The Vadium Monthly

Perth and Brisbane set to lead growth in 2024

Property prices are expected to continue growing, with the smaller capital cities of Perth and Brisbane expected to be the top performers over the next 12 months, according to a new report.

Oxford Economics predicts that property prices in Perth will increase 9.1 per cent this year, making it the nation's strongest property market. Over the next three years, they also predict Perth house prices to increase by 29 per cent and units by 34.4 per cent.

Senior Economist at Oxford Economics Australia, Maree Kilroy, expects Perth to continue its recovery after years of price declines. “Perth has underperformed for years, even as the other capitals were rebounding sharply, so it has so much to catch up on to maintain that relativity with those other capital cities,” Ms Kilroy said.

“Perth has a significant stock deficiency and WA has the greatest supply chain and capacity constraints of all states,” Ms Kilroy said. “It has the strongest population growth, which we expect it to maintain over the next three years.”

Oxford Economics also predicts that Brisbane will see values rise 4 per cent, followed by Sydney at 2.6 per cent, Adelaide at 1.4 per cent and Melbourne at 0.9 per cent. Overall, the capital cities are predicted to increase in value by 2.7 per cent in 2024.

Ms Kilroy said the return of interest rate cuts from late 2024 should facilitate even stronger price growth over the next two years in Brisbane. “Demand fundamentals are expected to remain strong, with Queensland positioned at the front of the pack in terms of population growth,” she said.

“Adding to this, the 2032 Olympics should provide a sustained boost to developer and buyer optimism from mid-decade.” Over the next three years, Brisbane house prices are expected to climb by 19.8 per cent and units by 23.3 per cent, she said.

She said Sydney house prices will increase by about 16 per cent over the next three years, while units are expected to climb by more than 23 per cent over the same period as buyers seek cheaper housing options.

“With the context of a growing dwelling stock deficiency, the return of interest rate cuts will drive the next acceleration of price growth from late-2024 onwards,” she said. “However, the pace of growth is slowing as a result of the additional interest rate lift in November and rising total listing volumes, so this year would be softer in terms of price growth.”

 Five ways Vadium Lending can help borrowers

Over the past few years, borrowers have been challenged like never before with rapidly rising interest rates catching many off guard. 

When interest rates are changing, borrowers need to be proactive in how they manage their mortgage. This is why working with a mortgage broker can be incredibly valuable.

Here are five ways Vadium Lending can help borrowers in the current environment:

Guidance on interest rates

With interest rates changing and a huge range of products on the market, it’s difficult for an average borrower to stay on top of what certain lenders are offering at any given moment. Mortgage brokers continually stay on top of both market trends and product offerings.

Whether interest rates rise or fall, mortgage brokers are well positioned to compare your options and find an appropriate solution to your needs. Mortgage brokers have their finger on the pulse when it comes to what the market is offering at any point in time.

Access to a variety of lenders

A significant advantage of working with a mortgage broker is gaining access to a diverse range of lenders. When interest rates rise, brokers can use their knowledge of different rate structures to compare lenders offering more favourable terms for various borrower profiles. Having more options to compare, means that borrowers will have the best opportunity to obtain a more suitable loan product.

Negotiating better terms

Contrary to common belief, mortgage rates are negotiable. Mortgage brokers advocate on behalf of borrowers, actively securing competitive rates and terms through effective negotiation. Leveraging their communication skills and relationships with banks, brokers can ensure borrowers receive the most favourable terms, contributing to significant long-term savings.

Financial solutions

Mortgage brokers understand that each borrower is unique and focus on building individualised strategies and solutions. By understanding personal financial circumstances, brokers can offer solutions that align with each borrower’s specific needs and goals.

Access to professionals

Beyond mortgages and lending, mortgage brokers are able to connect borrowers with a network of professionals, including financial advisors, accountants, etc. This additional layer of support ensures that borrowers not only receive guidance on their mortgage but can also access comprehensive financial advice from other professionals.

The build-to-rent sector set for a strong 2024

The build-to-rent sector (BTR) is set for a strong year ahead, with Australia’s surging population growth likely to drive increased demand for both rental properties and student accommodation.

In 2023, the build-to-rent and purpose-built student accommodation industry recorded its best year yet, according to MSCI. Commercial residential deal activity increased 77% to just under $3 billion in total last year, with the BTR sector seeing over $2.2 billion in transaction volumes. 

Head of Real Assets Research for the Pacific region at MSCI, Ben Martin-Henry, said BTR was a “bright spot” in a year that was challenging for many commercial asset classes. 

“We’re starting to see more and more projects come out of the ground after being in development for a number of years,” Mr Martin-Henry said. “Given the population growth that we have had, there should be no shortage of people taking up this space, so it should continue to boom.” 

BTR has benefitted from a number of government changes, including the withholding tax rate for managed investment trusts being cut, due to come into effect in July 2024. The changed capital works tax deduction depreciation rate has also assisted the sector.

Martin-Henry said 2023 saw some asset classes (like office buildings) experience value downgrades and slowing transaction volumes – but that might start to present opportunities for developers.

