Talking Property | A Valuer’s View on the Residential Property Market

Featuring Kat Hale, Kate Beekink & John Duncan
Thursday 20 May 2021

KH 
Hello and welcome to Talking Property with CBRE. A podcast in which our team of experts, our clients and industry specialists share insights into the way we live, work and invest through the lens of commercial real estate.  

My name's Kat Hale, National Valuer Care and Development Manager in the Pacific Residential Valuations team, and I'm your host for today's episode. 

Over the next little bit, we’ll be talking about the value of property and what we're seeing in a market that is delivering record sales unmatched since 1988. Where do we expect to see continued value growth? How do you know what the real value of a property is in a growth market and what lifestyle factors are making a difference in how we analyse property in 2021?  

I'm joined by two of our residential valuers, Kate Beekink from Perth, Western Australia, and John Duncan from the Sunshine Coast of Queensland. Thanks for joining us.  

KB & JD 
Thanks for having us.  

KH 
The residential property market is a hot topic. The market showed resilience over the course of 2020 with positive national price growth, which was around 4% for houses and 1% for units. In 2021, we are seeing record sale prices broken every week. Now as a valuer, how do you explain this? What are the drivers behind this growth? And what should we be wary of when buying in a growth market? Kate, I might throw you to kick this one off. 

KB 
Thanks for that Kat. I think there's a few things that have contributed to this growth. In Perth, initially, it started off with a lot of expats returning to WA. You had a lot of wealthy people from Singapore, London and Hong Kong returning home, buying high end properties without viewing it, and that sort of caused this little spike in growth and then that sort of snowballed into people realising “oh hold on, values are going up. Maybe I’ll list mine”. They're selling a lot more than what they did a couple of years ago, and it's creating a lot less stock on the market now. So this past week there was about 8,500 properties on the market for sale. This time last year, there was a little over 12,000, so increase in the population here and decrease in that supply is going to naturally cause a growth in those prices and couple that with historically low interest rates, borrowing money is very, very cheap, so you add that to a lot of disposable income is now available from lack of travel, increased savings from lockdowns. Melbourne had some of the biggest lockdowns the country has seen. A lot of people would have saved significantly in that time, and that's allowed them to have more money to be to upgrade their housing or even make purchases as a first homeowner. 

JD 
Yeah, I definitely agree with you Kate. On Southeast Queensland in particular, we were in a very strong market, but we weren't seeing crazy increases in regards to value levels. But since the government stimulus and COVID times, we have seen these crazy increases, for example, on the Sunshine Coast between 2018 to 2020, early 2020 before the government stimulus before COVID. The median house price started at around the same figure maybe increased by about $20,000 over the two and a bit years but since the stimulus and COVID we've seen sort of mid-tier level housing prices around that 400 to 800 that increased maybe like $50,000 for the median house price and then anything above that along the coastal strips have increased anywhere between 100 to 200,000 in the last 12 months. I think it is, I definitely agree with you I think low interest rates is a huge factor and the less spending, so people are just sort of naturally trying to upgrade their property, it’s either property or cars, even the car markets pretty crazy. But considering we're not spending money on travel, we have more disposable income and we are starting to upgrade our property.  

Then we also have one of the major factors I think is working for home. So now that we're working from home, we don't need to be in a capital of city. We don't need to be so close to our office space and then because that is the instance, people are starting to move their families to more coastal areas. I think when they start shopping around, they realise the affordability opposed to Melbourne, Sydney and your Gold Coast Markets and then eventually because everything's much more affordable they sell where they are. In Sydney say your cottage on a main road close to $2 million and move up to the Sunshine Coast, and you can buy a pretty schmick beach home, walking distance to the beach, two level lots of living areas very modern. Then you work from home a few days, leave your family in this  geographical location, and you just go down to the office whether you drive down to Brisbane or fly down and work there for three days and then come home and spend most of the week with your family in a more desirable lifestyle location with a bit more cash in the bank. I think the main reason we're seeing increases in values is the time of the market. So essentially, things aren't sitting on the market for six weeks. It's sort of hitting the market, hitting the first open home and receiving approximately, like for 4-15 offers on the first day. So essentially, there's a lot a lot of offers choose from and they’re just taking the top one and because everyone's competing, it's essentially pushing the value levels up. 

KH 
Hmmm, lower interest rates, more cash, less travel. I'm really not liking that one, working from home. There's quite a few factors there, and I'm keen to talk about those lifestyle changes more a little bit later. But I do want to get your insights on valuing in a changing or a growth market. I think that we can all agree that property valuation is a calculated approach to understanding what a property is worth at a single point of time and within a particular market when we experience these changing market conditions. And let's be honest sometimes, like these changes it’s happening within a week, the market's changed. How do you as valuers know the right number? How do you put a market value on something? 

JD 
It is quite tough because valuations are mostly evidence based or they practically are supposed to be evidence based and a lot of the contracts. Essentially a contract is attached to the market and a lot of instances in this market, a lot of the contracts exceed the evidence. So we essentially trying to work out essentially where the market evidence is, and I think a few ways are essentially sort of understanding the nature of most transactions, so whether it's an anomaly sale, whether it be better bid war, which has taken it to high. We’ve just got to sort of rely on the most recent evidence, whether it be from agents, whether it be from transactions that we value within our company, speaking to other valuers or the National Property Database. 

