News

The latest happenings in the Melbourne property market. For our Essays and The Secret Agent Report, see our Research page.


Category Archives For: Numbers and Stats

Bond Yield Update: August

“Record low interest rates”. This seems to be the headline of the year, having been used so many times it is hard to remember any other kind of interest rate. Each time we see this, expectations for another rate cut decrease momentarily, only to return to the same, pre-cut probability-levels after a few weeks.

Figure 1 paints a clear picture of a similar short-term outlook, yet weakening long-term expectations. While this graph does not include data since the rate cut (yields on 10 year treasuries have lifted a whopping 0.03% since the July levels shown in Figure 2), we can see almost identical movements at each maturity date from May to June and from June to July.

Blog-1
Read the full post


The Secret Agent Report – Recreating Period Homes

We have just released our latest Secret Agent report!

The original period homes that remain in Melbourne are frequently purchased for record-setting prices. It is difficult to quantify the value of character, however it is possible to estimate how much these houses are truly worth if we were to build them from scratch today.

This month, Secret Agent investigates the cost of rebuilding two period homes in inner Melbourne. We demonstrate that the prices paid for period property fairly represent the quality, history and scarcity of these types of homes in today’s market

Start reading this report by clicking on the link below:

Register to receive our report monthly and access the Recreating Period Homes report now!


Bride and Bridesmaid Suburbs

Suburbs such as Fitzroy and East Melbourne have historically strong capital gains. Conventional wisdom is that by investing in neighbouring suburbs that have lower median prices, an investor would achieve stronger growth than in the blue chip suburb. This is because they would benefit from the spillover effect of buyers being unable to afford the blue chip locations and the subsequent gentrification of the suburb. This bulletin aimed to test if this is the case by analysing the growth of 5 bride and bridesmaid suburb pairs in inner Melbourne.

blog-3
A bride suburb is a relatively expensive suburb with good capital gains. It may be out of reach for a large proportion of property investors due to the high entry point.

blog-4
A bridesmaid suburb is a neighbouring suburb that boasts a lot of the qualities that make the bride such a good investment, yet with properties selling for much lower prices.

To compare, the median sale prices and annual growth rates since 2011 for all suburbs shown in Figure 1 were gathered. These suburbs were divided into suitable pairs, based on locality and differences in median prices. The results are shown in Table 1.

Read the full post


Capital Growth Update: June

The capital growth index is a very accurate way of measuring the long-term returns on an investment in the property market. It removes a lot of the noise usually present in real estate statistics, such as construction or renovations, a lot of large or small houses being sold and seasonality.

Median capital growth is based on the resales of the same property over different time periods (see methodology for more detail). Over the second quarter of 2016, inner Melbourne capital growth was 1.63%, or 6.67% when annualised. This is slightly lower than the median of 6.80%% over 2015, but above the five-year median of 6.31%.

Read the full post


Apartment Price Per Square Metre: $2million Market

Earlier this month, Secret Agent released our findings on the price per square metre of apartments in the secondary market. In this bulletin, we look closely at apartments in the upper tier of Melbourne property, exclusively those that have sold for above $2 million.

The same methods from the previous study applied: each floor plan was manually measured for its internal habitable space, and the final measurement excluded external walls or structural elements, outdoor space, car spaces and storage cages. Sales were included only if a price and scaled floor plan were available.

Key findings:

  • This study included 12 penthouses, which are typical assets in the top end of the market.
  • More than half of the sampled apartments have a North-facing aspect, balcony or terrace. This is the most desirable orientation for optimum natural light and passive heating.
  • Apartments in the $2million plus market were 59% more expensive on a per square metre basis than the rest of the market (below $2million).
  • On average, 3 bedroom apartments sold at a higher cost per square metre than 4 bedroom apartments (Table 2).
  • 5 of the apartments were located in period or Art Deco buildings, while the rest were constructed from the 1990s onwards. Most of these newly built apartments were designed by renown architects such as Fender Katsalidis, Robin Boyd, Woods Bagot, Ashton Raggatt McDougall, Bates Smart, or boutique developers such as Neometro.

For this study, 32 apartments sold between the 1st of May 2015 to 31st of May 2016 were analysed. The average sale price for these apartments was $2,571,469. The sample mostly consisted of apartments from the central, inner East and inner South of Melbourne. The average price per square metre for $2million plus apartments was $13,653. The results by suburb are shown in Table 1.

Read the full post


Bond Yield Update: June

The bond market, even more so than the stock market, is often a key indicator of investor expectations and the overall health of the economy.

