This Week’s News

Market Update June Quarter

By Hayden Groves – Chairman REIWA Fremantle

REIWA’s regular quarterly review arrived at my office yesterday. It ought to have been wrapped in plain brown paper – reflective of the current dullness in the property market. The numbers show Perth’s median house price retreating a modest 2.5% to $490,000 for the June quarter.

According to REIWA, median sale prices for houses, units and land retreated in most markets although the decline can be attributed to market composition whereby median price increases in the lower priced sub-regions outpaced the higher priced suburbs. Fremantle itself made the all star list of positive growers with an against trend 23% increase in its median house price now at $812,000. Comparatively, the median for June 2009 was $657,500. Probably compositional shifts and increased “trade-up” buyer activity partly explains the better-than-average increase, although it does reflect a certain buyer confidence and desirability for the suburb.

Sales volumes (about 6,750 metro wide) continue to trend downwards some 20% adrift from the most recent peak for September quarter 2009 where house sales were above 8,500 and a far cry from the manic buying of the March quarter 2005 that saw 11,500 houses change hands. Preliminary numbers for the Fremantle sub-region show an especially lean 63 house sales, 44 unit sales and 21 vacant land sales for the June quarter. Cockburn’s preliminary house sales number is 255, down substantially from the March quarter’s 440.

The market certainly is dull although prices are not really retreating in any meaningful way. It appears buyers are being pessimistically cautious hopeful of snaffling a bargain whilst many sellers are toeing the “don’t have to sell” line. Resultant is an increase in stock for sale now at 408 listings throughout Fremantle’s region, 20% more than this time last year. The average selling time has increased too, out to 86 days the second longest selling time throughout Perth and 20 days above the metro average. Also, more sellers throughout Fremantle lost their appetite to meet the market with less vendors prepared to discount from their original listing price. Last June, 77.5% of Fremantle’s vendors discounted price to sell compared to only 60% now. It could be that sellers are punting the market will improve in the short term or that initial listing prices are more realistic in the first instance. Either way, if you are selling, patience is a virtue.

Residential rents for greater Fremantle grew an encouraging 5.9% for the quarter, although this is the same level of growth experienced for the whole year with the median rent at $450 per week. Cockburn’s sub-regional median rent did nothing last quarter although has grown in line with Perth’s average of 2.8% for the year ending June 2010. Residential rents have hardly moved for the past 18 months, nor has the vacancy rate steady at 4.3% metro wide.

In such dull times, shopping always makes you feel better. I’m off to buy a property
 

Go Green

By Hayden Groves – Chairman REIWA Fremantle Branch

Apologies for the sloganistic title to this week’s column in the midst of a political campaign yet it is worth being reminded that, moving forward (apologies again), our housing choices and how we live in them can positively contribute to protecting our environment.

The current government’s disastrous foray into providing free roof insulation, the bureaucratically strangled “Green loans” program and the abrupt ending of the solar panel installation rebate has highlighted the need for investing in Green energy initiatives but along with it the problems of effectively delivering them.

With varying degrees of difficulty, retrofitting homes with things like solar panels, rain water tanks, roof insulation and grey water systems relies on the willingness of the property owner to spending (despite the recent government assistance) the money and overtly choosing to contribute to reducing carbon emissions. Unfortunately, the Green message remains too politically charged and most of us choose to spend our money elsewhere. Surely then, new construction is an obvious way to enforce change and impact our collective thinking over time to being more environmentally aware of our housing decisions.

It makes sense that all newly constructed houses must now have roof insulation. Why not extend this thinking and insist upon installation of rain water tanks and solar hot water services for all new houses? Greater attention also ought to be paid to design criteria in housing approvals in order to boost solar passive benefits. The additional build costs attached to such imperatives as a proportion of the total build cost is almost inconsequential and is sometimes just the price of progress.

Fremantle residents get the Green message better than most and it is terrific that the City of Fremantle boasts carbon neutral credentials. Over time, if newly constructed housing was required to be “greener” home buyers will begin to make buying decisions partly based on the environment qualifications of the property. Given that it is likely that in the near future property owners will be required to have their property “energy rated” when selling, when thinking about improving your property consider contributing to energy efficiency when doing so.  

