Consumers snapping up cars in “unprecedented” numbers

Australian car buyers have set their second consecutive monthly record.

After consumers purchased 96,859 new vehicles in July – the highest number ever for July – they followed up by purchasing 109,966 new vehicles in August – a record for the month, according to the Federal Chamber of Automotive Industries (FCAI).

FCAI Chief Executive Tony Weber said these record results were positive news for both car manufacturers and consumers.

“The Australian automotive sector continues to demonstrate its strength, with August recording unprecedented sales figures, reflecting both a high level of demand from Australians and improved supply of vehicles,” he said.

“Year-to-date sales have increased 9.9%, which is a better indicator of the underlying strength of the market.”

The latest vehicle sales data also shows Australians’ rising interest in alternative vehicles.

Electric vehicles accounted for 6.4% of sales in August and hybrid vehicles 10.5%.

“As consumers continue to embrace low-emissions technologies we are seeing growth in electric, plug-in and hybrid vehicle sales. More than one in six vehicles sold in the month of August featured low-emissions technologies,” Mr Weber said.

 

Find the right finance

Whether you’re in the market for a traditional vehicle or an electric vehicle, getting the right finance could save you time and money. That’s why it is a good idea to speak to a broker. We can compare a panel of lenders to find the right one for your goals and circumstances. 

Compare this to a dealership that often offers a limited number of products that may not actually be in your best interest.

Why Airbnb is contributing to the sharp rise in rents

More property investors are renting out their homes through Airbnb and similar platforms, which is reducing the number of properties in the long-stay rental market and pushing up rents, according to a new report.

The Real Estate Institute of Australia (REIA) in its ‘Short Stay Accommodation’ report, said 133,968 short-stay accommodation (SSA) places were available in Australia in the March quarter, which was 3.7% higher than the previous quarter and 22.8% higher than the previous year.

By contrast, the REIA estimated Australia would face a shortfall of 106,000 rental dwellings by next financial year.

REIA President Hayden Groves said SSA was “a driving factor behind the rental crisis”, because 81.9% of short-stay listings were suitable for being transferred to the long-term market.

“Dwellings suitable for long-term rentals increased on short-stay accommodation platforms 3.7% over the quarter and 26.6% over the past year. The eastern coast of Australia is the predominant provider of short-term accommodation, and where most of the crucial long-term housing is desperately needed,” he said.

 

Why some investors and agencies prefer SSA

The reason an increasing number of property investors are favouring the short-term over the long-term market is because the former offers higher rates of return, according to REIA data.

For example, in the March quarter, the median annual rent for a two-bedroom home in Sydney was $33,900; an investor could earn the same income in just 122 days by renting out the same property on a SSA platform. In Melbourne, the figures were $27,100 and 124 days.

Some real estate agencies also prefer short-stay to long-stay, because they can charge higher fees.

“State and federal governments continue to grapple with how to quickly deal with Australia’s severe housing shortage across all housing segments: public, social, affordable, private rental and home ownership,” Mr Groves said.

“This report set out to quantify in an objective, fact-based way what the impacts of SSA are on renters; so we can look to formulate a policy response together with government and short-stay accommodation providers based on the best available evidence.”

Property investment has been a successful wealth-building strategy for Australians over the years. If you’d like to buy an investment property, contact me to arrange the finance. 

 

Following its meeting today, the Reserve Bank of Australia (RBA) chose to hold the cash rate at 4.1%. This is the third month in a row the Bank chose to hold the cash rate following positive signs in inflationary data.

With the cash rate currently four percentage points higher than it was at the beginning of 2022, combined with a higher cost of living, many homeowners have lighter wallets and smaller shopping trolleys. If you have a home loan, it is likely you have experienced an increase in repayments, or will soon when your fixed-rate term expires. Because of this, Australia has seen a dramatic increase in refinancing this year.

Something to keep in mind when looking to refinance your home loan is lenders vary greatly in what they can offer. You may want to find the lowest interest rate possible, however there are a number of other factors to consider that could save you time and money.

5 things to keep in mind before refinancing

Some areas lenders can vary greatly include:

    1. Serviceability criteria. Each lender has its own criteria to determine whether you can easily make the repayments. This can impact the amount it may be willing to lend you and whether you qualify for a loan in the first place. 
    2. Fee differences. Loans cost more than just the interest rate. Some charge annual fees, fees for features and even things like lenders mortgage insurance (LMI) can come at a different cost depending on the lender.
    3. Turnaround times. Some lenders can approve loans much faster than others. It’s important to factor in the approval times when changing lenders and to factor potential extra time into your calculations to determine whether it impacts your cost saving compared to another lender that may be faster.
    4. Lending criteria. Some lending criteria are the same across lenders – such as being at least 18 years old and your resident status. However, other criteria vary depending on the lender, such as your employment (including if you are self-employed) and the details of the property (some may have restrictions on building types or locations).
    5. Promotions. Depending on your situation, there may be promotions available that you could qualify for. For example, some lenders offer “green loans” if a home fulfils certain sustainable, energy-efficient criteria. Others offer special deals for people in certain professions including the medical industry.

On top of this, you may want to structure your loan differently to better suit your current circumstances or goals. The structure of your loan can make a difference to your repayments, interest you pay and time it will take to pay off.

