Without doubt, the property market has been suffering in 2004. Winter will soon be coming to an end and many are forecasting a seasonal change for the better. Will this be the case, or will the weather be the only thing warming up?
Speculation on the property market is difficult and not easy to predict. Auction clearance rates fell to a 15-year low in May, with a clearance rate of only 32.3 percent. Auction results are a good way of determining buyer confidence, so this poor result signalled tough times were ahead. Clearance rates have since gone up and are steadily hovering around the 45 percent mark.
Research director at Australian Property Monitors Louis Christopher sees the change of season somewhat differently. Spring is a time when seasonally there’s more stock on the market. However, we usually see a decline in auction clearance rates during that time. Seasonally, buyers come in during the autumn months. It’s not time to panic yet, as it wouldn’t be a major decline and more stock can potentially see market growth.
Vendors traditionally hold back during winter and the lack of available properties has certainly made it tough for agents. The improved clearance rates may be due to vendors realising they have to meet the market. However, not all vendors are willing, and many are in denial as to prices they are likely to achieve. With some vendors still not taking market realities into consideration, they are either having to discount or take their property off the market altogether.
Apart from that, there have been other forces at play. The government’s exit-tax of 2.25 percent had a huge bearing on the marketplace and reduced confidence for investors and vendors alike. Prior to its introduction, many investors raced against time to sell at the best price. Many found they were unable to and placed their investments back onto the rental market. Since then, prospective investors are looking at the total transaction costs, including stamp duties and agents commission, and see this as a disincentive to buy into the market.
Coupled with dismal reports about the market by the media and statements from the Reserve Bank of a possible rate increase, vendors and buyers went into hiding. Christopher says, There are not many properties going to auction, due to vendor uncertainty and a cyclical downturn. However, we are still seeing a lot of strength in properties selling through private treaty. There has been a lot of negativity on the auction market, but it is still a great system for vendors to use.
This may explain the poor clearance rates and Christopher adds, When an auction property fails to sell, this doesn’t mean the whole system has failed, as certain agents are reporting higher success rates after auction.
So who is buying? First homebuyers are the winners here, with relief from stamp duty and first homebuyers incentives. Additionally, people who recognise value in the current market are also securing bargains.
It may be a buyers market and according to Christopher, Properties are now sitting on the market for a lot longer before they sell, with an average of 66 days, as opposed to 35 days in 2002. So, buyers are behaving more cautiously, vendors are coming down in price and there are bargains out there to be had.
With a combination of good economic, population and employment growth, we can’t expect the current state of the market to last forever. In the meantime, buyers and sellers should do their research. Look at comparable sales, how long properties have been on the market and see if they have come down in price. Speak to more than one agent for advice on local property sales.
Christopher says, At a 45 percent clearance rate, it is still fairly weak and I don’t think it’s a time of major recovery. I believe that 2005 is when we will see the market recover considerably. Either way, it is a buyers market and more sales will only bolster market confidence. It’s important to do your homework and shop around and the coming months will shed light on just how much bounce there will be in spring.
Garry Rogl is senior property consultant with estate agents Planet Properties of Petersham.