Recently, when on site at a building project the owner proudly pointed to the large hole in the yard where the water tanks were to be installed and mentioned the solar panels on the roof declaring he was making the property “future proof”. More of this thinking, along with a great deal more doing, is needed to ensure our very selves are future proof.

 

Duty of Disclosure

By Hayden Groves – Chairman, REIWA Fremantle Branch

Labelled the “Nanny State”, Western Australia has often been criticised for molly-coddling its residents with a myriad of micro laws designed to direct our social behaviours. As a result service providers like real estate agents are more heavily regulated than ever before.

Real estate agents and their sales representatives are required to undertake compulsory professional development (CPD) each year and accrue a certain number of “points” in order to justify their license renewal. In principle, this is an excellent idea. Unfortunately, the quality and content of the courses or events that earn points varies significantly and participants are often motivated to attend to obtain points and not to learn.

This aside, the idea of CPD is to provide enhanced protection for consumers of real estate services by reminding agents of their obligations in a selling situation. Mostly, agents are acting for the seller in a residential real estate transaction and therefore have a legal obligation to act under their instructions and in their best interests. Agents also have a fiduciary obligation to obtain the highest and best selling price, a point often misunderstood by buyers.

Therefore it is not the agent’s job to protect the buyer and is really only obliged to be “fair” to them. A duty to disclosure material facts are part of this obligation. Whilst there is worthy discussion to be had about what constitutes “material fact”, broadly it can be defined as any piece of information about a property or the transaction that could reasonably impact upon a buyer’s purchasing decision. For example, if the agent is aware that the rear studio has been built without local government consent then it is reasonable that the buyer should be told. 

REIWA agents will make enquiries about a property when listing it for sale and then determine which bits of information justify disclosure being careful not to undermine their duty to act in their sellers’ best interests in the process. For example, is the sellers’ pending divorce really relevant to the transaction? Whilst really it is none of the buyer’s business, there is a perception that the property might be bought for less if the owners are being cajoled to sell due to separation. Informing a buyer that their sellers are separating is not a legitimate material fact and undermines the agent’s responsibilities to their seller.

Difficulties arise in determining what is a material fact and therefore a disclosure and what is not. A recent circumstance involved neighbouring land that was owned by the Aboriginal Land Council. I think it abhorrent that this ever be a necessary disclosure because it would be based on racial prejudice, yet the new Consumer Law Act will require agents to disclose physical and “psychological” impacts of neighbouring properties. This might mean agents will be obliged to tell a buyer that next door is social housing or that the tenants are young, hold the odd party or have children or are of a certain ethnicity; all of which would be ridiculous but keep the fun police employed.
 

Local Agents the Way to Go

By Hayden Groves – Chairman REIWA Fremantle Branch

Where to find the right buyer for a property is one of the most interesting aspects of real estate practice. Certainly, a thorough, well considered and implemented marketing plan will help a great deal by targeting the largest of the buyer groups; the active “unknown” buyer. These buyers tend to seek out advertised property, undertake their own research and visit home opens on the weekend. The other two buyer groups can be described as the “active known buyer”, those the agent have on a data base and the “latent buyer”, those buyers not actively looking but may be tempted to buy after seeing a particular property advertised.

East Fremantle. That is why local press advertising can be so effective. Agents also report that only about 4% of buyers come from overseas or interstate and the remaining 36% from the rest of metropolitan and rural WA.

Death of a Salesman

By Hayden Groves – Chairman REIWA Fremantle Branch

 Apologies to playwright Arthur Miller, but the title of his well known work relates nicely to this week’s comments.

 One of a real estate salesperson’s most important functions is to appropriately match buyers with properties. Listing and then promoting property for sale and encouraging the buyers to come to you is only part of this process. Whilst almost always working for the seller, agents will often assist buyers by providing general market and specific property information and will sometime introduce buyers to other agents’ listed property.

