Australia’s housing market is exhibiting surprising resilience, defying expectations amid rising interest rates. While borrowing typically slows when rates climb, the Reserve Bank of Australia (RBA) has noted a gradual increase in housing credit since August 2023. This shift signals a unique trend in property investments and borrowing behavior as the market adjusts to the economic landscape. In this blog, we explore the key factors influencing Australia’s housing market in 2024, including mortgage borrowing, property trends, and construction delays.
Well, it’s time to start planning for back to school – mark my words, the shops will be pushing it soon. We just upgraded our two boys’ Apple laptops from their ‘Year 5’ version to their ‘Year 10’ version (yep, 5 years and no upgrades!). And, because they will not be CAD designers, we decided the Apple Macbook Air 2 (now a few years old, technology-wise) will probably suffice for Google Sheets, Google Docs, web searches and the occasional (!) game. But I digress…
Another big issue with a wide range of topics which have come across my desk (and which interest me!)
Plus, of course, a huge update on the property and finance scene including an indepth look at the Melbourne investment market scene which suggests it’s Melbourne’s time to shine over the next few years.
You may have heard speculation that interest rates are likely to fall in 2025, but no one can say for sure, so please budget prudently. Here’s what else is making news:
- Best rates
- ChatGPT is great (but other AI tools do some things much better)
- Can’t pay? Call in the Credit Mediators!
- Data, Data, Data (and more Data)
- EVs: batteries, insurance and taxes
- Social media videos 4U
- Mythbusters for commercial Investment properties
- Borrowing rises despite higher rates
- How the investment market is changing
- Knock-down rebuilds vs renovations
- Car loan balloon payments explained
PS a quick fact to finish: the 4 millionth home has had solar installed in November – that’s about 45% of all homes and townhouses – pretty impressive (and consistent) growth year on year.
And a quick Santa joke: Why is Christmas like your job? You do all the work and the fat guy with the suit gets all the credit.
Read more below.
Best Rates
Rates below are accurate as of 1 December 2024.
Criteria: the loan is a full doc loan for a 30 year term with no offset guaranteed. It also excludes lower rates offered by some lenders for ‘clean energy’ loans.
Commentary: Check your most recent statement. If your lender is charging you more than 6.4%, then it might be worthwhile having a quick chat to see if you can save some money.
Owner Occupiers
Principal and Interest
- Fixed Rates: from 5.34% pa – 3 year term – slightly higher than last month (0.10%)
- Variable Rates: from 5.78% pa – unchanged from last month
Interest Only
- Fixed Rates: from 5.94% pa – 3 year term – unchanged from last month
- Variable Rates: from 6.14% pa – unchanged from last month
Investors
Principal & Interest
- Fixed Rates: from 5.69% pa – 3, 4, 5 year terms – unchanged from last month
- Variable Rates: from 6.14% pa – slightly lower than last month (0.04%)
Interest Only
- Fixed Rates: from 5.89% pa – 2, 3, 4 and 5 year terms – unchanged from last month
- Variable Rates: from 6.34% pa – unchanged from last month
ChatGPT is great (but other AI tools do some things much better)
I am doing a 30 day course on using AI tools efficiently. The course is for Real Estate Agents and it is run by Samantha McLean from Elite Agent (she assists REAs improve their performance).
Before I start, you might be intrigued as to ‘Why is a mortgage broker is doing AI training developed for real estate agents?‘ Well, one, because it was available; two it was reasonably priced; and three, I like to look at how others are using tools and apply them in my business (my old MBA case study comes to mind where Southwest Airlines studied how Formula One cars completed a pit stop – so they could incorporate this into their plane turnaround processes to keep costs down and planes in the air).
The valuable takeaways
She went through various tools with a prompt and copied and pasted the prompt into each AI platform to see what their responses were.
- ChatGPT: a good all-round performer, gave a good level of detail with references (PS the paid version is much superior so $20/mth is well spent)
- Claude: staffed by ex-ChatGPT employees, with the mantra not to make things up (which ChatGPT can sometimes do if you don’t ask it not to). As a result, it would not provide as much information. However, it is very good for summarising long transcripts and documents.
- Gemini: A Google tool. It was not as good a performer as ChatGPT but it can take the text straight to a Gmail or Google Docs. And, you can fact check via a Google button at the bottom of the response. It is, however, improving.
