Nyko Market Update August 2013

Hello and welcome to another Nyko Property market update.  Lots to go through this month with record low interest rates and the biggest increase in property prices seen since 2010.

Melbourne led the country in the June quarter for growth in property prices with a quarter on quarter increase of 5%.  Sydney and Perth also performed well with 2.7% and 3.2% rises respectively.   Housing prices were up 2.8% nationally over the quarter, the third consecutive rise and a level of growth not seen since March 2010.

The market still has some challenges in Melbourne though, with an oversupply of new homes in the outskirts of Melbourne and a rash of new apartments in the city center, which are likely to work against sharp price rises in those markets.  The opportunities lay in the middle ring suburbs (5-20km from the CBD) priced close to the Melbourne median price of $553,447.

With the rest of the economy seemingly slowing, the Melbourne property market shows strong indicators that it is set for further growth in the coming 12 months.  One of the main contributing factors is Melbourne population growth, leading the country again by adding over 77,242 people in 2011-12 reaching a population in mid-2012 of 4.25 million.  It was the 11^th year in a row the Bureau of Statistics estimates that Melbourne led the nation’s growth.  BIS Shrapnel senior economist Jason Anderson said "This will mean that Melbourne, with its long-term population growth of 1.3 per cent a year, will displace Sydney as Australia's largest city by 2037."

Many commentators sense that confidence will come back even stronger after the election with First Home Buyers, who are currently staying out of the market (led by investors), able to borrow money at 5% interest -  a much bigger incentive than any grant.  1 year fixed rates have been found as low as 3.99% at the time of writing.

Interest rates are the other big factor affecting the property market, having fallen to a record low cash rate of 2.5% and the big banks followed with their cuts uncharacteristically quickly.  Just 3 minutes after the Reserve Bank announcement NAB reduced its interest rates by the full 0.25% while Westpac followed shortly thereafter with a reduction of 0.28%. The reserve bank has now reduced the cash rate by 2.25% since November 2011, making affordability the best it’s been in many years.

Dealing with investors day in and day out, our office has a good feel of what is happening in the Melbourne property market.  What we have seen since August/September last year is a steady rise in confidence and inquiry by investors, who are traditionally the first to re-enter the market after a reduction.  This now seems to be filtering through to the rest of the market with clearance rates in Melbourne over 70% consistently this year, peaking at 82% last Saturday.

If you would like to be regularly updated on the property market and other important issues affecting the Melbourne property market click the follow by email button to the right.

Bill Nikolouzakis – Nyko Property

Melbourne 2030 Plans Relevance to Property Investors

In today’s blog we are going to discuss a State Government Plan that has been introduced to manage growth and change across metropolitan Melbourne and the surrounding regions.   The main objective of this plan is to protect the livability of the established areas and ready Victoria for a population of 5million which is expected to be reached by 2025.

The great thing about this plan is that as property investors, it gives us an insight into which areas the State Government is going to place infrastructure spending (see map) and therefore the areas most likely to see a spike in locally concentrated population growth and therefore demand for housing.  This, along with the livability of the locations increasing and the gentrification that will most likely occur, gives us an ability to select locations that have the highest likelihood of above average capital growth.

The plan alone is not enough though; at Nyko Property we contact the local councils of these Central Activity Districts or Major Activity Centres and obtain the Structure Plan for that suburb. This gives us actual locations within those suburbs that the infrastructure spend and beautification will be occurring.  It also shows us the actual projects that will be taking place, some of which have already been completed, down to dollars spent and likely outcomes.

A great example of a Central Activity District in the Melbourne 2030 Plan is the suburb of Footscray.  Being only 7km from the CBD, Footscray is going through major gentrification and has over $52million worth of Government projects either complete or in the pipeline.  It has existing transport links which are being improved and convenient road networks into the CBD and the airport.  A good example of the type of project that will benefit from the plan is Nyko Property’s NRAS project in Footscray which takes full advantage of the new infrastructure and demand. Click here to view more info on the project and the Footscray Renewal Program.

If you are considering investing in property and have not read up on the plan, you should.  You can go to the Government Site here for more info or here for the updated plan named Melbourne @ 5million. 

For any questions on how the plan affects property investors in Melbourne contact the team at Nyko Property.

Bill Nikolouzakis - Nyko Property

A reduction in the median price... but not as you know it.

First of all let me apologise for not posting over the last couple of months. For the same reasons purchasers have been taking longer when buying property, the team at Nyko Property has been working harder than ever to qualify and assess the right type of property for this market.

