CURTIS: Back for Episode 3. You're with Curtis Browning
TRENT: And Trent Ryan.
CURTIS: And we're here to tackle some of the latest numbers that have come out. Obviously, the market is moving fast and things are in flux.
Even though the data is delayed, it's good to keep an eye on where it is and match that with what we're seeing on the ground, to hopefully provide you with a bit of insight and some confidence when making your decisions.
Cotality has now released the July numbers and, as we spoke about last time, there is a delayed factor with these numbers because it takes anywhere from 30 to 90 days for most properties to settle.
We'renow starting to see that downturn everyone's been feeling coming through in the numbers.
WithBrisbane in particular, July recorded a 0.6% drop.
TRENT: Which has flowed through to the quarterly numbers at a 0.6% drop as well, because we'd stayed relatively steady until now.
Compared to the national market trend, though, I think Brisbane is still holding up pretty well. There's resilience there.
CURTIS: Brisbane is doing really well compared to the national market. The national drop is around three times as large, but it's mainly being driven by two individual markets — Sydney and Melbourne — which are dropping significantly more than Brisbane.
We say it all the time to clients, but there are multiple markets within the Australian property market. Every capital city and regional hub is going to behave differently.
Even within Brisbane, we're seeing different suburbs perform differently, and different property types perform differently.
These headline numbers give you a skeleton of what's happening in an area, but there's definitely more to it than the headline figure.
TRENT: The other good thing about the numbers is they've made our predictions in Episode 1 look pretty accurate.
CURTIS: Yeah.
TRENT: It gives some confidence to theinformation we're providing. The market is doing roughly what we expected basedon our experience and what people on the ground have been telling us.
CURTIS: And to that point, we've got a0.6% drop in July, but what we've seen on the ground suggests the drop isalready greater than that.
Those numbers won't flow through for another few months.
We also had that small frenzy leading up to August 10 with self-managed super fund buyers purchasing.
Talking to mortgage brokers, they had quite a number of clients in that space who wanted to get the advantage of purchasing before August 10. And talking to sales agents, the majority of some of their deals in those couple of weeks were self-managed super fund buyers.
Those properties are still 35 to 60 days away from settling, so the bigger market changes may still be further down the track.
TRENT: That will probably provide a bit of a buffer in the numbers.
When you've got a deadline in play, people are forced into a decision. If that means they need to pay an extra $10,000, $20,000 or $30,000, some investors are willing to do that because of the hard deadline.
But overall, it's pretty clear that market sentiment and how people are appraising properties has shifted much more than that small percentage decline suggests.
That was also the last major deadline in play. So, the next month or two should give us a more consistent picture of what the market is doing, especially with interest rates staying on hold.
CURTIS: What's interesting in a market like this is that when values drop, sentiment becomes weaker on both sides.
We'reseeing listing numbers drop as well. There's definitely less coming to market, while the properties that are listed are staying on the market longer.
Average days on market have gone from around 19 days to 28 days, which is a pretty significant jump.
It shows there's a lot more middle ground that needs to be found between vendors and buyers to get deals done.
TRENT: And another thing we'vementioned in previous episodes is off-market opportunities.
A couple of agencies regularly send me their off-market opportunities, and I'dsay the number coming through has increased by more than 50%.
I've had agents I've never even heard of messaging and calling me personally, asking whether I've got buyers for properties.
People we don't normally hear from are suddenly saying, “I've got an open home at 10 o'clock today. Do you want to come along? Have you got any buyers?”
CURTIS: Which is really important when listings are low, and there aren't a lot of options for people who are actively in the market.
Having those relationships on the back end and being able to see what's availableoff-market is pretty invaluable in today's market.
TRENT: It can give buyers a significant advantage in getting into the market at the right price.
There's less competition, and there's not the same time pressure on those sales, so you have time to properly research the property.
CURTIS: And without that competition, you potentially have more ability to negotiate a good price because vendors are feeling the change as well.
TRENT: One of the things that'sbecoming easier to track now is vendor discounting — the gap between vendors'initial price expectations and where properties actually sell.
