Your Market Update – First National Basso August 2020
THE DEVIL IS IN THE DETAIL
Much anticipated CoreLogic data shows the devil is in the detail when it comes to housing market statistics.
While the key take-out is that house prices fell 0.7% nationally in June, that statistic is heavily skewed by larger falls happening in Sydney and Melbourne’s luxury suburbs.
Let’s unpack the detail.
The number of Melbourne sellers dropping their asking price during the COVID-19 pandemic has increased nearly four-fold but the amount they are discounting by has remained steady new data shows.
Across the city, 11.5 percent of listed properties dropped their asking price in July this year, compared with just 3.1 percent in July 2019.
Will this resilience continue?
‘Wait until September’ is the catch-cry of those believing the Australian market will be severely affected by the end of government assistance and bank forbearance policies. It’s a fact that the low number of homes for sale combined with historically low-interest rates contributes to demand having exceeded supply, and this has played a role in underpinning prices. However, to imagine that the government will not adapt or extend its assistance if required is unrealistic. While supply will likely continue to increase, and accelerate in spring, job security and overall confidence will be the deciding factor in what happens with home values in the latter half of 2020.
Peripheral indicators look positive
Clues lie in the ‘estimates’ around market activity. So why the estimates? CoreLogic bases its data on settled sales, not actual transactions. There is typically a 6-week lag between a ‘sale’ and ‘settlement’, so Australia’s media hasn’t yet seen those figures.
These estimates accord with the reported activity of members across the First National Real Estate network. The current climate results and data will not be seen until spring.
BIG FOUR BANKS BACK
While smaller mortgage originators and brokers were flavor du-jour in recent years, COVID-19 has seen a dramatic return to the big four banks when it comes to refinancing or new loans.
Between March and the end of May, 38% of buyers chose mortgage products from the big four. This time last year, that figure was just 16%.
When it comes to refinancing, the swing is even more pronounced. Nearly 48% of all homeowners refinancing their loans have chosen products from ANZ, CBA, NAB, and Westpac – despite the reportedly lengthy approval periods. That figure was just 14% or borrowers before the pandemic.
Evidently, it’s not the perceived security of the big four but rather competitive rates and product flexibility. That said, the announcement of Australia’s lowest mortgage rate – at 1.99% – from Bank of Us (Tasmania) would have caught the attention of many. However, the catch is that you need to be a resident in Tasmania to apply.
Homeowners clearly have taken advantage of mortgage ‘holidays’ during COVID-19 to re-assess the suitability and competitiveness of their loan. When much of the government assistance winds back in September, many will come out on the other side with mortgages that a far more in their interests.
RENTS TREND LOWER
According to CoreLogic, rental rates have continued to trend lower, with weaker conditions across the unit sector.
With rents slipping more than home values across some regions, rental yields are under some downwards pressure.
Conditions are highly fragmented, with the weakest conditions centered around inner-city apartment markets – inner Melbourne and Sydney vacancies have risen by more than 40%. Foreign students simply haven’t arrived, domestic students are studying from home and overseas migration has temporarily stalled.
Rental arrears is four times higher than it normally would be, and I’m comparing that to Christmas time when rental arrears is usually quite high.
The effect on landlords has been quite severe. Unemployment, restrictions on travel, and a lack of overseas visitors and tourists also sent some elements of the rental market plummeting.
Compounding weak rental demand is the fact that the hardest-hit industry sectors for job losses and under-employment are those that are typically aligned with renters rather than homeowners.
HOW TO PREVENT BOND DISPUTES
Almost every tenant has paid their bond with the full expectation that ‘nothing will happen’ and they’ll get all of their money refunded when they vacate the property.
This is not always the case, however, and tenants are sometimes left perplexed as to why their bond or a portion of it was retained. Knowing your rights and understanding your obligations under a lease is extremely important for exactly this reason.
Take responsibility for the condition report
The first and most important step in any lease is to review your condition report accurately and diligently when you first move into the property. In the case of a dispute arising – especially if a different property manager (who may be more meticulous than the previous one was) does the departure inspection – you can simply refer back to the condition report to determine whether the issue was there prior to your tenancy or not.