- Perplexity: It will double check what you are asking and then give you detailed sources. As it is highly factual, it is good for things like a biography (for example).
- Hi Pi: A personal AI with a more empathetic approach which will engage in conversations with you. It will ask you more questions to understand why you are looking for the data so it can be more responsive. It is also very up-to-date.
- Llama: Not this is a Nvidia tool and I have used it as a comparison for ChatGPT. It is a bit techy-looking but it is very detailed.
Next Steps
- Google each of the above to get yourself set up. I found it easy to do on Chrome.
- If you want to have a chat around AI in your business, I have also met a wonderful person, Alexie O’Brien, (thanks to Suzanne Murphy from The Executive Hub). Alexie specialises in assisting businesses develop AI tools so they can use AI more effectively in their business. She is the ‘train the trainer’ type of person who you need if you want your people to be able to use AI without always having to rely upon consultants.
Can't pay? Call in the Credit Mediators!
I had a chat a few weeks ago with Laurence Hugo, Credit Mediation Services.
What do credit mediators do?
A good credit mediator will do what you and I can’t do. They work directly with your creditors to significantly reduce their claims against you – such as credit card debt and personal loans without the need for bankruptcy.
They work with individuals and businesses who have got themselves in a bit of a pickle.
If you would like an intro to Laurence to find out a bit more about what he does, let me know.
Data, Data, Data (and more Data)
Next issue I will cover off some interesting data on the population growth – it was a bit of an eye opener but there is only so much I can put into one newsletter (we all have our limits).
The overvaluation of properties per AMP & SQM Research
The overvaluation of properties per AMP & SQM Research
Research conducted by AMP Chief Economist Shane Oliver spans back over four decades. It compares the median house prices in the capital cities to the average rents. Over:
- Sydney: typically, Sydney is overvalued by around 20% but is currently overvalued by 47%. However, Louis Christopher from SQM Research agreed that Sydney is overvalued compared to nominal GDP by 20%, but this 20% premium has been in existence since 1986 – so it’s hardly startling news.
- Melbourne is overvalued by 17%, but it typically sits at around 9%. Louis also thought Melbourne’s long-term trend was an overvaluation of around 9% but that it has been returning to fair valuation – more on this below.
- Brisbane is overvalued by 45%, with Canberra and Adelaide at 38% and 33%, respectively.
- Perth sat at 12% above a fair value.
- The typical Australian home (there is no such thing of course) costs eight times the median household income – a record high.
What does all this mean?
Well, don’t rush in thinking the sky will fall in anytime soon. As far back as I can remember, the Australian property market has continued to be ‘overvalued’ on various metrics. I suspect this can be explained, in part, by our continuing population growth arising from migration – which we need as we have lots of jobs to fill.
When you read all the analysis, you get the sense that we have grown and survived as an economy largely because of our mineral resources and migration.
You could argue we haven’t made the most of either with poor planning and poor revenue collection techniques but hey, we all vote for our pollies every few years and we get what we get so we can’t get upset (although we should!)
Nevertheless, the end to the current property growth cycle is probably not here ‘just yet’. Readers of Philip Anderson in his regular missives in Property Sharemarket Economics would know that the end is close – but no cigar this year or next.
Investment Property Webinars
Melbourne Market – recent webinar
A recent webinar by Garth Davies, Property Powerhouse, provides some interesting data on the Melbourne market for investors. Garth is a nice guy (he bought me a mocktail when he visited Melbourne recently!) and he spends his life looking at property opportunities.
It’s a long webinar – over an hour – but it does contain some useful insights for those considering investing in the Melbourne market. It is a spruik but nevertheless, the data element provides you with many insights from a number of perspectives.
Wealth creation using property – upcoming webinar
Greg Egerton, IDentity Property Buyers, is a buyer advocate who works out Geelong way (on the coast as I understand it – lucky bugger).
He runs a number of webinars for property investors and his next ones are on 21 and 23 January 2025.
Unusual property markets
Philip Robison, a regional buyers agent (also runs a website called
The Holy Grail of Property Investing) is singing the benefits of Moree in western NSW.
Here are some facts Philip has assembled on Moree:
- Capital Growth last 12 months 17%. 10 Year Annual Average growth of 7%.
- Average rental return 7.2%.
- Buyer demand solid: low supply of new dwellings. Vacancy rates at 1%.
- Rents up 22% in the past 12 months.
- Strong local economy. $80 million Hospital Upgrade.