We'vespoken previously about timed sales and that urgency has disappeared from themarket.
We'renot seeing as many properties advertised with, “Get your offer in by Thursday at 5pm,” where you've effectively got four days to make a decision.
More properties are coming to market with listing prices attached.
With average days on market increasing, you can also see the discounts vendors are making to achieve a sale.
CURTIS: Another thing I haven't seen in the last few months is some of that technology agents were using to effectivelycreate auctions without auction conditions — where buyers could bid through an online platform and see the bids coming in.
TRENT: I haven't seen that for three or four months.
Vendor discounting is now sitting at around 4% between where the vendor's expectation starts and where the property ultimately sells.
That also makes the sales agent's job harder.
We've spoken before about agents who've entered the industry since COVID and haven't really had to worry about doing price reductions with vendors or having those difficult conversations.
In this type of market, you may have to reappraise a property every three weeks depending on the level of buyer activity.
Ifyou've got a good sales agent, they'll be doing that, and you'll see reductions in the list price.
CURTIS: It's interesting talking about reappraising properties.
If you think back to that run from 2020 to 2022, you'd appraise a property and know it was probably going to sell above what all the settled sales were telling you, because the market was moving so quickly.
We're now seeing the inverse of that for the first time in a long time.
The settled sales might tell me a property is worth a certain amount, but based on what we're seeing transact right now, I might know we can get it for 5% or 6%less.
Settled sales are still the best form of evidence, but matching those with transactions that have happened and haven't yet settled helps you place the property's value much more accurately.
TRENT: From our end, we have to be really careful with the information we're giving buyers because it can change every couple of weeks.
CURTIS: That's also where having the right team around you makes a difference.
When you go to an open home and look at the comparable sales the selling agent provides, they may only be four or five months old — but in this market, that's already out of date.
You need to understand what's happened in the last two or three weeks, including unsettled transactions.
CURTIS: Part of that discounting story also comes back to different parts of the market moving differently.
The segmentation numbers across the capital cities tell a pretty consistent story compared with last month: the lower end of the market is showing more resilience.
A lot of that comes back to lending and the negative gearing changes. As borrowing capacity has shifted, buyers have moved down a price bracket.
That means the lower end is still relatively competitive.
InBrisbane, the bottom quartile recorded 0.5% growth last month, where as the top end of the market took a bigger hit, falling 1.2%.
TRENT: It's an affordability shift.
Investor affordability has moved towards the entry level in each individual area, while first-home buyers are still active.
You'dexpect that lower end to remain busier, and that's what the statistics are showing.
CURTIS: Another interesting part of theAugust Cotality Housing Chart Pack was finance and lending.
Again, these figures are delayed, but there was a 3.8% decline in lending over the quarter.
The decline was broad-based and affected both owner-occupiers and investors. But owner-occupier lending actually fell more — 4.3% compared with a 3% decline for investors.
I think that slowdown has accelerated since then based on what we're hearing from brokers.
But because owner-occupier lending has fallen more sharply, investors have actually increased their share of overall lending.
TRENT: Experience tells you that when there's a shift in the market and sales volumes fall, people look for security.
Over the last 20 years, whenever we've hit a market like this, homeowners tend to say, “I'm just going to stay where I am.”
One thing we could see as a result is builders getting busier with renovations.
Rather than upsizing, people stay in their existing home and make it bigger. They're happy with where they're living and don't want the uncertainty of going onto the market as a seller without knowing when a buyer will come along.
CURTIS: And renovating your principal place of residence can also be attractive from a tax perspective. You're adding value and building equity in the home you already own.
The lending piece is interesting because the brokers we're speaking to say things have slowed even further since this data was recorded.
Some have told us this is the slowest period they've experienced outside of refinancing.
But banks make money when they lend. As fewer new borrowers enter the market, banks need to compete harder for clients again.
We're starting to see some relatively investor-friendly lending policies emerge.
For example, with an investment loan, lenders will typically only recognise a percentage of the property's rental income when assessing serviceability.
