The ‘Manhattan effect’ is rising in Sydney. iStock.com/Mihai Andritoiu

• 2015 McGrath Report: Infrastructure unlocks suburban growth
• 2015 McGrath Report: Melbourne market goes from strength to strength
• 2015 McGrath Report: Sunshine State Overview
• 2015 McGrath Report: Sydney’s big boom
• 2015 McGrath Report: Best suburbs to buy in
• John McGrath: What’s the price?

In our 2015 McGrath Report, we released some specially commissioned research showing Sydney’s inner ring now has a median house price above $1.5 million and the middle ring is above $1 million. This means the zone within 20km of the CBD is now too expensive for more than 90 per cent of Australians based on their ability to service loans beneath the widely-recognised mortgage stress test of 30 per cent of household income^.

These figures from CoreLogic RP Data show a rising ‘Manhattan effect’, with the inner ring increasingly becoming the exclusive domain of high-income earners. Household incomes of around $270,000 per annum* in the inner ring and $195,000 in the middle ring are required to service a typical loan. Even Sydney’s less expensive outer ring requires a household income above $100,000 for most people to avoid mortgage stress.

Here is a table showing the gross household income required to pass the mortgage stress test in the inner, middle and outer rings of the East Coast capitals.

Sydney

Inner Ring $268,000
Middle Ring $197,000
Outer Ring $104,000

Melbourne

Inner Ring $156,000
Middle Ring $118,000
Outer Ring $75,000

Brisbane

Inner Ring $114,000
Middle Ring $84,000
Outer Ring $65,000

Here are the median house and apartment prices for the inner, middle and outer rings of the East Coast capitals.

Sydney

Inner Ring $1.6M (H) $750,000 (A)
Middle Ring $1.2M (H) $615,000 (A)
Outer Ring $625,000 (H) $450,000 (A)

Melbourne

Inner Ring $936,000 (H) $510,000 (A)
Middle Ring $705,000 (H) $500,000 (A)
Outer Ring $452,000 (H) $365,000 (A)

Brisbane

Inner Ring $683,000 (H) $450,000 (A)
Middle Ring $505,000 (H) $350,000 (A)
Outer Ring $388,000 (H) $305,000 (A)

So what do we do about this? Social demographer Bernard Salt posed the following question in an article published by The Sydney Morning Herald in June this year:

“It’s almost like the Manhattan effect. You only attract rich people on to the Manhattan island, and the rest live out in Brooklyn. Should a global city like Sydney really offer a place for everyone? That’s a social question.”

Over the past few decades, we’ve seen Sydneysiders adapt to the city’s rising affordability issue in many ways. The classic scenario involved moving further out from the CBD where bigger houses were more affordable. That was then. Today, you need around $625,000 to buy just an average house in the outer ring, which is defined as 30km from the city centre. That’s a lot of money and a long way to commute just for the privilege of living in Sydney.

Other trends prompted by affordability have included families choosing apartment living over houses so they could buy a home for less in a better location; as well as families moving to regional locations within a 90-minute commute, such as the Central Coast and Wollongong.

We believe the next step is leaving the city altogether.

We’re not expecting a mass exodus, but we do feel that Melbourne, Brisbane and NSW coastal regions will become increasingly attractive to the rising number of Gen X middle income earners who are simply tired of Sydney’s higher cost of living. The next generation of families among the more nimble, lifestyle-focused Gen Y will inevitably follow.

There’s evidence of this now, with latest Australian Bureau of Statistics data showing an increasing number of Sydneysiders migrating to nearby commuter seachange locations while others are heading to Melbourne. In fact, Melbourne’s population has been growing faster than Sydney’s since 2000 and its net interstate migration is at its highest point in 40 years. In 2014, almost 30 per cent of that interstate migration came from Sydney.

Further, in two out of three models used by the ABS to project future city populations, Melbourne will overtake Sydney in either 2030 or 2053. Let me say that again. Melbourne’s population is going to overtake Sydney’s — and a big reason is interstate migration.

Times are changing for Sydney. Stay tuned.

* Median gross household income required to pass the mortgage stress test of no more than 30 per cent of income used to cover home loan repayments. Based on median priced houses (80 per cent LVR Principal & Interest Loan over 30 years at 4.75 per cent)

^ Calculations based on most recent ABS Household Income and Income Distribution report (2011-12). Mortgage data supplied by oxygen.com.au based on 80 per cent LVR Principal & Interest loans over 30 years at today’s discounted standard variable mortgage rate of 4.75 per cent. Mortgage stress is widely recognised as using more than 30 per cent of gross household income on housing costs.

