine-producing regions, with a rent affordability index of 30 per cent.
Located in Adelaide – North, Gawler – Two Wells offers a median house price of $589,000, with a significant 31 per cent increase over the past 24 months. The inventory forecast of 2.82 months and a median rent of $495 per week yield 4.4 per cent. Suburbs such as Gawler and Evanston provide a blend of affordability and family-friendly amenities, with a rent affordability index of 33 per cent.
Tea Tree Gully, part of Adelaide – North, has a median house price of $722,500, increasing by 19 per cent over the past 24 months. With an inventory forecast of 2.23 months and a median rent of $570 per week, the rental yield is 4.1 per cent. Suburbs like Modbury and Golden Grove are popular for their excellent amenities and schools, with a rent affordability index of 35 per cent.
Mildura, located in North West Victoria, offers a median house price of $427,500, with a 6 per cent increase over the past 24 months. The higher inventory forecast of 3.85 months and a median rent of $420 per week result in a rental yield of 5.1 per cent. Popular suburbs such as Irymple and Red Cliffs are known for their agricultural production and relaxed lifestyle, with a rent affordability index of 31 per cent.
Joondalup, in Perth – North West, has a median house price of $875,000, with an 18 per cent increase over the past 24 months. The low inventory forecast of 2.16 months and a median rent of $680 per week yield 4.0 per cent. Suburbs like Hillarys and Mullaloo are popular for their coastal lifestyle and community facilities, with a rent affordability index of 31 per cent.
Kalamunda, located in Perth – South East, offers a median house price of $700,000, with a 25 per cent increase over the past 24 months. The inventory forecast of 2.59 months and a median rent of $600 per week yield 4.5 per cent. Suburbs such as Forrestfield and Lesmurdie are known for their natural beauty and spacious properties, with a rent affordability index of 32 per cent.
Mundaring, in Perth – North East, has a median house price of $732,000, with a 20 per cent increase over the past 24 months. The inventory forecast of 2.51 months and a median rent of $600 per week yield 4.3 per cent. Suburbs like Glen Forrest and Darlington are popular for their semi-rural lifestyle and community spirit, with a rent affordability index of 33 per cent.
Albany, located in the Western Australia – Wheat Belt region, offers a median house price of $505,000, with a 20 per cent increase over the past 24 months. The inventory forecast of 3.35 months and a median rent of $470 per week yield 4.8 per cent. Suburbs such as Denmark and Emu Point are known for their scenic views and relaxed lifestyle, with a rent affordability index of 36 per cent.
16. Canning
Canning, part of Perth – South East, has a median house price of $816,000, with a 31 per cent increase over the past 24 months. The higher inventory forecast of 3.66 months and a median rent of $650 per week yield 4.1 per cent. Suburbs like Willetton and Rossmoyne are popular for their family-friendly amenities and schools, with a rent affordability index of 36 per cent.
Stirling, in Perth – North West, offers a median house price of $890,000, with a 13 per cent increase over the past 24 months. The inventory forecast of 3.43 months and a median rent of $650 per week yield 3.8 per cent. Suburbs like Scarborough and Innaloo are known for their vibrant lifestyle and coastal proximity, with a rent affordability index of 36 per cent.
Bunbury, part of the Bunbury region, offers a median house price of $505,000, with a significant 28 per cent increase over the past 24 months. The inventory forecast of 2.80 months and a median rent of $570 per week yield 5.9 per cent. Suburbs such as Eaton and Dalyellup provide a blend of affordability and family-friendly amenities, with a rent affordability index of 37 per cent.
New South Wales
19. Upper Hunter
Upper Hunter, located in Hunter Valley excluding Newcastle, offers a median house price of $490,000, with an 18 per cent increase over the past 24 months. The inventory forecast of 2.54 months and a median rent of $500 per week yield 5.3 per cent. Popular suburbs such as Scone and Muswellbrook are known for their equestrian activities and vineyards, with a rent affordability index of 33 per cent.
Newcastle, part of Newcastle and Lake Macquarie, has a median house price of $880,000, with stable prices over the past 24 months. The inventory forecast of 1.90 months and a median rent of $630 per week yield 3.7 per cent. Suburbs like Merewether and Hamilton are popular for their beaches and vibrant dining scene, with a rent affordability index of 36 per cent.
Affordable property options can be found
These regions across Queensland, South Australia, Victoria, Western Australia, and New South Wales demonstrate that affordability is still attainable for both buyers and renters.
The combination of strong rental yields, increasing house prices, and low inventory levels suggest that these areas will continue to attract interest from both investors and first home buyers.
