John McGrath - Property & Real Estate Expert – Updates Us with His Australian Spring Property Review

John McGrath, a self-made millionaire at age 23, founded his own real estate company McGrath Partners Estate Agents at age 26. He commenced selling real estate in 1984 at 21 years, by the age of 24 years he had already set a number of real estate records including the sale of Australia’s most expensive house for $11.25 million.

With no formal business training or educational qualifications John started McGrath Partners Estate Agents in 1989 from his own house. Today McGrath Partners is Australia’s largest real estate office turning in excess of $850 Million in sales annually, with over 115 staff, and growing. McGrath Partners is widely accredited with revolutionising the real estate industry through innovative drive and passion for client service.

John’s Spring Review:

We’ve had an unusual winter season with strong buyer demand and a severe shortage of stock resulting in very healthy prices, particularly at auction. But rather than a brief blip on the radar, I suspect it is the beginning of the next growth cycle, the one that property owners have been eagerly awaiting. Spring may be the final opportunity for buyers to purchase in a climate that has been affected for two years by the global recession.

The RBA has indicated an interest rate rise of up to two to 2.5 per cent over the next 12 to 18 months which may bring some passing showers to the sellers’ parade but I am still convinced that 2010 will be a strong growth year for property values, starting with well located quality homes between $1m to $3m and then moving north to the luxury home market in 2011.

Here are a few observations and indicators that I’ve observed in the current market:

Spring will be strong with high buyer demand continuing, outweighing an anticipated increase in listing levels.

The likelihood of rate rises in the short term along with the upcoming expiry of the First Home Owners’ Boost will take some of the sting out of the sub $600,000 market but this should be balanced by an increase in investor interest and the growth of an economy looking to get back on its feet. We may see prices in this lower end plateau for the next nine months while we see this rebalancing of key drivers but I anticipate it to continue its growth, especially in the inner city and beachside areas mid way through next year.

The upper end recovery is well underway and will continue as the economy stabilises. RP Data reports a 5.7 per cent gain in Australian prestige property values from January to June alone. Buyers in the prestige sector have re-consolidated their positions and are heading into spring with money to spend in prestigious suburbs where prices have fallen 15 per cent or more.

Our auction clearance rates in and around Sydney are now averaging above 70 per cent compared to 46 per cent at the same time last year. This is due to strong demand, limited stock, vendors realigning their price expectations with market values and quality versus quantity (auction volumes down 22 per cent with fewer mortgagee sales and higher quality stock attracting tough buyer competition). This is the easiest to access and most reliable real-time barometer for a real estate market. Health indicators are pointing to the start of a strong recovery.

Rental yields remain high at an average 5.3 per cent for apartments and 4.4 per cent for houses. With a slowing of first homebuyer activity and unemployment rising in some areas we may see a slowdown of rental demand in 2010, but I still expect rents to increase by around five per cent during calendar 2010 (I had previously forecast five to 10 per cent).

We may also see less activity among downsizers and seachange and treechange buyers over the next year or so as empty nester Australians delay their retirement plans due to weakened superannuation portfolios.

Good quality commercial property is starting to yield eight to 10 per cent – up significantly from about six per cent a few years ago. However, in this economy, there is some question mark on the security of commercial and retail tenants. Sometime during the next 12 months astute investors will return to commercial property, take on the reducing risk and secure the value before increases in 2011.

Expats are continuing to watch the market very closely via the internet. We’ve seen young expats utilising the First Home Owners’ Boost as well as families snapping up prestige homes for the future. This doesn’t mean they’re coming home on mass any time soon though. Despite perks such as housing allowances and free private school tuition being scaled back, offshore Australians are still the highest paid expats in the world.

Investment by offshore buyers, particularly from Asia, is growing due to our economic resilience in the global downturn and relaxed FIRB rules enabling temporary residents to buy established homes as well as new ones with no FIRB approval (a process that used to take 30 days). Foreign companies can now buy established homes for their local staff and up to 100 per cent of new apartments can be sold to foreigners – up from 50 per cent.

I believe this is the beginning of a long housing growth period to match the economic recovery. Property as an asset class has been less impacted by the global financial crisis (10 to 20 per cent price corrections in general) compared to equities and the safety of bricks and mortar has definitely proven a winner in the minds of property owners and investors. There is plenty of evidence that the broader economy is doing better than expected – the key factors are the RBA says the downturn in Australia will be “shallower” than expected, unemployment now forecast to reach a peak well below recent expectations of nine per cent, the share market is up 30 to 40 per cent over the past five months, consumer confidence is growing and interest rates are at historic lows but expected to rise.