Major projects in Sydney, Melbourne and Brisbane will shorten the city commute. iStock.com/Ross Kummer

• 2015 McGrath Report: Melbourne market goes from strength to strength
• 2015 McGrath Report: Sunshine State Overview
• 2015 McGrath Report: Sydney’s big boom
• 2015 McGrath Report: Best suburbs to buy in
• John McGrath: What’s the price?
• John McGrath: Choosing an investment location

In preparing the 2015 McGrath Report, we wanted to look forward and consider the game-changing trends we expect to see in the Australian market over the next five-to-10 years.

This week, let’s look at how new infrastructure is bringing the outer and middle rings of our East Coast capitals closer to the CBD, which is vital for city workers looking to afford their own home.

Major projects in Sydney, Melbourne and Brisbane are shortening the city commute and unlocking affordable outer suburban areas previously dismissed by city families for being too far to travel for work. In turn, this is providing growth stimulus for local property prices.

History shows that major infrastructure can have a direct and meaningful impact on property prices, so we see a dual advantage for buyers purchasing along new infrastructure routes today.

In compiling our report, we worked with CoreLogic RP Data to prove a definitive link between new infrastructure and a boost in property values. We also identified the best new projects currently underway that we feel will have a big impact on local property prices.

Here are just a few examples – if you would like to see more, please view our 2015 McGrath Report here or call in to one of our offices to collect a free printed copy.

SYDNEY
NEW PROJECTS
WestConnex
2015-2023

WestConnex is the biggest transport project in Australia today. It involves a 33km link between Sydney’s far west through to the city, airport and Port Botany precinct, bypassing 52 sets of traffic lights.

The project will result in significant travel time savings by car and bus. Commuters travelling by car from Parramatta will save 25 minutes to the CBD and 40 minutes to the airport. About 10km of new bus lanes will halve the CBD commute from Burwood. WestConnex will also divert 3,000 trucks off Parramatta Road per day.

Top 3 suburbs to benefit

• Parramatta (Time saved to CBD: 25 mins*)
• Beverly Hills (Time saved to CBD: 25 mins)
• Homebush (Time saved to CBD: 20 mins)

*by car

PAST PROJECTS
M5 East Motorway
1998-2001

Top 3 suburbs to benefit

• Revesby (House prices up 47% from 2001-2003)
• Roselands (House prices up 43% from 2001-2003)
• Bexley North (House prices up 40% from 2001-2003)

BRISBANE
NEW PROJECTS
Moreton Bay Rail
2013-2016

Moreton Bay is home to 350,000 people, making it Australia’s third largest LGA and one of the fastest growing, with the population to tip 500,000 by 2031. This $1.147 billion project involves a new 12.6km dual-track rail line, with every full train taking 600 cars off the road. There will be six stations at Kippa-Ring, Rothwell, Mango Hill East, Mango Hill, Murrumba Downs and Kallangur connecting to the existing Petrie to Brisbane city line.

Top 3 suburbs to benefit

• Kippa-Ring (Time saved to CBD: 15 mins*)
• Rothwell (Time saved to CBD: 15 mins)
• Redcliffe (Time saved to CBD: 15 mins)

*by car

PAST PROJECTS
Inner City Bypass (ICB)
Completed 2002

Top 3 suburbs to benefit

• Hamilton (House prices up 72% from 2002-2004)
• Clayfield (House prices up 57% from 2002-2004)
• Ascot (House prices up 51% from 2002-2004)

MELBOURNE
NEW PROJECTS
Melbourne Metro Rail Project
2018-Mid 2020s

Beginning at Kensington and ending at South Yarra, this $11.5 billion project will include a mix of new underground rail tunnels, stations and interchanges within the CBD. It is designed to increase the capacity of Melbourne’s busiest train lines and should allow for an additional 20,000 passengers in peak hour. Increased services resulting in the prevention of overcrowding will shave 10 minutes off the CBD commute.

Top 3 suburbs to benefit

• Werribee (Time saved to CBD: 10 mins*)
• Springvale (Time saved to CBD: 10 mins)
• Coburg (Time saved to CBD: 10 mins)

*by train

PAST PROJECTS
Eastlink Freeway
2005-2008

Top 3 suburbs to benefit

• Wantirna South (House prices up 26% from 2008-10)
• Dandenong (House prices up 25% from 2008-10)
• Ringwood (House prices up 24% from 2008-10)

Source: House price growth from CoreLogic RP Data

The Melbourne market has much more room for growth. iStock.com/2630ben

• 2015 McGrath Report: Sunshine State Overview
• 2015 McGrath Report: Sydney’s big boom
• 2015 McGrath Report: Best suburbs to buy in
• John McGrath: What’s the price?
• John McGrath: Choosing an investment location

In last week’s column, we covered what’s happening on the ground in Brisbane, as reported in our recently released annual McGrath Report.