KB 
Yes, I like to really have a discussion with the selling agent just to see what actually happened while that property was on the market, how many offers were presented and their price because if maybe five offers were presented and four were around the same price point and one was an outlier that to me can signal red flags that maybe they were paying too much in those other four, indicative of what the market was wanting to pay. So it's also seeing if the agent is a local agent, will they have multiple buyers lined up? Should the finance fall through for this one? That's another indication that the market is growing and that maybe that contract price is indicative of what the market is saying, which is growth. 

JD 
Our job would be a lot easier if we could just take everything off and get it through, but at the end of the day, we have to look after our clients and look after our customers because you don't really want to fall into a nasty financial position, which is very susceptible in this kind of market where you think these kind of times last forever. But eventually things to slow down and things do come off and if you've really maxed out himself, you can feel the repercussions in the future of the market was too slow down, based on any factors that may arise.  

KB 
Yes and another aspect that we would look at is, if we do, you feel a contract is too high having a look at what is on the market, with that money, what would they be able to get? And if there's two or three other houses, similar houses on the market that they get for that price that they're willing to pay for the subject property, then maybe that is market value what they're willing to pay. 

JD 
Yes definitely. 

KH 
Yeah, I agree with all of those points. It's just so important to keep your finger on the pulse and have those conversations with local agents going to auctions, going to open homes and just seeing exactly what's happening out there in the market. As a valuer we can't just rely on sales that may have occurred in the last 3-6 months with a market that is changing so rapidly, they might not be a good indication of the current market conditions.  

So we touched on lifestyle before and I'm keen to get your thoughts on this. What impact is the reality of COVID having on property in your local markets of Perth and the Sunshine Coast? Are we going to see continued growth due to more remote working opportunities and people searching for that alternate lifestyle? 

KB 
Yes, so I think no one could have predicted that the property market would have been positively impacted as a result of COVID factors like we have seen in the past, sort of 6-9 months. From the lockdowns and having to work from home, I think people have realised that there is more flexibility between work life and home life, so we might start to see people seeking out a larger home to have a dedicated workspace, either in the form of a study or an extra bedroom.  

Specifically in WA, we're also seeing signs of increases in demand from semi-rural and lifestyle properties within our hills areas and within the coastal Margaret River region, which is approximately a three hour drive south of Perth. So mid last year, when the intrastate border restrictions eased, the property market within the Margaret River region was pretty hot with demand exceeding supply. I think that's because people realise they could move down there, enjoy the benefits of that lifestyle, work from home and even commute once a week to the city for a couple of days. So they're able to satisfy both their work commitments and their lifestyle desires in one.  

JD 
Yes, I agree with you. I also think working from home is a big factor, I also think the local job is a big factor because not everyone works from home, such as your health and your education sectors. Up on the Sunshine Coast in particular, we've seen a large infrastructure boom. Our recently completed the hospital, we are doing a lot of roads and building a lot of houses. There are a lot of housing pockets where we're building upwards of 10,000-20,000 homes, upwards of 50,000 homes in total. That’s creating a nice labour job market, which just allows people to service their mortgages, service the lifestyle that they're trying to live. I think before that, it was limited, particularly people weren't working from home. Although people wanted to live in these places, they weren't serviceable in the job market. The labour sector wasn't there. But as we're seeing this, this increase, I think we're also seeing the ability to live in these places increase. 

KH 
Yes, COVID lockdowns. They have certainly played a big role in the way that we work and live and while working from home, I think, has its pros and cons. No doubt there's always going to be that need for that human face to face connection and collaborating in an office environment or that social setting. So, before we wrap it up, Kate and John, I definitely need to ask you if you have any final nuggets of wisdom that you might be able to share with our listeners. John, I might throw to you this time. 

JD 
Yeah, I just like to say, just be very careful when you are looking and purchasing a property. Work out how much money you do have and don't push yourself too far. There are a lot of instances it's called parental money. We're doing a lot of valuations where guarantors are coming into place and just because times like these and heated markets like these may be very scary, particularly if it's your first time entering the market. But the course of history these times they do drop off a bit and they do come back. We saw it in 2003, we saw it in 2007 and everything is indicating that we may be at the top. No one has a crystal ball so no one really knows where it’s going but the activity and the decisions we're making don't seem 100% sustainable.  

So I think just be very careful and understand that your lifestyle will open back up and you will want money for a rainy day or to travel and stuff like that. So, I don’t suggest maxing out yourself for property or not going so hard in the bid wars. Just be very prudent and very careful, because it's essentially the biggest investment you'll make in your life and just always good to make calculated decisions as opposed to emotional decisions. When you're playing with such a big asset in your life. 

KH 
Hmmm, and what about you Kate? 

KB 
So, my advice would be to really do your research and make well informed and wise decisions. So, this would include knowing your financial and spending limits. We have historically low interest rates. At the moment, however, the Reserve Bank of Australia has announced that they may need to consider increasing the interest rates earlier than expected to help cool the property market a little bit if it doesn't naturally do so itself. So if you have stretched yourself to maximum now and in a few years, interest rates do rise or your financial situation changes, you may find yourself in some financial stress, so just know that spending limit and maybe account for a little buffer zone. If there are any potential changes in the short-term future. 

KH 
Some great advised there, thank you, Kate. I think it is really important to know your market and do your research. Kate and John thank you so much for sharing your insights on the residential property markets. Some really valid points and tips for consideration when buying in a growth market. It is certainly a very hot topic, and it will be interesting to see what happens in the months ahead. Thank you for listening to Talking Property with CBRE. If you like the show and want to check out more, visit cbre.com.au/talking-property or subscribe through  Spotify or Apple Podcasts. Until next time.