Buying in the boom – and other property purchase mistakes

Astute property investors looking to maximise their long term gains are often looking to buy at the best price in a location that will grow. This usually happens in a buyers’ market – a market that’s at the bottom of the cycle, such as Mackay.

 

Mackay property professional Kim Clarke, developer behind more than 20 developments across Australia’s east coast, including Mackay, has experienced the highs and lows of property cycles over the last 40 years. He says: “Regional markets, like Mackay, generally experience shorter property cycles, spanning 3-4 years between market peaks and troughs, compared with 7-8 years for Australian capital cities[1]. An increasing number of property experts are convinced that Mackay’s market is not continuing on a downward spiral. Rather, the market is at the bottom and the road ahead should be more balanced over the next 12 months and beyond.”

For anyone buying with a view to maximising the value of their purchase, a long-term investment mindset is needed. “Often, more sophisticated investors are looking for the next opportunity, and they’re likely to treat their purchase as a commercial transaction. They also tend to take a counter-cyclical approach. They buy when others are selling and sell when others are buying,” says Kim.

As the developer of Plantations Palms, a 2000-home masterplanned community in Mackay, Kim has been asked countless times by buyers if they should invest now, or wait for the market to pick up. To help buyers make a decision, Kim suggests 7 reasons to buy at the bottom of the cycle.

Kim Clarke’s 7 reasons to buy at the bottom of a property cycle:

Better prices. With the market at the bottom, considerable savings can be made. “Not only are sellers more realistic about prices, your buying power is also enhanced, making it easier to negotiate a better price. In Mackay, the average house price has dropped from $434,485 in 2013 to $392,996 in 2015 to date[2]. The good news, however, is that house prices and sales volumes in Mackay should slowly pick up as we move through 2015, ahead of early signs of recovery expected in 2016 – making now a good time to buy before prices increase,” says Kim[3].

More choice. With an oversupply of housing, Mackay offers buyers plenty of value and the opportunity to buy while pickings aren’t slim. Buyers also have more time on their hands. “With an upswing in the market now on the horizon, choice is a luxury that buyers rarely have. While Mackay does have a way to go, we are coming out of the shadows. This should be a relief to buyers who are hesitant to make purchasing decisions out of fear the market might get worse,” says Kim.

The outlook is favourable. “Economic indicators point to a balancing of Mackay’s market in the second half of 2015, before early signs of recovery kick in during 2016, as forecasted. This should be driven by a lift in coal prices and other resource exports, hopefully stimulating jobs growth in the mining sector. As employment opportunities roll in, consumer sentiment should strengthen, positively impacting buying interest[4]. We anticipate an increase in new-dwelling approvals in the coming months, as homebuyers take advantage of housing affordability. At Plantation Palms, we’re currently experiencing an increase in enquiries from consumers interested in the new-build process,” says Kim.

Potential long-term gains. Successful property investors say that property is a long-term game. “Strategic investors don’t sit and wait for the right time to roll around. While you need to account for risks, property prices are only going to increase over time, so why not start small when buying conditions are more favourable? With sales volumes and prices expected to increase, this is positive news for buyers looking to release equity in time and put this towards their next investment and progress the property ladder,” says Kim.

Relative affordability. “Regional markets tend to offer buyers increased affordability compared with major cities such as Sydney – where competition is strong and prices are growing at an accelerated pace (at 13.8 per cent year-on-year)[5]. There is also a significant difference in prices between metropolitan areas. For instance, the average dwelling value in Sydney is now $877,000, whereas in Brisbane the average value is $497,530[6]. Yet in a regional city such as Mackay, a three-bedroom, freestanding family home on a 625m2 block of land could cost you almost $40,000 less. For a young family, this price point can be appealing as the cost of living increases.

Opportunity to enter the market. For new entrants, locations that are at the bottom of the cycle could be a good option, especially in the current climate where interest rates are low and banks appear willing to offer fixed-rate loans. Many real estate developers are also offering incentives for new buyers, such as lower holding deposits (some as low as five per cent), and additional value-add on fixtures and finishes. Plantation Palms, for example, offers three-bedroom house and land packages on a 625m2 block for $360,540. In Queensland, one of the additional benefits is access to the Government’s Great Start Grant, valued at $15,000. While no longer available for existing dwellings, this grant is available for new-build properties valued up to $750,000[7].

Opportunity to sell in a vendors’ market in the future. Whether you’re an investor or owner-occupier, if you don’t plan on holding your property for a long period, by getting in early when prices are at the bottom, you’ll likely be in a good position to sell when demand is strong. In Mackay, latest estimates show population growth is expected to grow by more than 80,000 by 2036[8]. Local jobs growth is also expected to be steady, driven, in part, by improved strength in mining and exports, as well as new infrastructure projects. This should come as good news for future sellers wanting to take advantage of more positive economic conditions and the next upswing in property.

[1] According to a report by Matusik Property, ‘Understanding Regional Housing Markets, Mackay, Queensland’, Mackay’s typical property cycle averages 3 to 4 years between market peaks and troughs against 7 to 8 years for capital cities.

[2] According to Opteon, Australia’s largest network of property valuers and advisors, the average house price in Mackay has dropped from $434,485 in 2013 to $392,996 in 2015 to date: http://www.opg.net/sig/OCQApril2015.pdf.

[3] According to the above Matusik Property report, early signs of housing recovery in Mackay are expected to show in early 2016.

[4] Market insights from Opteon reveal Mackay’s housing market should start recovering in the fourth quarter of 2015, driven by a lift in coal prices and renewed confidence in the mining sector. This is expected to stimulate mining jobs growth and strengthen consumer sentiment.

[5] According to CoreLogic, Sydney dwelling values increased 13.9 per cent year-on-year in March 2015. (See http://www.corelogic.com.au/media-release/sydney-dwelling-values-catch-second-wind-off-back-of-lower-mortgage-rates).

[6] As at 30 April 2015, CoreLogic data shows the average dwelling value in Sydney is $877,000. In Brisbane, the average dwelling value is $497,530. Click here for more information: http://www.corelogic.com.au/research/monthly-indices.html.

[7] The QLD Government’s Great Start Grant assists eligible first home owners to purchase or build a new home by offering a $15,000 grant. Queensland residents can visit https://greatstartgrant.osr.qld.gov.au/ for more information.

[8] The Queensland Government projects Mackay’s regional population to grow to 197,905 by 2036. Click here to read the report: http://www.mackay.qld.gov.au/__data/assets/pdf_file/0003/181443/Mackay_LGA_Profile.pdf.