Let the facts speak for themselves

Spring – supposedly the “Nirvana” of the real estate year – is upon us once again. With temperatures on the rise, flowers blooming and much talk about an impending interest rate decrease, it might feel like the Perth property market is about to perk up. But don’t let emotion mask the facts – and the facts tell us that there is unlikely to be any radical “bounce back” in
the near future.

It is impossible to predict the future of the property market – unfortunately we don’t have a crystal ball! But according to Realmark principal John Percudani, we can use current data mixed with historical evidence to look at probabilities. And the most recent facts and figures tell us that no matter how much we might want to see a strong positive change, it is unlikely to happen this year.

“If you look at the recent REIWA figures, we can see that the volume of residential transactions or sales is down this June quarter (as compared to March quarter 2007) by 25 per cent,” says Mr Percudani. There are currently 17,500 properties for sale in Western Australia. This equates to about 5 months supply of property. In March 2007, we had only 3.5 months of supply.”

“Not only is there a glut of property, but they are taking longer to sell. The average days on market are 74 as compared to 55 days in March last year. This is an increase of 35 per cent. And we already know that this has had an effect on overall median house prices In Perth which are down approximately four per cent.”

Even with the likelihood of an interest rate drop, which has been touted by the Reserve Bank and the media in recent times, Mr Percudani believes it would unrealistic to expect an upswing in 2008.

“It’s not all doom and gloom – this current downturn is part of the overall property market cycle and with any price correction comes buying opportunities and increased affordability,” says Mr Percudani. “But I think it is important to understand the factors that lead to this downturn in order be realistic about any positive change in the property market ‘curve’.”

Mr Percudani points to a number of events that have influenced today’s market. Not only is there a global economic downturn which has created a general sense of unease and caution amongst buyers and investors, but also our major lenders are suffering from a global credit squeeze, forcing interest rates up. Even if the Reserve Bank lowers interest rates, there is no guarantee that this will be passed on by the banks and lenders who are finding it increasingly difficult to borrow money themselves in the global credit market place.

“All I’m suggesting is that it has taken a number of changes in the market to create the current situation,” says Mr Percudani. “So it would be unrealistic to suggest that only one change – such as a decrease in interest rates – will be enough to radically change the property landscape. We cannot expect one factor alone to influence such a major turn around.”

“Agents are intrinsically optimistic – they want the best price for their clients and themselves,” says Mr Percudani. “But advice that is not based on facts can be misleading and unrealistic. And the current facts tell us that a Spring upturn is unlikely. Agents need to be using transparent evidence on which to base their estimates. Otherwise sellers will be living with false hope.

Up, up and away!

On one hand Perth vacancy rates have eased slightly. This is good for the rental market. On the other hand interest rates have gone up twice and this is not so good for the rental market. With Perth’s population increasing and any government intervention unlikely to make an impact for more than two years, the experts are divided on how, and when, our red-hot rental market will begin to find some balance.

Recent figures released by the Real Estate Institute of Western Australia show the number of rental properties on the market increased during the September quarter by 3.4 per cent. This is still tight, but at least a small an improvement on previous quarters. It might just be enough to lift the spirits of thousands of Perth tenants who have long found it difficult – and expensive – to find quality rental options. The light is finally starting to shine at the end of the tunnel. Maybe…

Supply is also at an all time high and still being fuelled by investors looking to feed the strong demand with CBD apartment development at a consistently high level. However with a net positive population growth in Perth and plenty of young people choosing an inner city lifestyle, this supply is in constant demand.

A recent article in The West Australian suggests Perth tenants can expect little relief for at least the next two years. Westpac senior economist Mr Matthew Hassan believes the current market conditions will either stay much the same, or even worsen slightly before they improve.

“It’s very difficult to envisage anything but a continuation over the next couple of years at least,” said Mr Hassan.

Even if the government intervenes by releasing new land areas for development, completion of any construction is years away. In the meantime, the demand continues to grow as disenchanted buyers flood the rental market and other would-be buyers are choosing to invest in equities as opposed to bricks and mortar.

REIWA president Rob Druitt also believes the recent interest rate rises will not help reduce the heat in the current rental market.

“Typically a rate rise will see owners and investors pass on the additional cost to the tenant through rent increases, however this will depend on whether or not the current market will support it.”

November through to March is recognized as a busy time in the rental market as people look to settle in to a property before starting work or university. So it looks like a case of “watch this space…”

Innovation Regeneration

When Realmark launched their new brand two months ago, it was more than a cosmetic change of logo. It was a statement to the market place reflecting their values and service, designed to meet the needs of their contemporary clients.

Realmark started nearly 20 years ago as a single office with less than 10employees. Today the business comprises five offices with more than 100 staff. Along the way they have operated independently, as well as part of a franchise. Now they are a stand-alone group again, with innovation as their mantra.

“Perth is a young, fresh, contemporary city with a fast corporate life,” says Realmark principal Mr John Percudani. “Realmark differentiates itself from its competitors by being first to market with new ideas and fresh concepts. That’s why we are a recognised innovator and communicator in the marketplace.”

This is supported by the team’s outstanding success at the recent 2007 Real Estate Institute of WA Excellence awards where they collected the prizes for both Innovation and Communication. Launching their new brand is another way of promoting their unique marketing approach, which embraces full utilization of the web through their e-marketing campaigns and other methods.

“We provide buyers with information about our properties which is rich in information, including quality photography and virtual on-line experiences,” say Mr Percudani. “This gives our clients an advantage because buyers arrive at property inspections with all the facts. They are ready to make informed buying decisions. Our properties sell quicker and both sellers and buyers are satisfied.”

Mr Percudani and his team researched what leading marketers do across the world to promote and deliver products to their client base.

“A lot of agencies go through cosmetic brand changes,” says Mr Percudani. “But we have made real changes – to systems, tools and marketing methods. And our clients benefit from this ongoing improvement.”

A fine equilibrium

After a lengthy renaissance, the Perth property market is beginning to normalise. But with around one per cent unemployment and hundreds of people arriving in Western Australia every day to service the resource boom, the outlook is still strong. The key is to keep properties turning over.

All indicators suggest Australia is driving along a road of strong economic growth. And Perth is sitting in the driver’s seat. As a result, there is always strong demand for good property

“When the property market began its strong upward swing in recent years, Perth was behind the eastern states and was playing catch up,” says Realmark Principal John Percudani. “It was undervalued so it only makes sense that it has also enjoyed a boom”.

“It probably peaked last year and over the course of the past 12 months has reached a state of equilibrium between buyers and sellers. I would say the market has normalised”

Mr Percudani believes that the market is reflecting a slight adjustment in buyer mentality, especially when it comes to “emotional” buying.

“Compared with this time last year, there are nearly 30% more properties on the market. This means buyers have plenty of stock to choose from and are not feeling the same pressure to buy in a hurry,” says Mr Percudani. “The issue of affordability is also key in the sale of property. If buyers do not see value, they are prepared to let is pass.”

This has meant that properties are sitting on the market nearly twice as long as this time last year. Mr Percudani believes sellers can avoid this outcome by reaching realistic price expectations as well as holding real estate agents accountable for the services.

“Sellers need to make sure their agents meet with them weekly and provide campaign reports. If there is no offer within 30 days, then the campaign is in crisis.”

“Sellers should not accept that it will take longer to sell their property, in fact it is imperative it sells as quickly as possible in this high volume market. The property market outlook is strong going forward, but factors such as innovative marketing are going to play an increasing role in the successful turn around of properties.