Over the last 12 months, some economists in the main stream media where saying there would be a 20% reduction in the median price in Melbourne. I actually don't disagree with that notion entirely. I think some locations needed a correction as they did not have the fundamentals to support the growth in prices. Since last year we have seen a reduction in the median price in Melbourne of about 6%. A far cry from the 20% quoted.... or is it.

If you take into account the 'average' capital growth per annum of 7%, which has not occurred over the last 2 years (14% in total), along with that 6% reduction in the median price, well there we have it... a REAL correction of approx 20% in the median price. I think that is as far as it will go, but unlike the all knowing economists, I realise that is just my opinion and the market is a wild animal that cannot be predicted. Rates went down today and although it should not be the reason purchasers re-enter the market, the activity around our office shows they already have been and will now start coming back into the market a little faster.

Now you will see that I use the word median and average above quite a lot, that's because even in the worst market conditions that have occurred in the last 10 years, there were areas and properties that showed substantial growth. In July 2010 Nyko Property sold a project name Ascot Cup, a boutique 31 apartment development in Ascot Vale. It was a great project, priced correctly (at valuation of course), with large internal areas and low body corporates. It was also in a part of Ascot Vale that neighbours Moonee Ponds, where prices are 10%+ higher.

Ascot Cup is coming up to settlement and the banks have had the valuers through to value the apartments. The median price has reduced 6% across Victoria in that time and valuers are currently being very conservative. Does this mean that the valuations came in low? The quick answer is no. Most were valued at contract price, which was a win in itself, while a handful of others were valued in at $20-35k over purchaser price! These investors have just had a 5-7% increase in their property value and they haven't even settled yet.

The average and the median prices you read about are just that, a culmination of all prices in a certain area, of all property types, all clumped together. Not an accurate way to assess a property or an area.

If you have any questions or would like to find out more about our service, call Nyko Property on 1300 720 315, email us at info@nykoproperty.com.au or check out our website www.nykoproperty.com.au

Bill Nikolouzakis - Nyko Property

What makes a good property investment in this market?

As markets change, so does the type of property that gives you the best opportunity for growth.

Today's market is extremely contradictory, some properties are selling at record prices with fantastic competition, while others are being passed in at levels that would have been good value a year ago.

What we are seeing is properties with a distinct point of difference recording the strongest growth. The problem is, these same positives create strong competition. If your in it for the long haul than thats ok, but keeping these properties for at least 10 years to realise the growth becomes a must, not an option. For the well healed it is no problem, but if there is a chance you will have to sell before that 10 year time frame, you may not see the gains you where hoping.

There is another type of location that can see solid growth, yet not demand that premium. Melbourne is still experiencing population growth of over 1500 people per week, suburbs that are absorbing that growth and are still very reasonably priced are another attractive option.

Buyer beware though, there are many of these areas but only a few that have the other non negotiable factors that go into purchasing in this type of area. There are certain suburbs, in fact specific regions within suburbs, that have been earmarked for redevelopment. Be it a renewal of the parklands, new/updated train stations, roads etc.

These suburbs may currently be undervalued and usually have a certain stigma about them, the most obvious examples are places like Footscray, Preston, Ascot Vale etc. The reason why they are undervalued is usually because of a lower socio economic group residing in the area which some people do not relate to or find as desirable.

Why will this change?

Simple, as population and competition increases so do the prices in those areas. This makes it desirable for the residence to cash in and move onto other suburbs, or may make it unaffordable for them to continue to live in that suburb. Over time, the socio economic diversity of the area increases and it becomes more desirable for a larger portion of the population.

Want proof?

Take a look at the people that lived in Port Melbourne, Northcote or Brunswick 15 years ago and look at those suburbs now...

Research is the key to finding out what areas will be the new Northcote's, speaking to councilors and familiarising yourself with the Melbourne 2030 Plan are a start but seeking advise from professionals in the field is a must before investing in this type of real estate.

To find out more call Nyko Property and speak to our experience Key Account Managers.

Bill Nikolouzakis - Nyko Property

The Flawed System of Interest Rate Manipulation to Control Inflation

So the Reserve Bank put interest rates up again last week. With 6 rate rises in the last year, the cash rate has climbed to 4.75%. Why?

Glen Stevens, the Reserve Bank Governor, said they decided to raise rates because of “concerns about the possibility of a larger than expected slowing in Chinese growth have lessened recently and most commodity prices have firmed, after a fall earlier in the year”.