To really reinforce the importance of a condition report, let’s go over the basics.
For those new to the rental property market, a bond is a fixed amount of money – usually, the equivalent of 4 to 6 weeks rent – that is paid to a specific authority (it varies from state to state) to cover any damage to the property while you live there. Damage attributed to you will be defined by the difference between the ingoing condition report, which is approved by both the property manager and yourself, and the outgoing condition report when you vacate.
When you are given the keys to a property, you will be given a ‘condition report’ that documents all rooms, fittings, and fixtures in the property and their existing condition, as of the date you were given the keys. It’s the tenant’s responsibility to review the report, confirm they agree with the property manager’s assessment and make notes if there is something you disagree with. Most condition reports will have photos that accompany the report, which you should also review and submit your own if the photos in question do not represent the reality.
An example might be a wide shot of a bedroom wall and a note in the report stating ‘walls in good condition’; your note in response might be ‘large black scuff mark on the lower section of bedroom wall’ which you would then also supply a photo of.
It’s really important to take the condition report seriously, not only because it’s the thing that will determine what will happen to your bond when you vacate, but also because it may come down to ‘your word’ against that which was recorded at the beginning of your tenancy – especially if your property manager changes during your tenancy.
Rental property managers see hundreds of properties every year and though it’s their job to document things precisely, brevity can take priority sometimes and for a tenant waiting on their bond to be refunded, the devil is in the detail.
That scuff mark could turn into a dispute over whether the wall needs to be repainted or not, which could mean your whole bond would be retained to cover the costs of the painter – all because neither you nor the property manager at the time, paid enough attention to the condition report.
Deal with any issues before your final inspection
Another way to avoid disputes is to make sure you do a thorough job of cleaning and repairing the property before your final inspection. Doing this with the condition report in your hand can be useful so you have something to compare it to.
Things can look quite a bit different over time and your memory is not to be trusted when it comes to how clean the oven really was when you moved in. As you work through the condition report you may notice small things here and there that need to be repaired.
You can aim to do this yourself, but it’s also worth calling your agent to clarify whether the issue in question would be considered wear and tear or not. A few scratches on floorboards are probably ok but broken tiles maybe not for example.
A common mistake many tenants make is requesting to hang pictures early in their tenancy, but then forgetting the approval came with the condition that all hooks be removed and walls repaired when you vacate the property.
This is a simple enough job and your local hardware store can advise you on what tools and products you need to deal with this quickly and effectively.
If you have the budget for it, getting professional cleaners in and requesting a ‘bond clean’ not only means you don’t have to do the dirty work, it can also be an endorsement to the property manager that you took it seriously.
When arranging the final inspection, you can then email them the receipts for things like bond cleaners, carpet cleaning, pool cleaners, gardener, etc.
Property managers generally will find less reason to nit-pick if they know professionals have been through the property.
Talk about immediate solutions
In most cases, your property manager simply wants the property to be in good condition for their landlord and, if you show you are willing and able to deal with the issue, you can avoid any part of your bond being used for that purpose.
Communication is key to this and if you keep the lines of discussion open, take the emotion out of it, and show them you are proactive about sorting things out, in most cases property managers will be cooperative.
Things like marks on walls and stains on carpets should all be considered wear and tear, however, if the property manager disputes this, offer some solutions such as a professional cleaner, or a second shot at cleaning the walls.
If you have a friend or relative who is handy, maybe they can help you out to patch up holes or do small repairs where needed. It’s better to try to resolve these issues yourself and payout of your own pocket because ultimately this will be a more cost-effective solution than having it taken out of your bond.
So, as is the case with many things, prevention is the best solution! Being a good tenant is not hard and it will pay off for you in the end.
Keep records of all communications, and try to always email your property manager rather than call, throughout your tenancy, so you have a digital paper trail of your role as the tenant for that property.
It’s also a good idea to read over your lease every time it’s renewed just to make sure you’re still clear on what you have to do and to make yourself aware of any changes.
Never hesitate to call us ahead of your vacate inspection if you have any questions or have lost a copy of your original condition report from when you moved in.
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