I've seen one lender recently move to recognising 95% of rental income.
TRENT: Which is also an indication of how strong the tenancy market remains.
Vacancy rates are still extremely low.
TRENT: One part of the market that seems to be going quite well at the moment is development.
I'veg ot a developer client looking for high-rise unit sites, particularly around waterfront areas.
His current projects have virtually sold out. He's getting good buyer enquiries and now needs to rebuild his development pipeline with another project.
His predominant buyer is the downsizer market, particularly retirement-style waterfront living around Moreton Bay.
He's extremely busy, which is a good sign.
CURTIS: Across the board, the developer clients we're working with are showing a lot of interest in snapping up sites at the moment.
Feasibility is obviously incredibly important. They need to be able to buy at the right price and on the right terms.
TRENT: And terms can be the difficult part.
We've got a buyer looking at a site at Bowen Hills, for example. His hesitation isn't necessarily about today's market — it's trying to determine what the future sales price will be.
That's another high-rise development, and there are definitely developers still looking for stock.
CURTIS: Where are you seeing those opportunities around Moreton Bay?
TRENT: Waterfront sites with the right zoning are hard to find.
This particular developer has been active in that market for around 20 years and has almost exhausted the sites that meet his usual criteria.
So he's now considering sites that may still be close to the water but allow a slightly smaller development.
CURTIS: And that's not unusual for an area that's gentrified and changed as much as the Redcliffe Peninsula has.
We buy a lot through the Moreton Bay region for clients, including developers. It's probably where we've spent most of our time over the past 12 months.
There's a genuine lifestyle component there that you don't necessarily get in some ofBrisbane's other outer growth areas.
That's part of why developers remain interested in securing sites there, whether they're directly on the waterfront or slightly further inland.
TRENT: House-and-land is also quite busy. Rental returns are good and entry-level prices remain relatively attractive.
CURTIS: They say water always wins in real estate.
TRENT: As long as it's not floodwater.
CURTIS: Exactly. Ocean water.
CURTIS: How are you finding negotiations when it comes to terms for developers?
TRENT: Terms can be harder than price because a typical homeowner doesn't necessarily understand the development process or the obstacles a developer has to overcome with council.
Price is obviously relevant, but things like flood overlays can materially affect development costs.
Something homeowners may never think about is traffic control.
Ifyou're building an eight-storey, 70-unit project on a busy road, you might have a two-year construction period. Traffic control alone can potentially add hundreds of thousands of dollars to the project.
If the sewer network underneath the site needs to be relocated, that can add another significant cost.
Then you've got things such as soundproofing and double glazing on busy roads.
So when you're negotiating with a seller on behalf of a developer, you have to spend a lot of time helping them understand what the developer actually has to go through.
You can't explain all of that in one meeting. It becomes an education process.
I'll generally start with email conversations to determine whether they're genuinely interested in selling. Once they've shown they're serious, it's about getting in front of them and having those more detailed discussions.
You can then show them the evidence: previous projects, council requirements and mapping showing where infrastructure such as sewer lines runs underneath the property.
CURTIS: And when developers are working out their gross realisable value and their feasibility, how are they trying to price where the finished product might sell in this market?
TRENT: With larger developers, those conversations are generally fairly short because they do most of that work internally.
They determine what they believe the end sales prices will be and give us those figures so we can then have the appropriate conversation with the seller.
Funding is another major part of it.
CURTIS: Absolutely. I previously worked in residential development valuations, and it's one thing to arrive at a figure internally — but you also need the valuer and financier to support it.
TRENT: Particularly when you're talkingabout projects with potentially $70 million to $100 million in build costs.
They need a very sharp pencil.
But the important thing is they're still busy. Developers need a pipeline of projects because they're businesses. They don't want long periods without projects underway.
And that's also why developers generally need to be realistic with their sales expectations. The last thing they want is to be sitting on completed stock.
CURTIS: Time is money for them.
TRENT: Exactly. They want to finish one project and move on to the next.
And at the moment, deals are still being done, and developments are still underway.
They're a buoyant group. They want to keep buying.
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