This week, let’s look south to Melbourne which, like Brisbane, is attracting an increasing number of investors and young family buyers from Sydney following several years of extraordinary price growth in their home city.

The Melbourne market showed ongoing strength in 2015, with the median house price rising above $700,000 for the first time. Figures from the Real Estate Institute of Victoria (REIV) show house values rose by five per cent to $706,000 in the June quarter, while auction clearance rates reached a five-year high for the month of June at 78 per cent.

Properties have also been selling in record time. REIV data released for the September quarter showed the median days on market was 34 – five days shorter than in 2014.

Record low interest rates and unprecedented interstate and overseas migration and investment are combining to fuel the Melbourne market. Victoria’s population has increased by more than 100,000 people over the past 12 months, with net interstate migration at its highest level in 40 years and net overseas migration accounting for half the state’s growth, according to the ABS.

The declining Australian dollar is making local real estate even more attractive to an already active overseas investor market, with remarkably high sale prices for prestige homes and off-the-plan projects recorded this year, mostly in the eastern suburbs.

Victoria remains the most popular destination among wealthy foreigners using the Significant Investor Visa; and Credit Suisse estimates 14 per cent of new apartments are being purchased by Chinese investors alone.

In July, the Victorian Government increased stamp duty for foreign purchasers by three per cent in response to community concern. To enforce the new law, all home buyers must now complete the Duties Form 62 Purchaser Statement declaring whether they are a local or overseas purchaser.

The quality of schools is becoming a determining factor for Melbourne family buyers and investors. Melbourne buyers’ agency and research company, Property Analytics, has documented the relationship between VCE scores and property values and found that suburbs with top performing public high schools have experienced twice the city’s average median house price growth over the past three years.

Overall, Melbourne has a two-tier market with an oversupply in apartments resulting in lesser capital growth. According to CoreLogic RP Data, Melbourne apartment prices rose by just two per cent during the 2015 financial year.

Things are looking up though, with a 3.9 per cent bounce in prices over the September quarter.

In 2014, residential zones were reformed across Victoria to direct new apartment developments away from suburbs with special character to areas around main roads, shopping centres and transport links. This change has contributed to a 38 per cent increase in non-house dwelling approvals in FY15 (house dwelling approvals were up 10%).

We are very optimistic about the potential for steady ongoing price growth in Melbourne, particularly for houses, over the next few years. Unlike Sydney, Melbourne has much more room for growth because it is coming off a lower base and is still well off the $1 million house price median of its northern neighbour.

There are already indications that an increasing number of Sydneysiders are migrating to Melbourne for job opportunities and more affordable housing. While previous generations of Sydneysiders have stayed and battled affordability issues, we believe the more nimble Gen Y will upgrade between cities — not suburbs, as their families grow.

The sub-$1 million market on the Gold Coast has been buzzing. iStock.com/Harlz

• 2015 McGrath Report: Sydney’s big boom
• 2015 McGrath Report: Best suburbs to buy in
• John McGrath: What’s the price?
• John McGrath: Choosing an investment location

In last week’s column I took a look at the local factors influencing the market in Sydney. This week, let’s look north to the Sunshine State for a snapshot on what’s happening on the ground in Brisbane, the Gold Coast, the Sunshine Coast and surrounding regions.

Overall, South-East Queensland has shown stability in 2015 with consistent sales activity, however price growth did slow to just 4 per cent along the Brisbane to Gold Coast corridor for the financial year. The reasons behind this include the lowest net interstate migration in more than two decades; a weak state economy; comparatively high unemployment; and the change of government. At a macro level, there have obviously been challenges.

Drilling down though, some areas are experiencing exciting activity. Low interest rates are encouraging upgraders in the $1 million-plus bracket in premium areas such as Ascot, Hawthorne, New Farm, Bulimba and Paddington. Many are choosing to keep their existing homes in the $500,000-to-$1 million bracket for investment.

First home buyers are also back, buying in affordable suburbs like Mansfield, Salisbury and Belmont where homes are selling faster than anywhere else in Brisbane, according to CoreLogic RP Data.

Solid demand and a shortage of homes for sale in some areas pushed Brisbane’s auction clearance rate to its highest level on record (since 2009) at 50 per cent for the year to August. By comparison, over the same period of the year, Brisbane recorded 46 per cent in 2014, 40 per cent in 2013, 33 per cent in 2012 and 24 per cent in 2011.

