As usual there is a lot being written about the property market at present and plenty of predictions as to what may occur. As is our usual mission, let’s see if we can break down what is actually happening and see if we can work out what lays ahead.
The most publicised indicator of the property market performance is the metropolitan property market auction clearance rates, particularly for Melbourne and Sydney. In recent weeks we have seen these drop back to normal levels from the very high clearance rates over the past 12 months. The reason for this is a simple case of supply and demand. There has been a significant amount of supply introduced to those markets in a short time frame. The short time frame window was caused by a shortened Spring selling season being book ended by the coming out of lockdown and Christmas.
Most sellers are planning these moves well in advance and it is not until they get onto the market that they see how much competition they have. For buyers, the increased amount of choice has taken the urgency out of their buying and the previously very prevalent FOMO (Fear Of Missing Out) has dissipated.
This change in sentiment spills across the whole property market but in reality, the effect varies from area to area depending on the actual supply and demand scenario for that area.
The other talking point in the media is interest rates. Mainstream media gets very excited yelling “Rate Hikes are coming” but in reality it is not something that we are seeing as a major factor at the coal face. Interest rates were always going to rise at some point but the rises are unlikely to be significant and for most current buyers, the banks are factoring in their ability to cope with higher rates at application. If the current talk of interest rate rises dissuades the very marginal buyers from entering the property market at a price point that they can’t really afford, it should be seen as a positive for the long-term health of the property market.
The most interesting aspect of the past 18 months has been the amount of upper end sales and new records that have been set in different parts of our service areas. Previous to this period, there had only ever been one sale in the $7-$8m range and two in the $5m-$6m range on the Surfcoast. During this current buoyant market Great Ocean Properties alone has been fortunate enough to facilitate the sales of two $5-6m sales, two $6m-$7m sales, three $8-$9m sales and the well publicised $10m sale of Max’s Beach House which is the new record for the Surfcoast.
The most common questions we get asked about these sales is, “Where is all the money coming from?”
The answer is that it seems to fall into two broad categories. Those who have generated wealth from a successful business and often sale of that business and those who are asset swapping (and often a combination of both). By asset swapping we mean selling an asset, often a property, in another area to buy on the coast. There may be some short to medium term borrowing to cover the transaction, but in the main the buyers are wealthy enough to afford these purchases. An interesting aspect is that many of these buyers have looked at both the Mornington Peninsula and the Surfcoast and recognise the relative value of the Surfcoast. The Surfcoast enjoys much easier access from Melbourne and the natural beauty is much better (although we are very biased!). When you look at the prices being paid in Sorrento and Portsea, we still have plenty of upside to be realised.
An underlying theme that will continue to assist the coastal markets moving forward, is the death of the bums-on-seats mentality during COVID that has allowed many to work from home several days a week. As a justifier to buy on the coast this is significant. In the past many have not been able to justify a coastal purchase because they didn’t think it was practical due to work commitments and a generally busy life. That has now changed, at least as a perception, and as agents we don’t deal with the longer-term reality of the buyer, we deal with the perception of the buyers at the point of sale.
Looking forward and as we predicted in our previous Great Ocean Report, we believe the normality of life will subdue the property market back to sustainable levels. Different property markets around Australia will be more effected by local conditions (supply and demand in that area) than the overall FOMO mentality that has been fuelling sentiment across most markets over the past 12-18 months. We still believe that there is and will be a genuine interest by many to pursue change in their lives facilitated by the randomness of the COVID pandemic. We saw many people who had thought that they would make a move in 3, 4 or 5 years, escalate their plans simply because if COVID has proven anything, it is that you never know what life will throw in your path and you can’t always take for granted how it will unfold. So you may as well get on with making it happen and have some control over those outcomes.
We hope you found this Great Ocean Report informative and if we can be of assistance in any real estate matter please don’t hesitate to call.