Figure 1 shows the RBA reported bond yields on treasury bonds from 90-day bills to 10-year, long term bonds. From March to April this year, long term yields decreased more than short term ones. This is called “flattening” of the yield curve and is often a sign of lower investor confidence and a bleaker future outlook for the economy. From April to May, the opposite effect can be observed: while yields for all maturity dates decreased, the yield curve steepened slightly. The drop in short term yields reflects the RBA’s decision at the start of May to cut the official cash rate by 25 basis points (0.25%).

Blog-1So what has happened since the interest rate cut?

Read the full post


The Secret Agent Report – Apartments Price Per Square Metre

We have just released our latest Secret Agent report!

Comparing square metre rates for houses is common and quite simple as land measurement data is readily available. Apartments are slightly different since it isn’t possible to make comparisons based on the land area they are built on. Floor plans are necessary to do this and the plans provided are often lacking full dimensions. Advertised floor sizes are often rounded-up figures that include external walls and non-habitable areas in the total, making them appear bigger than what they really are.

To overcome this, Secret Agent has manually measured the floor plans of apartments sold from January to March 2016 to create a square metre index for apartments in inner Melbourne. This report will showcase our results with an in-depth look at square metre rates for regions, suburbs and particular apartment types.

Start reading this report by clicking on the link below:

Register to receive our report monthly and access the Apartments Price Per Square Metre report now!

apartment-ppsm-980


Settlement Risk Looms

The development space in inner Melbourne and Sydney is set to be severely challenged. Conversations between Secret Agent and various developers over the past month have revealed their increasing anxiety about potential settlement issues. These developers, who have settlements due in the next 18 months, are worried that many of their apartments may not be able to settle due to the restrictions placed on foreign buyers by local banks. This is likely to have substantial implications.

For some time now, developers have used successful business models to sell their projects directly to Asia. Sales companies who specialise in selling unseen apartments to the Chinese market have made large financial gains. These apartments, many of which are tiny by local standards, have been purposely designed for the overseas market. Committed contracts, once thought to be rock solid, are now on shaky ground.

To understand the problem at hand, let us consider a hypothetical situation. An investor group, on behalf of a developer, sells a small two bedroom CBD apartment to a buyer based in Shanghai. The buyer pays $714,000 for the 68sqm apartment, which is $10,500 per square metre, and pays a 10% deposit. Since the transaction was entered into 12 months ago, the investor has no stamp duty to pay at settlement. It so happens that this purchaser defaults. The developer gets to keep the 10% deposit minus fees. The problem is that there is a need to sell the apartment to someone else.

Read the full post


The Secret Agent Report – True Capital Growth

We have just released our latest Secret Agent report!

Averages are frequently relied upon to determine key indicators such as capital growth. While an average may be a quick and easy metric to measure a data set, it can also produce very misleading results. This is especially true when looking at the capital growth of a suburb. Changes in average property prices and actual capital growth are not the same thing. There are many factors that determine the price of a house and the average growth in property values. Using more reliable methods, Secret Agent uncovers the true capital growth of suburbs across inner Melbourne.

Start reading this report by clicking on the link below:

Register to receive our report monthly and access the True Capital Growth report now!

True-Capital-Growth-980


Deflation and Commercial Property

For the first time since December 2008 in Australia, consumer prices have fallen. According to the ABS, the March 2016 quarter saw the consumer price index fall by 0.2%. This is big news.

Whether the deflation numbers are noise or signal, it’s hard to say just yet. However, it poses an interesting question: what would be the impact on the Australian property market if deflation were to creep further into our economy? Secret Agent intends to cover this a little further over the coming month, but for today, let’s look at the impact on commercial property.

Commercial property is a much desired asset for investors. The allure of a lease that guarantees the investor a return over a period of time is highly attractive, especially in a world of low returns. Rent increases every year are a common component of leases and either a fixed percentage increase or CPI measure is used. This begs the question; what happens if we continue to move into deflationary conditions?

While most new leases use a fixed percentage increase, some leases are still using CPI as the rate of increase. Also, many older leases that are still current operate on a CPI basis. We may start to see leases that produce rent decreases for tenants annually and erode the value of some buildings, especially where long leases and terms have been secured by tenants.

The current reality is that negative bond yields are being acquired globally. A world with deflation could mean future tenants secure a fixed rate of decrease over the term of the lease, or negotiate hard for CPI-only leases.

Read the full post