Apartments are a different story, with a rising oversupply in inner-city areas like West End, Fortitude Valley, Newstead and Hamilton. Buyers are very discerning and only competing for properties with unique features. Downsizers are snapping up three bedroom properties but the smaller non-descript options are sitting on the shelf.

Typically, an increasing house price gap between Brisbane and Sydney is pivotal in creating new market energy. By August 2015, the gap was $431,500 – the largest gap in dollar terms on record with Sydney house prices 88 per cent higher than Brisbane, according to CoreLogicRP Data.

As a result, we are now seeing a steady flow of Sydney and Melbourne buyers heading north. Southern investors are chasing capital growth and the highest yields of the major capital cities, while young families are seeking affordability and lifestyle.

Owner-occupiers are purchasing Queenslander-style family homes in blue chip areas where they are paying half what they would in Sydney for an equivalent home. Many are leasing these properties for decent yields while they look to secure work before moving here permanently.

On the Gold Coast, the sub-$1 million market has been buzzing with a mix of local upgraders and southern investors and seachangers. It has also been an excellent year for prestige property with the entry level of the region’s Top 50 Home Sales (Gold Coast Bulletin) in FY15 rising to $2.5 million from $1.323 million in FY14.

The China Factor – a key element in Sydney and Melbourne’s booms — is increasingly at play in Queensland, and especially on the Gold Coast. The juwai.com property portal reports purchasing intent up by 1,120 per cent year-on-year, which is not surprising as more Chinese developers build locally and market their projects directly back home.

Construction on the long-awaited $1 billion Jewel hotel and apartment project at Broadbeach by its Chinese owners began in March and the first non-stop flights from the Gold Coast to China have now commenced.

On the Sunshine Coast, the market is bullish especially above $1 million. Locals who have been waiting out the post-GFC downturn are upgrading now and we are seeing a significant influx of southern seachangers. Buderim is among the favourites due to its schools; and lifestyle homes are popular in Noosa, Mooloolaba and Sunshine Beach.

I remain very optimistic about South-East Queensland. The weakening dollar will boost tourism, there are a slew of new infrastructure projects underway and the economy appears to be responding to new political management.

While the Gold Coast has always had a good international reputation, Brisbane is increasingly asserting itself as a sophisticated global city, particularly following the G20 in 2014. The ‘big country town’ stigma of old has been eroded by a continuing undercurrent of social, economic and cultural change.

Once state economic conditions improve and Sydney slows further, the South-East Queensland property market will be ready to roar.

Anyone who owns a good quality, well-located property in Sydney owns a piece of financial security. iStock.com/Bkbook

• 2015 McGrath Report: Best suburbs to buy in
• John McGrath: What’s the price?
• John McGrath: Choosing an investment location

Following my previous column in the recently released McGrath Report on the national market and macro factors influencing Australian real estate, I’d now like to spend the next few weeks drilling down on the local trends occurring within each of the Eastern Seaboard’s major capital cities.

So let’s start where all the major action is happening — Sydney.

This has undoubtedly been one of the most spectacular booms in Sydney’s real estate history. According to CoreLogic RP Data, this growth cycle began in May 2012 and it’s been a strong climb since then.

On June 30 2013, Sydney’s median house price was $662,500 and it had risen 6.3 per cent over the year. Over the next 12 months we saw another 16.2 per cent rise and a further 17.8 per cent gain by June 30 2015. By September 2015, Sydney’s median house price was $900,000. Soon enough, we’ll have a million dollar median — in fact, some researchers say we’re already there but everyone measures the numbers a bit differently.

Further interest rate cuts earlier in 2015 extended the boom, along with strong demand from investors and a shortage of stock that resulted in auction clearance rates peaking at 89 per cent in May. The average time it takes to sell also reached record speed at just 26 days in 2015.

Lack of stock has been a big issue, particularly in destination suburbs where existing residents seeking to upgrade or downsize locally have been competing with an increasing number of out-of-area aspirants. By mid-May, total stock available for sale was down 21 per cent compared to the year before. Many home owners delayed selling because buying back in was simply too hard.

Things have since changed. As stated in our McGrath Report, stock levels began to improve in late winter and by August, stock was only 5 per cent lower than in August 2014. New statistics released since our report was published show stock levels are now 4.7 per cent higher than this time last year.

In reality, we are probably getting close to the peak of this boom. Interest rates are unlikely to rise for some time but affordability is starting to bite. Prices have risen to such a point that I believe more young families than usual will leave Sydney in favour of Melbourne, Brisbane or major coastal areas.

Many first home buyers are ‘rentvesting’ instead, which is a great option. We’re also seeing more investors heading to Brisbane for the highest yields of the major capitals (as well as the Gold and Sunshine Coasts) with all three locations offering excellent prospects for near-term capital growth.