Affordability remains a key factor in these regions, ensuring that they remain accessible to a wide range of buyers and renters.
Helen Avis, Director of Finance at Specialist Mortgage, has been named a finalist in the Residential Broker of the Year category at the prestigious Australian Broking Awards 2024.
With years of experience in refinancing, sourcing Australian home loans, and assisting Australian expatriates in purchasing property while living abroad, Helen Avis has made a significant impact in the broking industry. Her dedication to providing tailored solutions and exceptional service to Australian borrowers has set her apart as a leading professional in the field.
The Australian Broking Awards is the pinnacle event for the broking industry, celebrating excellence among mortgage and finance brokers, brokerages, and aggregation groups. This year’s finalists list includes over 250 high-achieving professionals and businesses across 29 categories, highlighting those who demonstrate professional growth, innovative practices, and a commitment to their clients.
Managing Editor of The Adviser, Annie Kane, praised the finalists, noting the critical role brokers have played in helping borrowers navigate a complex financial landscape marked by interest rate uncertainty, tightened serviceability, and a competitive property market.
The awards will be presented at a cocktail luncheon at The Star, Sydney, on Friday, 30 August 2024.
Helen Avis expressed her gratitude for the recognition, stating, “Being named a finalist in the Australian Broking Awards 2024 is an honour. At Specialist Mortgage, our commitment to the broking industry and our dedication to connecting with the community and engaging with clients are at the core of our service. This acknowledgment reinforces the strength and impact of our efforts.”
The Australian Broking Awards remains a testament to the outstanding contributions and achievements of those at the forefront of the broking industry, and Specialist Mortgage is proud to celebrate Helen Avis’s success and continued dedication to helping Australian borrowers achieve their property dreams.
Specialist Mortgage, a part of the SMATS Group, specialises in providing tailored mortgage solutions for Australian expats and foreign investors. The team of experts led by Helen Avis, have consistently provided tailored mortgage solutions to clients worldwide, helping them achieve their property ownership dreams.
With a focus on personalised service and in-depth industry knowledge, Specialist Mortgage has established itself as a leader in expatriate and foreign national home loans.
The removal of a land tax exemption for a string of nationalities could prove costly for international buyers and have unexpected consequences for Australian expatriates with foreign partners.
The New South Wales Government’s recent decision to remove exemptions for foreign buyers who were compelled elsewhere to pay hefty land tax and surcharges has potentially added ten of thousands of dollars to the cost of buying in that state.
Effective from 8 April, citizens of New Zealand, Finland, Germany, India, Japan, Norway, South Africa, and Switzerland became subject to surcharge purchaser duty and surcharge land tax due to changes in federal law.
In early 2023, Revenue NSW had exempted these foreign citizens from surcharge taxes, citing inconsistencies with international tax treaties entered by the Federal Government. However, the Treasury Laws Amendment (Foreign Investment) Act 2024, effective from 8 April 2024, has now clarified these inconsistencies.
The amendment ensures that foreign investment fees and similar state and territory property taxes prevail over tax treaty provisions.
This change means that surcharge taxes can still be imposed on foreign nationals purchasing Australian property, despite any tax treaties in place.
Surcharge Purchaser Duty
This surcharge is in addition to the transfer duty and is set at 8 per cent of the dutiable value. From the 1 January 2025 this is going up to 9 per cent.
Surcharge Land Tax
The surcharge land tax is set at 4 per cent however rising to 5 per cent from 1 January 2025.
Case Study
A couple purchased their Sydney family home jointly (50/50) in October 2023 and then later moved overseas for work opportunities.
One of the couples is an Australian citizen and the other a New Zealand citizen.
While living in the home in Australia they were not subject to NSW land tax, however, when they relocated overseas land tax became payable because the property became a rental.
At the time of purchase the NSW Foreign Buyer Surcharge and Foreign Owner Land Tax Surcharge did not apply as detailed above, however, from 8 April 2024 this exemption no longer applied to the New Zealand citizen’s ownership interest in the property.
The impact of this change was significant for this couple and possibly many more in the same situation, either based overseas or planning on becoming expats.
Below is an example of the two different land tax charges based on an NSW example with an unimproved land value of $1.5 million at the current NSW land tax surcharge rate of 4 per cent, taken directly from the NSW land tax calculator.
When the rate rises on 1 January 2025 to 5 per cent, the land tax surcharge for 2025 will be a whopping $37,500, assuming the land value remains the same.
SMATS specialises in Australian tax planning for expats, tax residents and intended migrants.
Article Q&A
Which countries have been impacted by the NSW Government’s 2024 removal of land taxes and surcharges?
