No respite for those looking to enter the property market
2021 has failed to provide any respite for those seeking to buy property. Persistently high preliminary auction clearance rates reported as 91.53% by CoreLogic and strong demand for off-plan properties have pushed up property values across Canberra. My observation is market participants are being repeatedly caught off guard by relying on historical sales data to determine expected sale prices for established properties. You too may have observed this if you have a family member or friend who has been bidding at auctions describe how the successful bidder paid too much. Which begs the question, did they?
In some instances, it is difficult to find justification for sales results, however the successful buyers at auction may disagree with underbidders’ comments on the basis there was an underbidder and they could not have paid less and secured the property.
Canberra property values are in a robust growth cycle resulting in CoreLogic reporting unit values increased by 0.7% and house values by 2.2% in February, on top of increasing by 1% and 1.3% respectively in January.
To put the market in perspective, consider a four-week auction campaign. A house with a value of one million dollars advertised in early January would have increased in value 3.5% between initial advertising and settlement, assuming a sale under the hammer with a 30-day settlement. Buyers frustrated by lack of choice are comfortable paying higher prices as they perceive values will continue increasing in the short term, potentially pricing them out of the market.
Those wishfully thinking property values would free-fall in April, hoping to buy when the market was 10, 20 or 30% lower have been smacked hard by a reality of fast rising values and diminishing value of their dollar.
This cycle is rapidly creating equity for property owners who used low interest rates to pay down their mortgages and have seen the value of their properties increase. These buyers, investors who see current conditions as prime for starting or increasing their portfolio, are asserting themselves across the off-plan market. Live-in owners face stiff competition from local and interstate investors who see value investing off-plan and the ability to secure 12-36 months of exposure to market conditions without a burden of holding costs.
Conditions in the rental market are exceptional for investors as Canberra’s population comprises skilled workers earning the highest median incomes nationally. SQM Research reported a vacancy rate of 0.8% in January with asking rents increasing by 6% for houses and 5.2% for units year-on-year for weeks ending 12 February. In the short term, this cohort of investor activity will plug any gaps left from expiry of the Federal Government Home Builder Scheme.
Time is the answer for questioning if a purchase price was too much. Property ownership is a long-term investment regardless of whether you buy for your own residence or as a dedicated investment. In my experience, far more people reflect with regret on properties they should have bought than the ones they did.
With Sam Dodimead, local property professional and host of Canberra Property Podcast where you can get to know the consultants contributing toward delivery of new buildings. Stream from wherever you listen to podcasts.
Read the market wrap from last week here.
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