Legal Practice Intelligence’s 2018 Conveyancing Outlook (NSW and Victoria)
Unlike real estate agents, conveyancers are not paid a percentage of the sale value of a property.
Nonetheless, there is still a benefit for conveyancers of higher property values. It has eased some the pressure on prices that vendors are willing to pay for the legal services related to a sale.
The current property cycle for residential dwellings began in January 2012 for New South Wales and Victoria. From that time up until September 2017, dwelling values increased by 75% in Sydney and 57% in Melbourne.
The volume of property sales also increased over the same period: in NSW by around 20% and Victoria by around 33%. However most of the increase occurred in the first couple of years and in the last couple of years it has been relatively flat.
Why didn’t the volume of sales increase at the same rate as property values? One theory is that the price of existing dwellings increased so much that the cost of upsizing to a larger home became prohibitively expensive. More people turned to maximising the use of their existing space.
A lot of the increase in conveyancing / sales activity during this period was off-the-plan and new apartments.
If property prices fall in 2018 in NSW and Victoria, sales volumes look less vulnerable. There has not been a boom in property sales volumes.
Buyers don’t like buying properties when prices are in decline because they believe they can delay and achieve an even lower price. This may be the reason that when prices are in decline, sales volumes also go into decline.
However in 2018, in NSW and Victoria, lower prices might actually stimulate activity due to the number of people missing out on purchasing in the last couple of years. Demand for property continues with high levels of immigration.
Although prices may have their ups and downs in 2018, sales volumes are unlikely to experience a significant downturn. Conveyancers who have an exposure to property developer clients will of course be subject to the activity of those developers.
The most important economic statistic to watch in 2018 is inflation. If it jumps unexpectedly, then it could cause a shock wave of higher interest rates, lower property prices and a slowdown in sales. The two “i”s will likely determine the path of the property industry in 2018, inflation and immigration.
The voice of the industry (NSW, VIC and QLD)
In a recent survey of 119 conveyancers, legal professionals and financial advisers conducted by GlobalX, 20.2 per cent said they did not think the nation was experiencing unsustainable prices for houses and apartments.
GlobalX CEO Peter Maloney said a further 14.3 per cent could not see any property bubble bursting for more than two years and 6.7 per cent for at least 18 months.
Meanwhile, he said, 19 per cent predicted an adjustment was likely within six months to a year and just under 12 per cent felt the crunch would come over the next three to six months.
“Clearly opinions differed, but not as you might expect simply across state lines or between cities,” Mr Maloney said.
One NSW respondent noted: “Property in sought after locations will always fetch good prices. It’s those properties that are ‘on main roads’, steep blocks, etc., that are feeling the pinch. Your property is only worth what someone is prepared to pay for it at the time, so many vendors are opting to wait.”
Another noted that, in Sydney, “there are 1,200 new residents every week and we lack quality housing stock”.
Three Queensland respondents said there was no bubble evident in that state, but “down south might be another matter”.
“Up here, growth is slow and steady,” one wrote.
Another Queenslander said the Australian property market was, in reality, a series of markets: “There might need to be an adjustment of prices – for instance in Sydney – but it is only one market. There are separate and independent markets across a broad range of areas and types of property.”
Victorians hedged their bets, with one saying they did “not foresee a glut in housing” and another predicting rising prices, albeit at a slower growth rate, but a third were unable to pinpoint when any property bubble might burst.
In sharp contrast, a West Australian respondent noted that their state did not have a bubble, “we are already in a depressed market”, something that was borne out in 2016 housing statistics.
A report released by Core Logic earlier in 2017 noted that, over the previous year, most capital cities had recorded the strongest value growth for dwellings in the past decade, with settled sales trending higher prior to the traditional December slowdown.
“That report showed that while owner-occupier lending had slowed by the beginning of 2017, investor lending had consistently risen over the previous six months,” Mr Maloney said.
“In Sydney, at the end of last year, home values had risen 15.5 per cent over the previous 12 months. Melbourne’s rose 14.2 per cent, Hobart put on 11.2 per cent, Canberra was 9.3 per cent higher, Adelaide went up 4.2 per cent, Brisbane was up 3.6 per cent and Darwin increased 0.9 per cent, with the only reduction occurring in Perth (down 4.3 per cent).
“That report also showed that Victoria was leading the way in terms of the rate of population growth, recording a 2.1 per cent annual rise, well ahead of the national average of 1.4 per cent.”
Interestingly, GlobalX respondents noted that ‘comfortable but a little outdated’ homes were the most popular purchase (68 per cent), followed by brand new homes (26 per cent) but only just under 6 per cent of buyers were willing to take on a complete overhaul of a ‘fixer-upper’.
© 2017 Legal Practice Intelligence