Property Market State of Play – October 2020
It’s absolutely getting busier out in the marketplace right now, so it’s all about how you deliver outcomes.
Core Logic reports that the typical dwelling value across Brisbane to be $505,000 whereas prices reduce to an average of $388,000 across regional Queensland. When looking at this in comparison to other state and capital cities, the yields in QLD are higher due to the lower dwelling values.
Dwelling Value to Income Ratio
When looking to make predictions around home values, a common metric used is looking at dwelling value to income ratios and Brisbane sits currently at 5.9, where the average dwelling price is 5.9 times that of the median salary. Sydney is 9.0.
The proportion of Household Income to service loan at 80%
Over the past 10 years, interest rates have generally eased, which in turn increases serviceability. Paying down a mortgage in Brisbane in the current economic climate is the most favourable it has been since 2003, with an average of 29.4% of household income spent on mortgage repayments.
The Australian standard that determines whether a household is in a state of ‘financial stress’ is anything over 30% of household income spent on accommodation. Sydney is currently at 45.2% and Melbourne at 40.2%
Annual Population Growth
Over the last 10 years, the average annual growth in population has been 354,048. Forecasts now say, with the impact of COVID-19, that 2021 will see a reduction down to 153,971.
For investors, the important point to understand is where this population growth is coming from. Melbourne leads the growth numbers with 77,369 and Sydney following with 73,919.Ttrailing behind with 18,789 is Brisbane, however, in a post-covid world, there are some trends around Sydney/Melbourne migration heading north, in particular South East Queensland.
In addition to this trend, there are some leading indicators that reflect a change in purchasing quantities, where people who would have purchased one investment home, are now purchasing multiple within the same time period.
For house and land packages, particularly located in the growth corridors around South East Queensland, valuations are an issue. With the projected rises in dwelling values, valuations issues look to continue.
For an investor looking to secure house and land, it’s important that you move into this process with the following two components:
- Capacity to cover valuation shortfalls – some valuations can be 10-15% under the value of a contract, which means the investor needs the capacity to cover that shortfall. For example: If a house and land contract is $500,000 but the valuer values it at 450,000 – the investor will need $50,000 cash/equity to cover the gap.
- The mindset to weather a valuation shortfall – many to-be investors are scared off when being hit with a valuation shortfall. It’s important for investors to understand how a valuation is made and to understand what it means. Things like valuations being made on past data, not future predictions etc. For more information on valuations, speak with your BDM or Investment Specialist.
From 2017 to 2020, lot approvals have dropped from 21,208 to 11,802 (to date). If we then look at the land values in SEQ for April vs October of 2020, you will see a 6% increase; from $265,000 up to $289,000.
From the two points above it’s clear to see that the supply of land is reducing across South East Queensland, which increases the demand and consequently, land prices.