Tighter investor lending criteria is having an impact in Sydney and this is a good thing, as it is weeding out the investors who are leveraging themselves too highly. However, this is only a speed bump in Sydney’s boom. Investors on good incomes using new equity in their homes or SMSFs are easily able to satisfy the new criteria of lower LVRs, tougher serviceability and slightly higher mortgage rates.

Natural attrition will be what ends this boom — a simple case of prices getting so high that owner-occupiers back off to see what happens next, while falling rental yields and limited prospects for much more capital growth prompt investors to look elsewhere.

Anyone who owns a good quality, well-located property in Sydney owns a piece of financial security. Despite predictions that Melbourne’s population will overtake Sydney’s in as little as 15 years, Sydney will always be the powerhouse property market of Australia due to high migration, work opportunities and an undersupply.

And it’s important to remember that boom periods are only part of a growth cycle. While I do expect this boom to cease soon, Sydney prices will continue to grow throughout 2016 — it will just be at a slower pace.

The Rocks is becoming one of the most fashionable addresses in Sydney. iStock.com/zetter

• John McGrath: What’s the price?
• John McGrath: Choosing an investment location

In our recently released 2015 McGrath Report, which documents not only what’s been happening in Australian real estate (and particularly the Eastern Seaboard) but we also look at the important trends we see shaping the broader national market over the next five-to-10 years.

Over the next few weeks, I’ll delve into the issues and trends raised in our report in more detail to give you a good understanding of what’s going on and what’s coming up, so you can make the best decisions for yourself and your family in terms of buying, selling and investing.

I’ll start off by saying that I think this is one of the most fascinating periods in residential real estate for the last 50 years. On a national level, the market is in many different stages of recovery.

Clearly, Sydney and Melbourne have been the star performers with 62 per cent and 32 per cent growth respectively since the GFC (2009-2015). These are rapidly growing metropolitan centres that rate highly alongside global cities like Hong Kong, London and New York for lifestyle and commerce.

However, if you look beyond the last few years and review growth in both cities over the last decade, it’s fair to say that longer-term growth rates have not been as extraordinary. In fact, Australia’s two biggest cities both underperformed against their usual 10-year growth rates.

Looking around the country, many other metropolitan markets are in the very early stages of their growth cycle at best. In some instances, they’re still as flat as the proverbial pancake.

Overall, I believe Australian residential real estate is fairly valued and this will remain the case over the long term. When you calculate the growing wealth, the unarguably amazing lifestyle and factor in the currency discount against the US dollar, we remain an attractive place to live and invest.

Across the Eastern Seaboard, here are the specific locations I rate as the best markets to buy in today based on current opportunity and long-term prospects for continuing capital growth.

SYDNEY

The Rocks
A shift in housing stock from Government-owned to private dwellings is bound to bring a massive upgrade to these beautiful harbourside Georgian and Victorian homes. Just a five-minute walk to the CBD and Barangaroo, The Rocks is becoming one of the most fashionable addresses in Sydney.

Kensington
With the recent surging interest from overseas buyers, Kenso will benefit due to its university campus and the upcoming light rail, which will whisk residents in and out of the city and to Moore Park and Royal Randwick.

Curl Curl
The gorgeous Northern Beaches lifestyle is attracting great attention from water babies looking for better value than the Eastern Suburbs. We like Curl Curl’s intimate positioning by the sand and relatively easy access to the CBD compared to its sister suburbs further north.

Parramatta
Parramatta is buzzing with new commercial and infrastructure activities. Smart companies are relocating closer to employees and the forgotten Parramatta River has found new life. New high quality medium density riverside dwellings will establish new pricing benchmarks over coming years.

Engadine
The Shire offers a great lifestyle but as surf-side suburb prices shoot north, areas like Engadine offer an affordable entry point. A budget under $750,000 will secure a home on a 600sqm block. That’s sensible value you couldn’t spot elsewhere.

BRISBANE & SURROUNDS

Murarrie, Brisbane is coming of age as young singles, couples and families priced out of nearby Bulimba, Morningside and Cannon Hill venture in looking to renovate.

Everton Park, Brisbane offers a huge range of properties and there is plenty of value for money. Investors and first home buyers are competing strongly for the lower priced homes.

Paddington, Brisbane presents the best value among Brisbane’s blue chip suburbs. Over the past two years, Paddington buyers have been venturing into Bulimba, Ascot, New Farm and Hawthorne for better value. Now they are returning following a rejuvenation of Paddington’s café scene.

Paradise Point, Gold Coast has a wonderful burgeoning café scene and offers four bedroom houses around $700,000 just 200 metres from the water.