The New South Wales Government’s recent decision to remove exemptions for foreign buyers who were compelled elsewhere to pay hefty land tax and surcharges has potentially added ten of thousands of dollars to the cost of buying in that state. Effective from 8 April 2024, citizens of New Zealand, Finland, Germany, India, Japan, Norway, South Africa, and Switzerland became subject to surcharge purchaser duty and surcharge land tax due to changes in federal law.
Interest rate rises would ordinarily push property prices down, but real estate and rents are still going up, adding to inflation and giving the RBA more food for thought as it ponders its next move.
Despite the earlier predictions of many, and to the dismay of borrowers, the end of the rate rise cycle has not yet arrived.
In early August, the Reserve Bank will once again weigh up persistent inflationary pressure and in doing so, it must also assess the high cost of housing.
This means giving due consideration as to why that cost is so high and what further rate rises will do to this cost in the future.
The latest CoreLogic Home Value Index shows the median dwelling price in Sydney reached another new record of over $1,156,020 in June, growing a further 0.5 per cent during the month, to be up 6.3 per cent for the just-completed financial year.
Obviously, high house prices and rents contribute significantly to inflation but these are not discretionary costs and therefore should not be viewed in the same way as other items in the RBA’s inflation basket.
The potential for a rate rise typically dampens activity in the real estate market. Yet, the main indicators remain fairly positive. Auction clearance rates remain strong and volumes are solid, with transactions continuing to occur at a steady rate, as evidenced in stamp duty revenue.
When the final numbers are in, the NSW Government will have pocketed more than $1 billion extra from property buyers in stamp duty in FY2024 than it did in FY2023. It’s another reminder of the huge contribution property consumers make to the economy and just how much Government relies on the industry to keep the state afloat.
This overdependence on property is about to intensify following the Government’s Budget announcement that singles out property owners for more pain through land tax reforms.
It’s unreasonable and short-sighted.
Removing land tax indexation means more and more properties will be captured as values inevitably rise. Government’s plan amounts to letting the increase in property values do the work of increasing taxes and will exacerbate the housing crisis. It increases costs for owners, mortgage holders and renters.
As investors know, the cost of holding a residential property is high. More tax will place more pressure on returns, leaving landlords two bad options: pass the extra cost onto tenants or sell their investment property, taking more homes out of the undersupplied rental market.
Strata Management Crackdown
Together with the coming strata reforms aimed at cracking down on rogue strata managers, signalled by the Minister for Better Regulation and Fair Trading last month, the landscape is changing for investors.
It’s important for people to feel confident investing in strata schemes and it’s worth noting the vast majority of strata managers add significant value to Owners Corporations in what can be a dynamic and challenging regulatory environment.
It’s also important for people to feel confident investing in residential property as an asset class, and this is where bad regulations like tax disincentives are having a counterproductive impact.
A residential property can be a sound investment from a capital growth perspective but the cost burdens faced by property investors are incomparable to those who choose other investment assets.
The opportunity for proper reform still exists and is becoming ever more urgent.
Article Q&A
Do house and rent prices contribute to inflation?
High house prices and rents contribute significantly to inflation despite not being discretionary costs.
What is the median property price in Sydney?
The latest CoreLogic Home Value Index shows the median dwelling price in Sydney reached another new record of over $1,156,020 in June, growing a further 0.5 per cent during the month, to be up 6.3 per cent for the just-completed financial year.
Home buyers will be contemplating more expensive property purchases with their increased borrowing power, while mortgagees will be hoping to bolster their loan repayments, with the Stage 3 tax cuts coming into effect.
As the new financial year begins, millions of Australians will be feeling a sense of mild relief that they have received a cut to their tax rate.
But as well as having an average of $1,888 extra on their annual income statement, for many Australians it will be welcomed for another reason.
For home buyers, the Federal Government’s Stage 3 tax cuts are set to receive a boost in borrowing power. Those already on the property ladder could slice years off their mortgage.
The tax cuts reduce the 32.5 per cent tax bracket down to 30 per cent and increase the 37 per cent threshold from $120,000 to $135,000.
Source: Federal Government
Additionally, the 45 per cent threshold is being increased from $180,000 to $190,000, and the lowest tax bracket drops to 16 per cent, from the current rate of 19 per cent, for those earning between $18,000 to $45,000.
Individuals earning above $120,000 will see the most substantial tax cuts due to the flattening of the tax brackets and the increase in the threshold for the highest tax rate.
The long political gestation of the tax reform culminated in the delivery of the cuts from Monday (1 July), after the Albanese government adjusted the original ruling Liberal Party’s measures to pare back benefits from the wealthy and bolster savings for low income earners.
