Three good signs of market improvement

By Michael Matusik, 12th May 2012

The usual drill – three minutes of your time and all with a positive feel.  Monday is the day to be down, Saturdays are for looking up.

1. 3 good signs

Here are positive signs from out there in real estate land.

• Sellers don’t need to discount as much as they once were.  According to APM, discounting peaked in late 2011 across most urban centres.  Today, vendors on average need to discount between 5% and 8%, depending on location.  Remember, these discounts are from the first advertised price, which for mine, is usually inflated and more often than not by at least 5%. But keep in mind it is still a buyer’s market and vendors still need to be strategic (and even surgical) in their approach if they are going to get a result.

• Residential listings are also starting to decline.  Across the country they are down 4% over the last month.  All major cities experienced a monthly decline.  But when looking at the annual change, the slow-down nationally has been less impressive, with some areas seeing a rise in resale stock and others large drops.  SEQ has seen a 10% drop in the amount of property for resale since April 2011; Perth, too, has seen a big drop in new listings (down 14%) and Sydney now has fewer resale properties for sale (dropping by 8%).  Hobart(up 29%); Melbourne(up 11%); Canberra(up 9%) and Adelaide(up 6%) – all are  seeing more resale property on the market this April compared to a year ago.  A good clockis rarely wrong.

• The Queensland property market has recorded its third consecutive quarter of positive growth in confidence, according the latest PCA-ANZ index.  Nationally, Queensland recorded the second highest increase in confidence – just behind Western Australia.  For the first time this survey has shown a firming of residential growth expectations – a sign that the Queensland residential market – by and large – has begun a recovery.

2. Budget impact

This week’s Federal Budget detailed a range of changes to superannuation including a significant hike in the tax on super contributions for allegedly wealthy Australians. Many in the industry are concerned that the move could take the shine off super as a sound investment for building wealth in retirement.  The shine is also being knocked off by government’s constant tinkering (tampering really) with the superannuation system.

The usual suspects rallied saying that the budget did little for the housing industry.  I disagree.  The messing around with super combined with the fall in interest rates, rising rents and an erratic stock market must make investment property more attractive.

Let’s do some quick maths.  A three-year investment loan now costs under 6% per annum.  Gross rental yields for well-positioned/designed investment stock often now exceed 5%.  If you buy a new property, the ATO(via depreciation) will give most investors something like $10,000 back each year and over ten years, sometimes longer.  We are starting to approach positive return territory again and this doesn’t take into account future rental increases or potential long-term capital growth.

Thanks Wayne, a lot of superannuation monies will now find its way into a more transparent investment class – investment property.

3. KISS

Successful businesses are simple, according to The Economist.  A book by Bain and Company consultants Chris Zook and James Allen, repeatedly shows that all successful businesses have these virtues – a highly distinctive core business and they go to great efforts to keep their business model as simple as possible.

Most importantly, they keep the business model simple, regardless of whatever new opportunity might pass their way.

Zook and Allen say there are three ways to achieve a repeatable business model: by applying the same model to new markets, by using the same management model in different businesses or by targeting more precise groups of customers.

Many of the world’s best-known brands make a cult of simplicity: look at IKEA with its flat packs; MacDonalds with its burgers and even Berkshire Hathaway with its buy, improve and hold approach to investing.

Apple cut through the “constant change” of its industry by applying the same formula to a succession of iProducts.  It is also ruthless about pruning its catalogue.  The classic IPod media player – sadly mine holds 80GB of music (14,500 songs) and is full – used to come in multiple storage sizes; now it comes in just one (160GB).

Guess what I am requesting for my birthday this year.  In black of course!

If you want to keep your comments private and confidential contact me directly on michael@matusik.com.au

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Michael Matusik

Michael Matusik is a leader in residential market analysis and property advice in Australia.

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