- Strong future as a Regional Freight Hub.
- Massive Cotton Producing Industry.
- Identified by the NSW State Government as a Special Activation Project (SAP) the region will become a new business hub specialising in Agribusiness, Logistics and Food Processing.
- University of New England Moree Campus.
- The $31.4 Billion Inland Rail project expected to have a huge impact on the Moree Region.
- Road upgrades worth $195.1 million.
Auction Clearance Rates Vs Price Growth
As illustrated below, the decline in clearance rates has pulled down price growth across the combined capital cities.
Low Deposit Loans have picked up again
Philip Anderson would smile knowingly but here we go with another statistic underpinning the property growth cycle:
Some comments on this trend:
In the past year, low-deposit loans have gained significant traction among both owner-occupiers and investors, and it’s easy to see why. With rising property prices and the promise of government-backed incentives, many buyers are keen to secure a property as quickly as possible, even with a smaller deposit.
First Home Guarantee Scheme: A Game Changer for Owner-Occupiers
The federal government’s First Home Guarantee scheme has been a major driver of this trend. Eligible first-time buyers can secure a home with just a 5% deposit, avoiding the costly Lenders Mortgage Insurance (LMI). Instead, up to 15% of the property value is guaranteed by Housing Australia on behalf of the government, making homeownership more accessible to many Australians.
Investors Are Also Taking Advantage
Investors, too, are jumping on the low-deposit bandwagon. Motivated by the prospect of capital gains, many are weighing the risks of taking out a larger loan against the rewards of entering the property market sooner.
Ezzy, a property expert, points out that the potential for a future rate cut is also factoring into these investment decisions. Many are hoping that interest rates will fall soon, which could drive up property prices as more buyers flood the market. “People are pricing the prospect of a rate cut into their investing decisions,” Ezzy explains, adding that some investors may have become more accustomed to the current high-interest environment and have been helped by recent government tax cuts.
For some, the goal isn’t necessarily to find the perfect property to live in but to get a foot in the door. “Even if they can’t afford to buy something suitable to live in, they’re buying an investment property with a high Loan-to-Value Ratio (LVR),” says Ezzy. “They’d rather be in the market, no matter what, than not.”
The Role of Bank Competition and High Property Prices
The competitive banking sector is another factor fuelling the rise of low-deposit loans. As competition heats up among banks, many are more willing to lend to buyers with smaller deposits, particularly as property prices continue to climb. Nerida Conisbee, Chief Economist at Ray White, points out that in some cases, buyers may only be able to provide a low deposit in order to purchase in their desired location.
The Risks for Low-Deposit Buyers
While the low-deposit loan trend may seem like an attractive opportunity, there are risks to consider. The most pressing issue is the reliance on property prices continuing to rise. If the market slows or property prices fall, low-deposit buyers could find themselves in a difficult situation, potentially owing more than the property is worth.
As property values remain unpredictable, it’s crucial for buyers to consider the long-term impact of taking on a high LVR loan. Ensuring that you’re financially prepared for any market fluctuations is essential to avoiding any potential pitfalls.
The Bottom Line
Low-deposit loans are certainly making it easier for both first-time buyers and investors to enter the property market. However, while the current market conditions may seem favourable, it’s important to proceed with caution. Whether you’re buying your first home or investing in property, make sure to do your research, understand the risks, and plan for the future.
If you’re looking to explore your options with low-deposit loans, or need guidance on navigating the property market, don’t hesitate to reach out. Let’s make sure you’re making informed, strategic decisions for your future.
EVs: batteries, insurance and taxes
Batteries are Go
Like most new technologies, batteries are going ahead in leaps and bounds; albeit production levels are still to be tested. Watch out for Lithium-sulphur batteries and solid-state batteries using silicon hitting the headlines over the next year or so with very high ranges and very fast charge times. The question in my mind is, can you upgrade your battery from your current lithium battery and at what cost?
Meanwhile, the most recent and most powerful nuclear reactor in Europe, located in Finland, was delivered a decade late and four times over budget, requiring the developer, Areva, to be bailed out by the French government.
Insuring an EV - ouch!
Forget charging stations, the real issue for an EV is the insurance cost!
You can expect to pay a premium of around 43% compared to a similar ICE model.
Compare the Market’s study of 12 insurers found that for the top five best-selling EVs, the premium was somewhere between $98 and $1,788.