“The first quarter might be quite a big quarter and if it’s not, then we’re in for another slow year,” he said. “Last year, we had the big issue where the gap between what buyers were willing to pay and what sellers were willing to accept was so large, it was one of the largest gaps globally, so there was simply no movement.  

“So, with valuations moving, which I suspect they have done, you will start to see sellers having to adjust their pricing if they want to dispose of some of these assets and that will start to spur the market.” 

Mr Martin-Henry said higher interest rates are slowing the market down, but that could start to change in 2024. “Everything is taking a little bit longer to get across the line at the moment because of cost of debt issues and general uncertainty,” he said.

Understanding your borrowing power

It’s often said that property investment is a game of finance more than real estate. One of the key factors that determines how the growth of your property portfolio is a person's borrowing capacity. Your borrowing capacity represents how much money you can access from a lender – and therefore the price of the property you can purchase. When determining a person's borrowing capacity, there are several things a lender will look at.

Income sources

The heart of your borrowing power is always going to be the stability of your income. It's not always just about the total amount you earn but where it comes from and how consistent it is. While a regular salary is a substantial contributor, lenders also recognise the value of additional income streams, such as part-time employment, rental income, or returns from investments. Your income is always going to be the main factor a lender looks at because it gives them comfort that you are able to earn enough income to service a loan.

Financial obligations

The debts you carry will also play a significant role in determining your borrowing power. Whether it’s credit card balances, personal loans, car loans, or other financial commitments, lenders take into account your existing obligations. Effectively, the more debts you currently have, the lower the overall cash you will have in any given month to service future debts. Equally, lenders don’t want to lend to people who already have high debts relative to their income levels, as borrowing will put them under more financial pressure.

Employment history

A stable employment history is important when it comes to assessing your borrowing power. Lenders like to see a consistent work history, as they view it as an indicator of reliability and a steady income source. Self-employed individuals may face additional scrutiny compared to a wage-earner, but if you can show a steady history of work, you will still be able to access finance from lenders. Typically, lenders like to see self-employed individuals with at least two-years of tax returns to prove that they have a steady stream of income. On the flipside, a wage-earner might only need to provide two payslips. Requirements vary from lender to lender, so a mortgage broker can guide you based on your employment status.

Interest rates and loan terms

The length of the loan and the overall interest rate you have to pay will also impact your ability to borrow. When rates rise, it means your overall level of repayments increases, reducing your borrowing capacity. Similarly, if you are looking for a loan over 20 years compared to 30, your overall repayments will be higher and that also cuts down your borrowing capacity. Mortgage brokers can help here by comparing your options and finding the most suitable loan product for your personal situation.

Your deposit

To obtain finance in the first place, lenders require a borrower to put down some of the cash for the property upfront in the form of a deposit. Oftentimes, the higher the percentage you can contribute, the lower the perceived risk and the lower the interest rate. Therefore, your borrowing capacity might be larger. There are other factors that come into play here, such as government schemes and incentives that borrowers can access. This can mean that you are able to reduce their deposit and still obtain a higher level of borrowing. These schemes are predominantly focused on helping first-home buyers enter the market and speaking to a mortgage broker about your financial situation is normally the best way to assess your eligibility.

Three things to look out for with your next car loan

These days getting a car loan is commonplace and most car buyers are given a host of offers from both lenders and car dealerships. When looking at different car loans, there are several red flags that buyers should be aware of. Often there is a lot more to a car loan than first meets the eye. Here are three things you need to be aware of before taking on a car loan.

Hidden fees and add-ons

The car finance market often highlights loans with very low or even 0% interest rates. While these offers seem appealing on the surface, they typically come with a catch. Many of these seemingly helpful car loans hide behind the offer of low interest rates but come with a range of hidden fees and unnecessary add-ons. These can significantly inflate the overall cost to the car buyer. 

Before committing to any car loan, it’s vital that you examine the fine print. Ensure you understand every aspect of the loan agreement and don't hesitate to ask questions. If a salesperson or lender is overly pushy or fails to provide transparent information, consider it a red flag. Avoid falling for any high-pressure tactics and any optional services that don't genuinely enhance the value of your car purchase.

Expensive penalties for early payment

While it's common for car loans to impose penalties for early repayments, excessively high penalties should raise concerns. Lenders have a vested interest in collecting interest payments over the loan term. However, exorbitant penalties can discourage borrowers from paying off their loans ahead of time, saving them money.

Paying off a loan early can be a smart financial move, as it reduces its overall cost. If a car loan has high penalties for early payment, it's worth exploring alternative options with more favourable terms. Look for lenders that support early repayment without imposing unreasonable financial burdens on buyers.

Guaranteed approval

 A big red flag for a car loan is the promise of 'guaranteed approval.' While everyone would like fewer hassles in their life, there should be no guarantees when it comes to finance. Reputable lenders and dealerships all use responsible lending practices. They assess your credit score and financial history to determine your ability to repay the loan and establish an affordable amount you can reasonably borrow. The most effective way to avoid many of these issues is to work with a finance broker. They can compare your options so you have a clear understanding of what you can borrow, that way, when you go to buy you have a known budget that you can work with.

This is general information only and is subject to change at any given time.

Your complete financial situation will need to be assessed before acceptance of any proposal or product.