Birtinya, Sunshine Coast offers great value and there is plenty of room for growth as the suburb continues to benefit from the ongoing development of the Kawana health precinct.

ACT

Crace is a relatively new suburb and very popular with families due to its modern housing, parks, sporting facilities, cafés and schools.

Forde is the more affordable alternative to Crace, with similar facilities but a $50,000 discount on homes. As Crace property prices grow, we see great upside potential for neighbouring suburbs.

Lyons is a gentrifying sleeper suburb next to Curtin, where property prices are peaking off the back of extremely strong demand. Lyons used to have a poor reputation but this has changed and we are now seeing Curtin buyers expanding their search into Lyons.

Dickson will enjoy long-term benefits from the light rail and Dickson centre master plan, which will bring more eateries, expanded retail and streetscape upgrades. Much of the suburb is zoned for medium density development so there is great opportunity for land banking.

Downer is just north of Dickson and will also receive benefits from the light rail and Dickson centre master plan. It offers close proximity to schools and good prospects for price growth.

MELBOURNE

Murrumbeena/Hughesdale/McKinnon is conveniently located close to Chadstone Shopping Centre, public transport and the CBD. With a selection of high quality secondary schools, the area is popular with both families and investors.

Balwyn is one of the city’s most exclusive suburbs with its tree-lined streets, period homes and large blocks. Some of Melbourne’s best schools have been driving demand from wealthy, affluent buyers.

Glen Waverley offers leading education institutions and public transport options. Million dollar homes are in high demand from a burgeoning Chinese community.

Brunswick is a trendy, multi-cultural suburb with a rich history and a strong rental market. Townhouses and apartments are popular with young professionals, yet there are still plenty of classic period homes.

Williamstown has the charm of a maritime village with its historical architecture, beaches and parklands. It’s accessible by train and ferry and has experienced widespread gentrification in recent years through increased interest from younger buyers.

There’s no doubt about it — it’s a seller’s market in these two booming capital cities. Melbourne, for example, recently broke through the $700,000 median price ceiling for the city for the first time, evidence of the strong buyer activity of late.

The median house price in Melbourne soared to $706,000 at the end of the 2015 financial year, up from $671,000 recorded during the March quarter, which represents more than a five per cent quarter-by-quarter increase. As REIV chief executive officer Enzo Raimondo noted, “the last time we had a quarterly increase this great was in late (December) 2014”.

Minutes from the Reserve Bank of Australia’s board meeting on June 2 provided insight into the upward market trend, stating “there was a relatively low stock of dwellings for sale in Sydney and Melbourne and… dwellings took only a short time to sell”. Coupled with record low interest rates and increased buyer activity from local and overseas investors, it proved to be perfect conditions for driving up house sales prices in both cities.

So what does this mean for vendors moving forward? Is the boom likely to continue or can we expect prices to stabilise?

The great news for vendors — and therefore not so great news for homebuyers — is that this trend is likely to continue for the rest of the quarter. So if you’re thinking of selling but waiting for the Spring market, it could be time to consider bringing your plans forward.

Typically, homeowners prefer to sell in Spring as it gives them an opportunity to market their property in the best possible light. Gardens are in full bloom and the interiors are radiant, airy and fresh. The trouble is, many vendors think alike and the Spring market is often overloaded with stock.

There’s also a belief that more buyers hit the market in Spring as opposed to searching for properties in Winter. That’s not necessarily the case.

One of the things you need to consider as a vendor is how your home would appear on the market, particularly in the competitive window from October to November, for example. Does it have enough wow factor? And does it have a point of difference that will allow it to stand out from the crowd?

Choosing to place your property on the market before the Spring rush doesn’t mean your campaign has a higher risk of not selling or will attract a lower price than if sold later in the year. If you consider the current market conditions of low stock, record low interest rates, strong investor activity and enthusiastic first-time and second-time buyers, we have all the ingredients required for a healthy sale price. They’ve been the reasons why both the Sydney and Melbourne property markets have enjoyed so much success of late, and they’re the reasons why I’d encourage homeowners to consider selling before Spring.

Spiro Drossos is a Director and Auctioneer of Barry Plant Manningham. He is a three-time REIV Residential Salesperson of the Year and was nominated for the 2014 REIA National Salesperson of the Year Award.

I strongly advocate price guides because they’re a great service to buyers and they make the marketing process more transparent. In my experience, you’ll get more buyers to your open inspections if you advertise with a price guide. It’s also a good way of ensuring the buyers who turn up are capable of paying what you’re asking for.

So why do some agents use POA? Let me clue you into the challenges.

