Housing Affordibility – March 2021

Has Housing become Unaffordable?

Record low interest rates and a shortage of housing in the post- pandemic period has led to strong upward pressure on property prices during the second half of 2020 & early 2021.

This has led many ask how home buyers can now afford to purchase a home.

A helpful way to answer this question is by looking at current & historical real market transactions together with interest rates at each point in time.

Case Study 1

Actual property that sold some 5 years apart:

  1. January 2015 $700,000  Mortgage Interest Rate 4.75%

Interest Servicing Cost: $33,250 per year

2. August 2020  $980,000  Mortgage Interest Rate 3.25%

Interest Servicing Cost: $31,850 per year


This example shows that it is $1,400 per year more affordable to service debt on this property than 5 years ago.

Case Study 2

Actual property that sold some 20 years apart

  1. April 2000 $400,000  Mortgage Interest Rate 8.25%

Interest Servicing Cost: $33,000 per year

2. December 2020  $1,350,000  Mortgage Interest Rate 2.50%

Interest Servicing Cost: $33,750 per year


This example it is $750 per annum less affordable per year to service debt on this property than 20 years ago!


Of course these examples are simplified and do not take into account market rentals, size of deposit and lending restrictions which are also part of the story.

However, it does show that although prices have increased considerably in both examples, low interest rates mean that affordability of the residential property market has not changed much at all.

Impact on Property COVID-19 May Update

We have been reviewing the market closely both during the COVID-19 restriction period and also as these restrictions ease. Market Commentary by economists have mostly been on the basis of the market response in the major capital city markets of Sydney & Melbourne which typically focusses on auction clearance rates.

Outside the major capitals, we have noted that for buyers where cashflow has remained relatively stable, that they are taking advantage of the opportunity that has presented during COVID-19 of less buyer competition. Accompanied by a very low interest rate environment, these buyers are taking medium term positions that were not prevalent in the market prior to the pandemic.

People that are currently pressing on with planning their development projects for 2020 are in some cases responding to this market change by adjusting their end product to suit a less bouyant market in the short term. These people typically have a more favourable view on market conditions during 2021 and beyond.

We are working alongside our clients to prepare “feasibility analysis” on such projects to assist the decision to make the end product appeal to the widest market possible. This also reduces the overall risk of such projects.

Can I rely on Business Valuation Software?

Isn’t it a simple formula of Market Value = Earnings x Multiple…If only!

Assessments of business value provided by business valuation software rarely reflect the major drivers of value in a business.

A Certified Practising Valuer (Business), however, will understand all of these factors and provide guidance on the most likely selling price range of the business.

Major determinants considered when preparing a business valuation are:

  • The quality of financial information available
  • Future maintainable earnings of the business & growth prospects
  • Tangible asset base
  • Working capital required
  • Competitive environment
  • Strengths and weaknesses & risks to the business
  • Volume of buyers and most likely buyer in current market
  • Availability of finance

Treat business valuation software as a benchmarking tool only! If you require a valuation you can rely upon, there is no substitute for a professional valuation to provide an accurate assessment of value.

Auction or Private Treaty?

Is it best to take your property to auction or advertise with an asking price (private treaty).

It generally depends on a range of factors including motivation of the owner, the type of property and the stage of the market cycle. A recent case study of two adjoining properties sold within 2 weeks of one another having similar attributes, is an interesting contrast of these two methods of sale.

Property A – Advertised with a list price of “Offers Over” with inspections by appointment. Property was under contract after 4 weeks on the market and sold for $700,000 subject to building and pest inspection.

Property B – Advertised for a 4 week marketing period with an open house campaign having a well attended auction held off site. No formal price guide was provided but the marketing agent indicated strongly to prospective buyers that that the property would be sold at auction. Property sold for $616,000.

Both properties had the same land area and had buildings of a similar era which required renovation. The purchasers of Property A were completely aware of their competative bid at auction. The purchaser of Property B felt compelled to make an offer in accordance with the marketing guide provided by the selling agent and had to make their best offer up front.

Questions….Did the purchasers of Property B put in their best bid, or just enough to secure the property on the night of the auction. Were there other purchasers interested in Property B that were not able to arrange finance in time for a unconditional purchase on auction night?

At the end of the day, both owners achieved a result, however we suspect that one would have been more satisfied with the selling process than the other!

The Property Cycle – Where are we?

Outside Sydney & Melbourne, which are markets that are well reported on in the media, we have now moved into in the “strong recovery phase” of the economic cycle. In an environment of falling interest rates and less restrictive lending, there has been wide media coverage of a strong property market recovery across many parts of the country, led mostly by investors and owner occupiers upgrading their existing home.

Asset Advisory Property Consultants - The Property Cycle Economic Clock

In markets where there is limited supply of available housing, investors have competed aggressively in recent months for housing stock, which has pushed up prices in these localities. In this phase of the market, capital gains by suburb are typically “patchy”. In previous market cycles as values climb in these more sought after areas, rental yields (annual rent as a proportion of the purchase price) typically fall and purchasers begin to seek out other nearby locations exhibiting stronger rental yields.

Depreciation Schedules For Property Investors

Property Investors…Are you missing out on making the most of your Tax Depreciation Deductions? Asset Advisory are Registered Company Tax Agents with the Tax Practitioners Board and provide ATO compliant Tax Depreciation Schedules for all types of income producing properties. Older properties are also able to be depreciated. Additions & renovations made to properties by previous owners are also able to be claimed. An inspection of the property by our quantity surveyor will assist in maximising depreciation claims and overall return from your property investment.

A 5 year summary extract from 20 year Tax Depreciation & Capital Allowances Schedule:

Asset Advisory Property Consultants - Sample Depreciation Report Schedule

January 2015 Market Update

Property markets improved across all sectors during 2014 with increased activity from investors and owner occupiers. Capital growth that has occurred in the Sydney & Melbourne markets is now being experienced by coastal regional residential markets such as Kingscliff, Byron Bay & Lennox Head in Northern NSW and Brisbane, Gold Coast and Toowoomba in South East Qld.

Asset Advisory Property Consultants - January 2015 Market Updates

Further cuts to interest rates during early 2015 is forecast to unerpin demand for real estate and strengthen market activity both for residential and commercial property. Localities with comparatively strong leasing demand are expected to be sought after by investors who have sub 5% fixed 5 year and variable interest rates in their sights.

Buyer Advisory

Our team of experienced Registered Valuers have detailed local market knowledge and strong negotiation skills, with the principal aim to save buyers both time and money in sourcing and securing residential or commercial property.

There are three steps in the Buyer Advisory service:
1.      Property Search
2.      Valuation
3.      Negotiation

Clients have the choice to utilise our services for any or all three steps in the process with fixed fees structured accordingly. Whether you are an experienced property investor or first time purchaser, having a qualified advisor on your side with a considered, strategic approach provides you with the opportunity to achieve the desired result.

Contact us to discuss how we can assist you with your property purchase.