Prime Time For First Time?

Tim Lawless
National Research Director of RP Data

For first-time buyers, 2009 was certainly a
very attractive time to get into the housing
market. After price falls through 2008,
followed by consistent rental growth, the
differential in the cost associated with renting
and buying narrowed signifi cantly. Clearly
the First Home Owner’s Grant Boost and the
lowest interest rates in 49 years dramatically
helped, but negotiating conditions certainly
weren’t in the buyers favour. Competition
for available properties was immense and
sellers held the upper-hand. In many cases
these sellers had a large number of parties
interested in their properties.

However, in 2010 the tables have turned,
with numbers of fi rst-time buyers declining
every month. This was no doubt contributed
to by the end of the Federal Government’s
Boost and standard variable interest rates
being 160 basis points higher than they were
at their lowest point last year. Vendors trying
to sell properties, normally attractive to fi rst
time buyers and usually below $600,000,
have found buyers to be scarce. The rate of
property value growth is slowing, particularly
within the more affordable suburbs, and
servicing housing debt is more expensive. As
a result negotiation power in the affordable
market lies with the few who are in a position
to buy.

For the fi rst-time investor the situation
depends on the type of property they are
looking at purchasing. If focussing on quality
inner city housing, the vendor will have some
level of power in the negotiation. However,
if the investor is targeting more affordable
outer city markets they are likely to hold
a much greater level of negotiation. Other
markets which may appeal to fi rst-time
investors include coastal markets, treechange
markets or resource towns.

Coastal and tree-change markets have
begun to improve in recent months and have
seen a degree of price growth. However,
in most instances they remain well below
their peaks and buyers are still tentative.
Is it a buyer’s market or a seller’s market at the moment? My short
answer is that it appears to be a buyer’s market but it is probably
too early to tell.

Prime Time For First Time?
An investor looking to purchase in one of
these markets is likely to have quite a lot of
leverage. The issue is that returns have been
eroded in many of these markets and tourist
volumes are down, making investing in this
market less attractive at present.

Retirees
have also been reluctant to make the move
into these markets, given the economic
uncertainty over the last 18 months and
plunging value of their Superannuation.
Resource towns on the other hand generally
remain strong, despite the uncertainty
surrounding the Resources Super Profi ts
Tax. Resource towns are certainly deemed
high risk, high reward investments. If you get
it right the results can be very lucrative both
in terms of price growth and rental return.
If you get it wrong the property can end up
being virtually worthless.
Considering the
uncertainty around new projects the towns
surrounding well established markets are the
best ones to target. The diffi culty for buyers
lies in fi nding someone willing to part with
their property due to the historically high
price growth in recent years and gross rental
yields nudging 10% in some areas. For this
reason the seller clearly holds the upperhand
in most of these regions.

Overall, the property market appears to be
transitioning from a period of strong property
value growth to moderate value growth and
the balance of power in market negotiation
is shifting. Sellers have generally held much
of the power since early 2009, however
the power has now swung in favour of the
buyers given their decreasing numbers.
This change in the balance of power is also
refl ected in increasing vendor discounting
levels which nationally sat at 4.8% for
houses in December 2009. Levels have
now increased to 5.4% as at April 2010.
We would expect that the level of vendor
discounting will climb further in the coming
months as the market conditions tilt further
in favour of the buyer.

“Overall, the property market
appears to be transitioning from
a period of strong property value
growth to moderate value growth
and the balance of power in
market negotiation is shifting.”