Right, so the mining industry is making more money, becoming richer and more powerful, so it only makes sense that Joe Bloggs from Melton should pay more interest on his home loan? Until he can no more and loses his home that is. After raising rates higher than the Reserve last week, CBA Chief Executive, Ralph Norris said it was better to see "a few" foreclosures than have an economy hamstrung by a low-profit banking system. At least Joe Bloggs from Melton will know, when he’s living in a box at Flinders Street Station, it’s for the good of the economy…

I understand that the Reserve Banks job is to take control of inflation; of course they would want to, the higher the inflation, the lower the value of each of those pieces of paper they print... I know there are other reasons as well, real reasons, worthwhile reasons, but there must be some other way.

This would be a great part of this blog to explain my solution… but I don’t have one. All I know is that the current system is flawed and needs to be fixed. Punishing the average Aussie for a profit that a company makes on the other side of the country is not the way. We have a two speed economy; we need a two speed solution. This is where governments should earn their keep (and opposition parties). Interest rate manipulation hasn’t/won’t work, let’s think of something else that will.

Bill Nikolouzakis - Nyko Property

The Next BIG THING in Melbourne Property

If I were talking to you about property investment just 3 or 4 years ago I would have told you that the best properties to buy are located within 15km’s of a major CBD in a major Capital City. The right property (that is key!) in those areas will definitely still perform and this tried and tested method still rings true.

Along with those areas though, Melbourne is changing its face, mostly through the Government initiatives and infrastructure projects that are pouring money into key areas around Melbourne. (See the Melbourne 2030 Plan for more info here http://www.melbourne2030.vic.gov.au/). The Victorian Government has identified that if our population keeps growing as it has been, new infrastructure will need to be constructed to cope with the increased populace.

Continuing to build further and further out from the CBD (we are already 55km’s in the East and approx. 35km’s in the West) does not suit the lifestyle of the ‘new’ Melbournian and increases traffic congestion. The initiative has been to identify key areas that can cope with population growth and already have good infrastructure in place, including roads, public transport links and established shopping and lifestyle centers.

There are a few different ratings for these areas, the ones of most interest are either Principle Activity Centres, or Major Activity Centres and although most of them are based within 15km’s of the CBD there are a few that stand out, which are based slightly further out. One Major Activity Centre of interest to Nyko Property, is Epping, 22km’s from the CBD.

Epping is going through a major redevelopment, infrastructure works around Cooper Street are ongoing and the relocation of the Victorian Fruit, Vegetable and Flower Markets is not to be underestimated. With a median price still in the $300’s, this suburb definitely has room to move.

There are other examples of such suburbs in Melbourne, where it is still possible to buy large 2 bedroom apartments with yields of over 5% per annum in the low to mid $300’s! You will notice that Nyko Property will be concentrating on some of these suburbs over the coming 12 months, along with a good mix of the blue chip suburbs, so keep an eye out.

Any questions or comments, add them below and I will endeavor to answer asap.

Bill Nikolouzakis - Nyko Property

Whats in store for Spring!

The REIV has released the June quarter median prices which reveal that the median price of a house in Melbourne has increased by 8.5 per cent to $559,000 from a revised $515,000 in the March quarter.

Enzo Raimando, the CEO of the REIV expects apartments to continue to drive growth “Prices have also continued to rise in the unit and apartment market, with an increase of 4.7 per cent to $463,215 in the quarter. Carlton, Ascot Vale, Malvern East, Northcote and Footscray had the largest increases in their medians over the quarter,” Mr Raimondo concluded

The June quarter looked great but with Spring now upon us we expect to see an increase in property available in the marketplace and with the additional positive news reinforcing confidence in the Australian economy demand will be sure to follow. Confidence is rising and with the lending requirements starting to ease slightly (some banks now offer 95% loans again) and the property market showing strong growth through winter, the market seems poised to tick along at good levels.

New and Off the Plan: This segment of the market looks very healthy at the moment. The Nyko Property clients who bought throughout 2008 and 2009 and are settling now have realised significant increases in the value of their properties, some in excess of 20%. If you factor in growth figures like these, with the ability to purchase a property now without having to settle for 12-18 months, it gives you the option to draw equity quickly and re-invest to build your portfolio.

Finding these opportunities in the market place is not easy whether its price point property, or high-end projects and the market is not as simple as it used to be. Ample due diligence to support the location, and the performance of the property needs to be sought and only then can these opportunities be qualified as strong investments. The Melbourne 2030 concept is a brilliant guide, a government backed initiative disclosing the up-and-coming hot spots in Metro Melbourne, enabling Nyko Property to locate boutique projects in these locations, and package them with all the information necessary to make an educated decision.

The time to act is now, contact Nyko Property to learn more about our exclusive 'off market' investment opportunities and receive your complimentary 'Project Information Pack'.

Bill Nikolouzakis - Nyko Property