Experts flummoxed on property prices

14 Sep 2021 1 month(s) ago

Even the industry people are now saying that property prices in Australia have gone nuts.

You really have to start wondering when even the real estate spruikers start saying the property prices make no sense. According to a ‘panel of experts’ traditional property valuation metrics and sales performance no longer provide an accurate prediction of property sales prices in many parts of Australia. Asset inflation in the form of soaring property prices is out of control, it seems.

The ‘experts’ were meeting at an AltX webinar. The mood was one of incredulity with a consensus that the performance of the Australian property market is defying logic. When property prices leave even the most seasoned real estate professionals shaking their heads in disbelief, you know you need to pay attention to what’s going on.

The prices that were being achieved in the middle of 2020 are just not relevant in the current climate,” commented Jason Matigan, Director, JPM Valuers. “We did a valuation in Manly recently. The house next door sold for $4.1 million in May or June 2020, so we put our thinking was around $4 million on the property which was similar. It sold for $6.3 million! We see this across the eastern seaboard in Sydney and even once we go to the middle and the outer rings.”

Unsurprisingly, stamp duty receipts have soared in New South Wales:

Mark Wridgway, Director and Auctioneer has drawn a similar conclusion about the Victorian market. “Dollar per square metre rates have been thrown out the door. From September 2020 to now, some places across the peninsula have experienced an average of probably 30% to 40% growth. And in some of those key assets, those generational properties on the cliff top... some of those have grown 50% to 60%.”

 Low interest rates are obviously the main reason, plus a lack of supply. A change to the way people think about their living with covid is also having an effect. The ‘lifestyle’ options, such as being close to the beach, are skyrocketing. Neal Ellis, National Director, Preston Rowe Paterson Australasia says the new focus on lifestyle has completely changed the market.

“If you'd asked me 20 years ago where you should invest, I never would have said go to the outer areas and have a look at what you can buy. [I would have suggested] buy something in a city that's smaller at the same price point and you get better capital growth. But I'm not sure that applies anymore.”

The heat is not limited to residential markets - it seems to be extending to retail as well, according to Ellis.

“We recently assessed a retail property with eight tenants.  They had fallen somewhat behind on their rent. The asset was in a secondary location with an historic building on it – and it sold on a 3% yield for $12 million! If you look at the strength of the tenant and a 3% yield, it just defies logic. But people still have the confidence to invest. There's a lot of money out there.” In Queensland growth has picked up, especially in coastal towns.

One of the big spurs is returning expats.

Matigan said: “There are people buying properties, getting ready to come back next yea. I think that in the middle of next year there's going to be a decent influx of people coming through and those people that come over will go to Sydney and Melbourne. [At the same time], people will cash out of Sydney and Melbourne, and they'll probably continue to move more north into the Queensland market. So I think there'll be a bit more pressure on pricing as the market continues next year. We've seen the market when it has gone backwards the other way and you don't want to be hanging your hat on one sale out there that just sold!”

Quite. It is an out of control boom until it isn’t any more.


Reader note: This is general reporting only and should not be considered in any way to be investment or tax advice. It does not take into consideration the investment objectives, financial situation or particular needs of any particular investor. For more information please read our disclosure statement.

Related Article(s)