 Referred to as a “conjunctional”, the introducing agent seeks permission from the listing agent to first introduce the buyer and if amenable to the request will offer a portion of their selling fee to the introducing agent should the buyer purchase the property. Technically then, the introducing agent, given they are paid with part of the listing agent’s commission are working for the seller even though they have probably never met.

 Conjunctional arrangements between agents are common but are rapidly fading from real estate practice. Certainly in “sellers markets” where supply is tight, conjunctionals all but disappear as buyers benefit from dealing direct with the listing agent, but in less buoyant markets (like the one we have now) listing agents are more inclined to welcome a conjunctional. Despite being a privilege and not a right, a decade ago conjunctional requests between local, albeit competing, agencies were almost always granted and the standard rate of 40% of the selling fee given to the introducing agent. Nowadays, conjunctional fees offer less incentive and can be as low as 0.25% of the selling price, or the listing agent will simply refuse or agree to the conjunctional after a certain marketing period.

 In a way, this is a shame. The principle of assisting buyers, providing information and encouraging them to buy a suitable property is eroded when the stock to choose from is limited. It is also questionable that should an agent refuse a conjunctional are they really acting in the best interests of their seller? As buyers are often loyal to their introducing agent, a refused request to a conjunctional may mean a missed opportunity for the seller.

 Of course, sometimes a conjunctional arrangement is not appropriate. An agent introducing her brother to a property as the potential buyer can hardly be expected to be acting in the best interests of the seller.

 This aside, less conjuncting means less hands-on selling for agents and more listing, marketing and matching of buyers to the limited properties listing by that one agency.  It is perhaps not the death of the salesman but is certainly a limiting of his/her craft.

Renting or Selling in Winter

By Hayden Groves – Chairman, REIWA Fremantle Branch

During the winter months, when market conditions are relatively flat with supply and demand in equilibrium, vendors often choose to hold off on their selling plans until spring when both gardens and moods improve.

In such market conditions, this is probably not such a bad strategy; an attractive garden can add genuine value to a property and there is a more positive atmosphere about once winter ends. Certainly, the residential rental market “nods off” during winter with notably fewer tenant enquiries for vacant properties during the cooler months of the year. REIWA statistics shows that vacancy rates often move with the seasons, even during high rental demand periods. For example, from September 2006 to March 2007 the vacancy rate fell from 1.8% (still low) to 0.8% then rose sharply through autumn and winter to be 2.5% by September 2007 only to fall again back to 1.3% during the warmer months ending March 2008.

This traditional vacancy rate trend is, however, overridden by stronger market forces such as rising interest rates, consumer confidence indicators and government policy. Similarly, property owners tend to be less enthusiastic to move during the winter months for reasons similar to those displayed by tenants.

For sellers, however, broader market conditions have far more impact on selling outcomes than the seasons. It would be foolish to hold on selling in winter if the market conditions were short on supply and high on demand, particularly if future trends indicated a move towards market parity. The movement in sales volume is far less in line with the seasons when compared to rental vacancies but have fluctuated widely over the past five years. Peaking in March 2006 at around 11,500 house sales metro wide, volumes had dropped to just over 5,200 by June 2008. We are back to a tad under 8,000 sales per quarter now on a downward trend but sales volumes seem to have little correlation to the seasons when other factors are buffeting the market.

A further consideration for would-be sellers is that if many other like-minded sellers hold off going to market during winter, then spring brings with it an over-supply of property to market, buyers become spoilt for choice and downward pressure on prices results.

In conclusion, it seems that any time of the year can be a great time to sell, especially if you are buying and selling in the same market conditions. Fremantle properties can be gorgeously cosy in winter, properties with great passive solar design and northern orientation shine and, for buyers, you’ll know if the roof leaks!

Long & Short Term Leasing

By Hayden Groves – Chairman REIWA Fremantle Branch

Rental yields throughout Perth have, in more recent times, not really been that attractive for investors. Currently at about 4.6%, the yield is an expression of gross annual rent as a percentage of property value and at that rate, an investment account in the bank probably provides a better return. However, with Perth property values growing at an average rate of 11.5% per annum over the past ten years, investors rely on capital appreciation rather than yield alone when buying a residential rental property.