The cardinal rule of pricing is that the selling price for your home is determined by the buyers. If you got six property valuers in tomorrow, they would most likely come back with a fairly tight range, say $680,000 to $720,000. They use a formula based on comparable historical sales, the size of the land and your home, the condition of your home, the improvements you’ve made and so on.

However, if you got six buyers to look at your home, they might price it from $650,000 to $750,000. It comes down to perceived value as well as their emotional reaction to your home. Buyers will have a range of prices they are willing to pay for your home based on their own individual assessment of the market, your property and its presentation, market demand and how much they like it and want to own it.

Setting an asking price comes down to making comparisons — it’s more of an art than a science. No two homes are identical so you must compare your home to similar homes and adjust for any differences.

Ask your agent to talk you through the comparable sales they have relied upon to come up with your estimated selling price and hence your publicly advertised or verbalised price guide. If they show you several similar homes on similar sized blocks that have sold for, say, between $700,000 to $750,000 in the past two months, that’s a good indication of what you should expect for your property.

So why use POA? Well, it’s definitely useful for properties that are so unique they have no comparables whatsoever. Perhaps it’s a grand heritage listed estate on 1500sqm in a suburb full of terraces on 300sqm lots. In this case the agent might want to seek buyer feedback at the first couple of opens before they start advertising or verbalising a formal price guide. You might also see more instances of POA in hot fast-running markets where property values are changing literally month to month.

I also suspect that POA is being used more by the cautious and perhaps less confident agents who are letting the fear of being fined for underquoting influence their decision to use price guides. Buyers understandably detest the practice of underquoting and agents definitely want to avoid even the perception of doing this.

It’s a tough issue. Underquoting is a despicable practice and the penalties should be tough to help stamp it out. However, when an agent secures an amazing price, more times than not it actually doesn’t mean they’ve underquoted, it just means they’ve done a great job in maximising buyer interest through smart marketing and buyer servicing, which has then facilitated market forces (i.e., competition between buyers) to push the price beyond the average achieved for similar homes.

Say all the comparables for your home indicate it should sell for between $700,000 and $750,000 and you go with a guide of ‘Over $720,000’. A lax agent will execute a cheap marketing campaign that reaches maybe 50 per cent of your potential buyers, they’ll conduct a few opens, they won’t bother to follow up with those buyers and on auction day you’ll probably get a price within that average range.

Conversely, a great agent will ensure your property is presented beautifully, they’ll execute a broad range marketing campaign to reach as close to 100 per cent of your potential buyers as possible, they’ll follow up every buyer who inspects your home and they’ll nurture those buyers through to auction day where strong competition will result in the best possible price. And that’s why a property correctly priced at ‘Over $720,000’ based on comparable sales might end up selling for $800,000 if the agent has done a great job and the market is willing to pay $800,000.

So while I do empathise with buyers’ frustration at not having price guides on all properties, I recommend that you not dismiss POA properties. We have a shortage of homes available for sale in Australia so don’t risk missing out on a great property just because it’s POA. Pick up the phone and call the agent — there’s usually a valid reason why a price guide isn’t being used and the agent will happily explain this to you.

The old adage ‘location, location, location’ is especially true for investment property. There’s a direct relationship between location and demand, and demand is the biggest driver of capital growth. So to maximise your capital growth, you have to buy the best property in the best possible location you can afford.

Here are the crucial steps in choosing a location.

Step One: My strong preference is to buy property you can drive past. If it’s near where you live or work then you will have a much better sense of the area and it will be easier to pick the best properties.

The initial acquisition is far less risky if the property is in a location that you can thoroughly research. Sure, you can do a lot of research on the Internet, but there’s nothing like spending a few weekends attending opens, getting to know a few agents and immersing yourself in the search.

Having said that, if there’s no capital growth happening near where you live and work, or you simply can’t afford to buy there, then obviously you’ll need to look further afield. Just make sure you know the suburb really well before you buy.

Step Two: For city investors, the inner ring suburbs have historically provided stronger growth than suburbs further out. Get a map and draw a circle 10km out from the CBD to identify potential areas. If you’re in a coastal area, try to get as close to the beach as you can. Australians have a longstanding love affair with the ocean and they’ll always prefer it on their doorstep rather than 10 blocks away.

Step Three: Go for established suburbs over new suburbs. The supply of property in established locations can’t easily be increased, so as the population increases, so does demand — forcing prices up.

Step Four: Go for a suburb with period architecture. Australians love homes with character and period charm goes a long way in boosting property values.

Step Five: Now for some crucial ingredients…

• Walking distance to cafes and local shopping village
• Walking distance to good public transport
• Good proximity to the CBD or a major employment hub
• Quiet, leafy suburban street — no main roads.