Sally Tindall, Research Director, RateCity.com.au, said borrowers should start preparing their budgets for the possibility of not just one, but potentially two more rate hikes before the year’s end.
The tax cuts could both offset and contribute to this likelihood.
Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining at the start of the hikes on the average variable rate back in April 2022 of 2.86%. Assumes cash rate increases are in August and November 2024 and that banks pass them on in full.
Ms Tindall said that for an owner-occupier with $500,000 debt at the start of the hikes and 25 years remaining, two more rate hikes would add another $150 onto their monthly mortgage repayments.
At existing interest rates, the cuts would still mean, for an average mortgage repayment of $3,681 a month on a $625,791 average loan, the tax cut could potentially wipe out one monthly mortgage repayment per year.
That is based on a dual income family with a combined household income of one person earning $100,000 and getting a $2,179 annual tax and another person earning $80,000 and getting a $1,679 tax cut.
The combined value of the tax cut in this case is $3,858.
As of 1 July, the national minimum wage was also increased by 3.75 per cent. The new rate will be $24.10 per hour.
Greater Borrowing Power
Helen Avis, Director of Finance, Specialist Mortgage, said the tax regime adjustment means many Australians will see an increase in their disposable income.
“Higher disposable income directly translates to enhanced borrowing capacity for prospective home owners and investors,” she said.
“These savings can significantly impact an individual’s serviceability for a mortgage, as lenders assess borrowing capacity based on net income.
“More take-home pay means borrowers can afford larger loans, leading to an uptick in borrowing power.”
To illustrate, Ms Avis noted that a single borrower earning $100,000 annually could see their borrowing capacity increase by approximately $50,000.
“This substantial boost could be the difference between securing a dream home and settling for a less desirable option,” she said.
Steve Douglas, Chairman, Australasian Taxation Services, said that the broader economic implications could amount to increased activity in the property market.
“The Stage 3 tax cuts are poised to stimulate the housing market by increasing demand through having 13.6 million Australians having some extra real income.”
“When individuals have more disposable income, they are more likely to invest in property, whether it be their first home, an upgrade, or an investment property.”
Mr Douglas highlighted the potential ripple effects on property prices.
“With increased borrowing capacity, we may see heightened competition in the housing market, which could drive property prices up.
Mortgage aggregator Aussie published on its website two examples of how the new tax changes could bolster borrowing power.
One such scenario indicated that single Australians with no dependents earning $120,000 per year in the financial year just concluded, who could borrow a maximum $615,135, will increase their borrowing capacity in Financial Year 2025 by $27,062 on a mortgage, based on a 6.28 per cent interest rate, to $642,197.
Additionally, a married couple with two dependents earning a combined taxable income of $280,000 will increase their borrowing capacity by $75,346 on a mortgage with a 6.28 per cent interest rate in FY25, which is a 5.64 per cent increase on their previous maximum borrowing amount of $1,334,871.
Inflation to May 2024 has taken a stunning turn, rising sharply and effectively quashing any hopes of an interest rate cut this year.
A shock rise in inflation for the year to May has extinguished any hope of an interest rate cut any time soon.
The monthly Consumer Price Index (CPI) indicator rose 4.0 per cent, up from 3.6 per cent in April, according to the latest data from the Australian Bureau of Statistics (ABS).
The figure is likely to send shockwaves through the corridors of the Reserve Bank of Australia’s Chifley Square offices in Sydney.
Michelle Marquardt, ABS head of prices statistics, offered some hope that the numbers were not as bad as they appear, although the RBA may see it differently.
“CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel.
“It can be helpful to exclude these items from the headline CPI to provide a view of underlying inflation, which was 4.0 per cent in May, down from 4.1 per cent in April.”
Wednesday’s Consumer Price Index (CPI) puts inflation well off the trajectory needed to return to the RBA’s target band of 2-3 per cent by the end of 2025.
Inflation has now risen from the 3.4 per cent recorded in December 2023 and January and February 2024, and if it carries through to the June quarter result to be released just before the August Reserve Bank Board meeting, it will put a cash rate increase well and truly on the agenda.
Canstar’s Group Executive, Financial Services, Steve Mickenbecker, said an interest rate rise was now possible, and perhaps soon.
“This increase in the CPI Indicator for May makes it the third on a trot, lifting from 3.4 percent in February to a staggering 4.0 percent for May, confirming that inflation is off the trajectory towards the 2 to 3 percent target band the RBA seeks.
“The increase in the CPI Indicator will have the Reserve Bank moving towards the starting blocks and readying to fire the interest rate increase gun, just as the men line up for the 100 metre final in Paris, presuming that June quarter inflation reflects the same trend.