For the Fremantle region the ten year average growth rate is similar at 11.1%, but with yields significantly lower at 3.4%, investors often look to not only hold their investment properties for longer in order to maximise capital appreciation but consider leasing their property in a short term holiday stay capacity.

There remains a shortage of short stay accommodation throughout Fremantle and in the peak periods of spring through summer, short term holiday apartments and houses enjoy a low vacancy rate and high rental yield. The problem is that during winter, supply outpaces demand and many of these properties lie vacant for months at a time.

Therefore, in order to equal the average annual gross rental yield for Fremantle, a property leased for short stay accommodation needs to average $850 per week for at least six months of the year. In the event occupancy for short stay properties is better than 50% across a year, the yield improves but unless the owner runs the venture themselves the management costs for short stay accommodation are such that the net yield is substantially diminished. Managing short stay accommodation is no easy task and the percentage fees, whilst comparatively high to longer term leasing, are completely justified. In some cases, owners loose about a quarter of their holiday house rental income on management fees compared to less than half that for longer term leasing across a typical year.

Another consideration is short term holiday leases are not protected by the Residential Tenancies Act and a Tenancy Bond can only technically be asked for if a fixed tenancy exceeds a period of more than three months. The cost of furnishing and equipping a short stay property is also a factor to consider.

Anecdotally, efficiently managed popular Fremantle properties leased on a short stay basis returns a similar annual yield to unfurnished rentals on twelve month leases. 

Investors can therefore choose between the stability and certainty of a longer term fixed lease and the flexibility and potentially higher yields provided by short stay renting. Perhaps a fixed six month lease from April to September and short stay from October to March delivers the best of both worlds.

Considered Marketing the Key

By Hayden Groves - Chairman REIWA Fremantle Branch

With the local property market now noticeably calmer compared to earlier this year, the promotion and marketing of your property is now even more crucial to expedite a sale. The marketing of property has always played an important role in achieving the highest possible selling outcome but when the number of properties available for sale extends beyond the fifteen year average of 12,000 homes metropolitan wide, the ensuing “buyer’s market” means sellers and agent need to polish their marketing skills to attract a buyer.

The potency of promoting property over the internet continues to strengthen to the extent, however, that properties can be easily “lost” amongst the thousands of on-line listings. It really is no longer good enough to limit your property to a single property web site, nor can agents simply take some pics with the office camera, write some descriptors, load it and forget it. Some schools of marketing thought suggest the main picture on all sites ought to be changed weekly along with the property script. Others suggest properties ought to be listed on an agent’s Facebook page, although this is a bit like being invited to a friend’s Tupperware party; you ought to go to support your friend, but...Property floor plans shown on-line are almost mandatory nowadays as is listing property as a “feature” so that it appears within the first few pages of the site.

Rapidly changing market conditions and the internet has prompted changes in seller expectations of their agents. Ten years ago, sellers ordinarily did not expect an agent to open a property for inspection each and every weekend until sold, nor did they expect a sale within the first week. A mixture of a remarkably strong market in 2005 to 2007 during which supply dropped to 5500 homes and competition between agents has raised the bar in seller services from agents.

Now the market has cooled, there can be marketing benefits derived from “resting” a property for a short time before “re-listing” it with renewed marketing and enthusiasm. Refreshing a property listing is crucial if on the market for more than thirty days, with new ways of promotion discussed and tried; try an auction, change the listing price, rewrite the copy, run an advert in the Herald, hold a twilight open, etc.

In market environments with fewer buyers and more properties for sale, an agent can no longer rely on the buyers simply coming to them. The creation and maintenance of a buyer data base becomes a vital marketing tool whereby giving service to a ready and able buyer provides better selling opportunities to vendors.

The next few months are likely to reveal a balanced market and agents and owners need to think of new and exciting ways to promote their properties to affect an expedient sale.