The reason per Kochie (no longer a Channel 7 icon but now the Economic Director at Compare the Market)?
“EVs are generally more expensive to insure because the battery pack creates more complexity for repairers, many EV-specific parts need to be imported from overseas, and there are fewer qualified smash repairers for electric cars.”
Tax benefits of an EV
My Google search came up with the following tax benefits when purchasing an EV:
Fringe Benefits Tax (FBT) exemption
Eligible EVs and plug-in hybrid electric vehicles (PHEVs) are exempt from FBT, which can reduce the cost of a novated lease by thousands of dollars per year. This exemption applies to vehicles valued below the luxury car tax threshold.
Luxury car tax (LCT) threshold
The LCT threshold for fuel-efficient vehicles, including EVs, is higher than the threshold for other vehicles. This encourages the uptake of low and zero tailpipe emissions vehicles.
Customs duty reduction
The customs tariff rate for importing EVs has been reduced from 5% to 0%.
Stamp duty exemption
EVs are exempt from the “luxury vehicle” rate of stamp duty, paying a flat rate of $8.40 per $200 of market value.
Vehicle registration discount
All electric vehicles receive a $100 annual discount on vehicle registration.
Social media videos 4U
A newly created good friend of mine, Francis Lim, has set up a social media business with a difference. First, the name is unusual: Fantestimonial. It’s a mouthful, but it says what he does. Francis helps you make quality videos for your social media campaigns.
He comes from a quality background (I know the guys Francis used to work with and they were very good at what they did in the video space).
Below is his current package offering for businesses – very reasonable I thought.
Mythbusters for Commercial Properties
Scott O’Neill, CEO Rethink Group has the following savvy points for investors looking at residential Vs commercial property opportunities.
Here’s a look at some of the most common myths and the reality behind them:
Myth 1: Commercial properties are only for experienced investors
Reality: While commercial property can seem intimidating, with the right research, it’s accessible to all. Key steps to start include understanding lease structures, property types (e.g. office, retail, industrial), and market demand. Gaining a solid grasp of these basics can reduce risks and open up opportunities.
Myth 2: You need a large amount of capital to invest in commercial property
Reality: Some commercial properties are pricey, but there are many opportunities available within a wide range of budgets. A starting deposit of around $250,000 can open doors to quality assets. Explore creative financing options such as partnerships or syndicates, and consider smaller properties like office suites or storage facilities.
Myth 3: Commercial properties are riskier than residential investments
Reality: While all investments carry risk, commercial properties can often provide greater stability and more predictable returns. Long lease terms (10 years on average) mean fewer turnover risks, and with proper research and due diligence, you can find quality properties with steady returns.
Myth 4: Vacancies are a big problem in commercial properties
Reality: Vacancies are often overstated. High-quality properties in prime locations generally experience shorter vacancy periods. Many leases also include notice periods, giving landlords time to find new tenants while rent continues to flow.
Myth 5: Commercial properties don’t offer strong capital growth
Reality: While growth in some commercial markets may be stable, I’ve seen properties double or triple in value over a decade. Location, population growth, and infrastructure developments all play a role in driving up property values. Plus, improving lease quality can significantly increase a commercial property’s value.
Myth 6: Commercial property investment is only for the wealthy
Reality: While some commercial properties are expensive, I regularly help clients secure properties for as little as $600,000, even in major cities. If you’re not quite ready, starting with residential investments to build equity can be a great way to transition into commercial down the track.
The Bottom Line:
Commercial property investment is not as daunting as it may seem.
With a bit of knowledge and the right strategy, it can offer stability, high yields, and significant growth potential. I’ve seen it transform many portfolios, and I’m confident it can work for you too.
I know a couple of people who work in this space so reach out to me if you would like to be put in contact with someone who has the expertise to assist you.
Mortgage activity increases, but from a low base
When interest rates rise, borrowing typically falls. However, the opposite has occurred in Australia’s home loans market, according to the Reserve Bank of Australia (RBA).
“Nominal housing credit growth has been gradually increasing since August 2023, even though the RBA has assessed financial conditions as restrictive,” the RBA stated in its recent Statement on Monetary Policy.
“In previous tightening phases, housing credit growth generally decreased after a period of tighter monetary policy (and continued to decline even as policy was eased). Although housing credit growth did initially decline significantly during the current tightening phase, the recent pick-up is unusual compared to previous periods of restrictive monetary policy.”
