Hot Topics – February 2016
This month my article covers two important considerations currently affecting Landlords, Sellers and Buyers. That is the selling of a leased property and calling the bottom of the market.
Selling Leased Properties
If you are an Investor and considering selling your investment it is important to understand your current lease arrangement with your existing tenant. When selling a property you have to honour the existing lease. In other words you cannot sell your property with vacant possession. If you have a lease in place for any more than about 3 months, this will be seen as a major negative by Buyers looking to occupy. Any more than 6 months to go on a lease and you are almost certainly restricting yourself to the Investor market. Now you might say, so what, I’m an Investor, can’t you sell it to another investor?
The answer is yes we can, however, in Perth at present Investors only make up somewhere between 5% and 10% of the Buyers in the market actually transacting. Investors are also very analytical and therefore are less likely to become emotionally attached to your property and pay you a good price for it. Owner Occupiers account for more than 90% of the Buyers out there and they are more interested in finding the perfect home for themselves and generally are a little less caught up on securing the very best financial deal possible.
So if you are thinking of selling an investment property please check the current lease situation with your Property Manager and ensure they are aware of your intentions. That way you won’t find yourself in the position of accepting a 12 month lease renewal just a few weeks before advising your Agent of your intentions to sell. In the current market you are much better off to be selling a vacant property or a property that is on a periodic (month by month) lease as it’s likely the Buyer is going to want to reside in the property.
Calling the Bottom of the Market
In the past few weeks we have seen several Buyers and Sellers get to within $5,000 of each other only to have the deal fall apart because of price. It wasn’t long ago that my Mother in Law reminded me that when she was negotiating to purchase her home in Scarborough and they got stuck $10,000 apart, my advice to her at the time was not to miss out on the property you really want for the sake of $10,000. Well 10 years later that property is worth substantially more than what she paid for it and she has thoroughly enjoyed living in the home all this time.
No one can call the bottom of the market until it has passed and we can use the statistics of properties sold to demonstrate that prices have now risen. However because people generally agree a price about 2 months ahead of settlement the figures are always close to 3 months behind the actual market.
At present there is a considerable amount of stock on the market and price rises generally occur when there is an increase in demand that outstrips supply. Number of properties on the market is reported weekly by a number of agencies including REIWA and Core Logic. So if you are looking to call the bottom of the market then your best guess at when this might occur is when you see the number of listings on the market continuing to fall week after week. Please remember that there are many sub markets within the general Perth market so in order to do the research properly you need to be gauging the number of properties for sale of the type you are interested in and in the location you want to buy.
Whilst we have seen our population growth slow and a number of job losses, primarily in the mining sector, we are NOT suffering from property being unaffordable. We are suffering from a little too much supply and not quite enough demand. The biggest issue we have in the Perth market right now is a lack of confidence amongst Buyers who are waiting for someone to ring the bell at the bottom of the market and Sellers (who generally haven’t lost their Job) not being interested in selling for an absolute bargain.
Given the low interest rate environment and affordability of property in Perth right now I’m tipping those Buyers that spend too much time sitting on the fence or negotiating very hard and way beyond the sales evidence, will over time be the unlucky ones that end up Buying well after the bottom of the market has been reached.
As for the team at Celsius, we are not going anywhere so take your time, ask as many questions as you like and we will be around and available to assist you when you feel the time is right and you have gained the confidence to buy.
Kind Regards
Richard