“The CPI rose 1.0 percent in the March 2024 quarter from 0.6 percent in the December 2023 quarter and a further rise, or even a failure to fall, in the June quarter will test the Reserve Bank’s patience.
“With scant evidence that inflation is moving towards the target band, the Reserve Bank will feel uncomfortable waiting a further three months for the following release of quarterly CPI and will surely lift rates in August – the risk of baked-in inflationary expectations is too high,” Mr Mickenbecker said.
Renters, Borrowers Left To Tackle Inflation
It was a worrisome outlook for borrowers.
An increase of 0.25 percent would add another $100 to the monthly repayment on a $600,000 loan over 30 years.
Cruelly, the very people hardest hit by inflation will be the ones to pay the price if, as seems increasingly likely, the next interest rate move is upwards.
The most significant contributors to the annual rise to May was housing (5.2 per cent), up from 4.9 per cent in April. Rents increased 7.4 per cent for the year, reflecting a tight rental market across the country.
Increased loan repayments will hit borrowers, with rents also subsequently rising as landlords look to pass on at least some of their own elevated expenses.
Around a third of Australian households either rent (31.4 per cent) or were homeowners with mortgages (36.8 per cent). It is this cohort that will carry the load when it comes to tackling rising inflation.
Notes: based on an owner-occupier paying principal and interest with 25 years remaining at the start of the hikes on the average variable rate back in April 2022 of 2.86%. Assumes cash rate increases are in August and November 2024 and that banks pass them on in full. (Source: RateCity.com.au)
The stage three tax cuts that will kick in on 1 July are now being seen through a different lens too.
On the one hand, hopes they would help offset the rising cost of living are now being replaced by concerns they will only go towards higher mortgages and rents.
Just as disconcertingly, the tax cuts could have a further corrosive impact on inflation, ultimately delivering more pain than comfort.
The RBA does not meet until 6 August, giving it time to contemplate its next move with newer inflation data. On 18 June it kept interest rates on hold at 4.35 per cent.
Real Estate Institute of Australia President, Leanne Pilkington, said economic sluggishness should encourage the RBA to hold fire on interest rate increases.
“This stickiness in the final hurdle to beat inflation is the same as other countries are experiencing in getting inflation into the target range of their central banks.
“The CPI figures need to be taken against the background of an economy that is barely growing.
“While headline unemployment declined slightly in May, the trend unemployment rate rose a little from 3.9 per cent to 4 per cent, to its highest level since Covid lockdowns.
“GDP growth in the March quarter it was 0.1 per cent and 1.1 per cent for the year and trending down – on a per capita basis we have had four consecutive quarters of negative growth.
“The current uptick in inflation should not in itself flag an increase in interest rates but a delay in any drop,” Ms Pilkington said.
Building Industry Still Struggling
The annual rise in new dwelling prices remained steady at 4.9 per cent, with builders passing on higher costs for labour and materials.
The ABS also released the March quarter engineering construction data on Wednesday (26 June) showing its first decline in two years.
The volume of engineering construction dropped by 2.3 per cent during the March 2024 quarter.
The reduction affected both public sector and private sector projects.
There was a 2.4 per cent fall in engineering construction work done for the public sector while the volume of private sector activity fell back by 2.2 per cent.
The reverse in engineering construction activity is ominous given that it was previously the main source of growth in the industry.
All three pillars of construction activity are now moving backwards.
Master Builders Australia CEO, Denita Wawn, said inflation was hurting construction too, and curtailing hopes of resolving the housing crisis.
“Inflation is a capacity killer, making investment more expensive and less attractive.
“On the ground, we continue to hear projects for new homes, commercial or infrastructure construction simply don’t stack up because it takes too long to build and is too costly.
“If we don’t get inflation under control and urgently start boosting housing supply we are in for a lengthy period of pain and depressed construction activity.
“We know governments have acknowledged that more reform is needed to reduce building costs but the rubber needs to hit the road.
“Bringing down housing and rental inflation can only be achieved once we get a move on and speed up planning reforms, address tradie shortages through domestic and skills migration pathways, reform the regulatory environment, and scrap damaging elements of recent IR changes,” Ms Wawn said.
The annual rise in new dwelling prices remained steady at 4.9 per cent, with builders passing on higher costs for labour and materials.
Article Q&A
What is the inflation rate in Australia?
The Australian Bureau of Statistics (ABS) has released the CPI Indicator for May 2024 showing an annual increase of 4.0 per cent. It has risen from the 3.4 per cent recorded in December 2023.