Step Six: Now look for suburbs that are within your budget. If you love a particular suburb that is out of reach financially, look at the neighbouring suburb and the one after that until you find a location you can afford. Suburbs surrounding a hotspot are usually next in line for great capital growth.

Step Seven: Consider locations undergoing change. Pick a suburb and take a drive. See if homes are being renovated, if commercial or industrial space is being replaced with new apartments. You can also check out Census statistics to see the type of people living there and their incomes. If more professional couples are moving in, perfect. Nothing changes a suburb’s profile like young couples willing to do a bit of renovating. Also look at average incomes — if they’re increasing, then that’s a strong sign a suburb is changing face.

Step Eight: Talk to the local council. Find out what is being planned for the area. Any major new infrastructure such as a new light rail, road upgrades, new shopping centres or schools — all of this can turbocharge your capital growth.

So, now you’ve picked your suburb.

Next you have to drill down further to find the best position within that suburb. Each suburb usually has several different precincts each with a different level of demand. You need to find out which streets — and which sides of those streets — are best.

Local agents and property managers are a great source of information, as are shopkeepers, pest and building inspectors and other locals you’ll meet at open inspections. Google the suburb and see what’s being said online about the area. Most importantly, get on the ground. In many cases, it’s fairly obvious which side of the suburb is the poor cousin and which streets are more desirable (look for wide and leafy!).

Once you’ve got this nailed down, you’re pretty much ready to buy. The worst thing you can do at this point is waver. Don’t second-guess your research and don’t keep telling yourself that you need to find out more. There comes a time, after reasonable due diligence, when you just need to get dive in and make a purchase.

*Australia’s largest mortgage broker, AFG

This year’s The Block TV show was a huge success, culminating with the Gold Logie for its host, Scott Cam. As you recall, all four luxury apartments in O’Grady Street, Albert Park, sold under the hammer for way beyond their reserves, with rookies Steve and Chantelle taking out the top prize with a sale price of $2.47M — $636,000 above reserve.

I’m a big fan of The Block and have been involved in it since it started in 2003. It’s the highest rating TV series ever and has been produced in many other countries, including the US.

This year I was a guest judge on the contestants’ final challenge — the seven-day renovation of the two houses.

It’s always fascinating to see what they come up with and they did a great job converting two original homes into modern residences. There was definitely a lot of value added to those properties in just a week.

I really appreciated The Block’s warehouse conversion project this year. I love a property with a bit of character and history and the building in this year’s program, Dux House, is a beautiful former cinema and church. They chose a New York loft theme for the renovations and it worked beautifully.

The best part about The Block is the inspiration it gives to home viewers. We get to see how the contestants’ ideas play out, as well as all the latest fixtures and fittings and the hottest styling trends.

The show also reminds people of how renovations can transform a home and add real value when they’re done well.

The downside of The Block is it can set up some unrealistic expectations for would-be renovators.

Remember, it’s a reality TV show. So here’s your reality check.

First of all, this year’s contestants all sold their properties for more than $500,000 above reserve. That’s not normal. Many local agents have commented on the reserves being too low and that the sale prices were actually in line — if not a little under, other comparable sales in the area.

Secondly, often renovation projects go over time, over budget and they’re not as easy as they look on TV.

A 2013 CommBank survey of 1,000 recent renovators found only 46 per cent believed the re-sale value of their property had increased by more than the value of their renovations. About 60 per cent had to make compromises due to cash shortfalls and most projects were several weeks late.

The good news is that all of this can be avoided if you plan things well and get some good advice. And you can definitely make money from renovating if you make good choices along the way.

Go to a reputable architect for structural changes and an interior designer for furnishing ideas. Speak to an agent, especially if you’re renovating to sell. They’ll be able to tell you what the typical buyers for your style of property value most. And if you’re lacking in time, get a project manager to do it all!

This year’s The Block was more of a re-build project than renovations. If a cosmetic upgrade is more to your style and budget, here are my Top 5 tips for adding value with limited finances.

1. New paint and carpet or floorboards

2. New bench tops and good quality stainless steel appliances for the kitchen

3. Install a frameless glass shower, new vanity and tapware and re-enamel the bathtub

4. Tidy up the garden, choose evergreen plants and use a simple mulch to keep it neat

5. Install skylights to brighten up dark interiors

And remember: be careful not to overcapitalise if you’re renovating to sell.

In The Ultimate Guide To Real Estate, John McGrath — one of the Australia’s most innovative and successful real estate experts — shares his vast knowledge of the Australian property market. To purchase your copy of his best-selling book, visit the Total Real Estate Training website.