However, the RBA pointed out that the increase in mortgage borrowing has not been as strong as it might seem, especially when accounting for the wage growth during this time.
“Housing credit growth has risen from a relatively low rate and is now around its post-GFC average. The ability of households to service new debt has also been supported by strong growth in nominal incomes. As a result, household credit has steadily declined as a share of household disposable income since late 2022.”
But what’s really important?
As readers of my newsletter will know, I often quote from Philip Anderson who makes the connection between interest rate increases and property prices.
Philip predicted that the increase in rates would lead to an increase in housing prices. As he has said, this connection has been apparent in 9 of the past 10 interest rate cycle increases (with the 10th being a flatline in property prices).
And, with the peak in the 18.6 year cycle about to come, he has observed that over the next year or so, efforts to build more housing will be the hot topic – but tears will flow when property prices come off the boil.
How the property investment market is changing
There seems to be a shift in the types of property investors entering the market and the types of properties they are purchasing, according to CoreLogic’s Head of Research, Eliza Owen.
Ms Owen highlighted two key trends: First, Reserve Bank of Australia commentary suggests less-leveraged investors might be replacing those with higher leverage. Second, data from the Australian Bureau of Statistics indicates an increase in the share of first home buyer loans being used for investment purposes.
“This could be because some first home buyers see investment properties as a more affordable way to enter the market,” she explained.
Despite strong growth in investment activity over the past year, Ms Owen noted that investor borrowing has eased slightly since April and may continue to soften towards the end of 2024.
“This could be because affordable investment opportunities with strong capital growth potential are becoming harder to find, following a period of high growth in lower-price-point properties,” she said.
“With interest rates likely to remain higher for longer than expected, some high-growth areas may already have factored in interest rate reductions. However, as long as the cash rate remains stable, we may see a reduction in new investment purchases nationally, rather than a rise in investor selling.”
Knock-down rebuilds vs renovations
There has been a significant increase in the time it takes to build a home, according to REA Group Economic Analyst Megan Lieu.
“Recent data from the Australian Bureau of Statistics revealed that average build times in the 2024 financial year were 13 months for houses, 16 months for townhouses, and 33 months for apartments,” she said. “It takes four months, almost 50% longer to build a home now than in 2020.”
At the same time, the cost to build a new home reached $465,000 at the end of December 2023, after jumping 41% over four years, according to Oxford Economics Australia.
Meanwhile, homeowners invested $11.4 billion on alterations and additions in the year to June 2024, according to the Australian Bureau of Statistics.
If you’re weighing up whether to do a knock-down rebuild or a renovation, here is a quick summary of the main pros and cons of each option:
- Knock-down rebuild: offers complete customisation, fewer structural issues, and the opportunity to create a modern, energy-efficient home with a higher potential for value increase. However, it comes with higher costs, longer timelines, and the risk of overcapitalising if the new build is too extravagant for the area.
- Renovating: is typically more affordable and quicker. It allows you to preserve the property’s charm while updating it. However, renovations may uncover hidden costs, and you may be limited by the existing structure. The value increase from renovations may also not be as significant as a full rebuild.
Car loan balloon payments explained
Car loans allows you to make lower monthly payments, with a lump sum payment due at the end of the loan term. The main advantage is the reduced cash flow pressure during the loan term, as you only pay off a portion of the principal. However, the downside is the large balloon payment at the end, which can be a financial strain if you’re unprepared.When you take out a car loan, you might be asked if you want to choose a balloon payment, which is a sizeable one-off sum you pay at the end of the loan term.
The reason someone would opt in to making a balloon payment is that, in return, you would get to make smaller monthly repayments throughout the life of the loan. However, the total costs over the life of the loan would be higher with a balloon structure than without.
The reason someone would decide against making a balloon payment would be to save money over the life of the loan, even though that would mean higher monthly repayments throughout the term.
- Choosing a balloon structure might be the best option if your funds were limited and you would struggle to make higher monthly repayments – provided you expected to have the funds needed to make the balloon payment at the end of the term.
- Choosing a non-balloon structure requires higher monthly payments, as the full loan amount is paid off over time. The benefit is that you won’t face a large lump sum at the end, giving you peace of mind. On the downside, the higher repayments can be harder on your cash flow in the short term.
Reach out if you need a car loan. I’ll let you know what your repayments would be like with both a balloon and non-balloon structure, so you can make an informed decision.