As a broker, I work with lenders day in, day out, and have a good understanding of how long approvals are taking and how they vary in their policies and offerings. If you’re considering refinancing, arrange a free, no-obligation chat. I’ll assess your situation and make recommendations in your best interest.

Industrial has been the standout asset class of 2023, amidst challenging times for the commercial property sector, according to one of Australia’s leading commercial property experts.

Ray White Commercial Head of Research Vanessa Rader said commercial property had experienced a tough 2023, due to fast-rising interest rates and the challenge of obtaining finance. That’s led to a significant reduction in listings and sales volumes, a reduction in capital values and an increase in investment yields.

Looking at the performance of the three main asset classes this year, retail and office have struggled, but industrial has shone, Ms Rader said, referencing recent data from MSCI.

 

Industrial

Ms Rader said industrial assets were performing well due to a combination of strong demand and limited supply.

“While the sizable rental growth over the last few years has now slowed, capital returns continue to be positive across most regions,” she said.

This capital growth has led to reduced yields, with industrial ‘cap rates’ (i.e. capitalisation rates) now at a historically low level, even though industrial has traditionally been a high-yield asset class.

“Industrial, despite seeing upward momentum from this record low cap rate, remains the most sought-after asset class keeping yields averaging just 4.6% this period. Distribution/logistic assets and industrial parks recorded the lowest cap rates at 4.5%, with lack of stock and the stable income streams associated with these assets remaining attractive to investors,” she said.

 

Retail

By contrast, retail has been going through a prolonged difficult period, according to Ms Rader.

“Competition from online trading has caused issues for brick-and-mortar retail which has kept returns below other commercial asset types. While returns did see some resurgence over the last few years, where sales activity peaked, these have again moved downwards despite the consistency of income return. In June 2023, average retail capital return fell into negative territory to -2.7%,” she said. 

“All segments of retail have been impacted by these capital changes, from larger super and major regional centres (-1.9%) through to neighbourhood (-4.4%), however income returns remained steady at 5.3% and 5.2% respectively.”

 

Office

Meanwhile, the office sector has continued to be affected by the work-from-home trend.

“Office has been faced with significant difficulties spurred on by work from home trends born from the pandemic. Low unemployment and office supply are adding to the difficulty for this sector, which has been hampered by the high vacancy environment, resulting in strong incentives impacting effective rental rates,” Ms Rader said. 

“CBDs have seen greater change in total returns at -2.3%, while non-CBD sits at -1.3%. Again, some stability in income is keeping these rates elevated while capital losses average -6.5% and -6.1% respectively.”

 

Why a broker can help in this market

I love helping businesses and individuals purchase commercial property, whether for direct use or investment purposes.

As Ms Rader mentioned, this is a more challenging finance environment, which is why it’s helpful to work with a broker who can research the lending market for you, find a lender and loan structure that works for your situation and package your loan application in a way that will appeal to lenders.

The Australian Taxation Office (ATO) has flagged that one of its “key focus areas” for this financial year will be to improve the tax compliance of the small business sector.

 

As part of that focus, the ATO said it would take a digital-first approach and encourage small businesses to do likewise. This would allow the tax office to provide “high-quality, system-generated tax guidance” that would “minimise errors, increase confidence and promote right-time reporting and payment”.

 

The ATO said another priority this financial year would be to chase tax debts, with a focus on high-value and aged debts. This would be done by:

At the same time, the ATO said it would invest resources to ensure employers met their superannuation obligations. This would be done by:

The shift to remote working has reduced demand for office space and affected how businesses interact with their workspaces, according to Ray White Commercial Head of Research Vanessa Rader.

“Some businesses look to downsize their spaces and perhaps sub-lease, while others have reconfigured the working environment to provide flexibility and collaboration, or relocated to new premises to lure staff back in,” she said.

This trend has played out in markets throughout the world, with vacancy rates reaching 15% in Toronto and 20% in New York, for example. In some markets, though, such as Tokyo and Hong Kong, vacancies have been falling.

“For many of these markets the increase in net absorption signals a move back to a more normalised market, led by prime stock,” Ms Rader said. 

“The flight to quality internationally is real, with prime leasing deals representing as much as three-quarters of all transactions, improving vacancies across the premium and A-grade end of town in some markets.”

 

Absorption rates and vacancy rates

Data from Ray White and PCA shows that Australian buyers and tenants are increasingly favouring quality assets.

This becomes clear when you compare absorption rates (which refers to how much empty office space is finding tenants) for the prime office sector (new or fully refurbished offices) and the secondary office sector (lower-quality offices).

Over the past 12 months, absorption rates have been greater for the prime office sector than the secondary office sector (or, in the case of Melbourne, the prime contraction has been less than the secondary contraction).

 

Absorption rates:

 

Similarly, vacancy rates for the prime sector are generally lower than the secondary sector:

Reach out if you’d like to purchase an office. High vacancy rates mean conditions favour buyers in many parts of the country.

Australia’s small business ombudsman, Bruce Billson, has launched an inquiry to examine how reforms to commonwealth procurement rules have affected the small business sector.

Mr Billson said many small businesses had told him they felt excluded from the chance to tender for federal government procurement contracts.

“They have low awareness about procurement opportunities unless they are already part of the ‘in-crowd’ through existing relationships with procuring agencies, or previous experience in government procurement,” he said.

Another issue small businesses have raised with Mr Billson is that while winning a government contract could be life-changing, being on a government panel did not guarantee work.

“Many small businesses have told us how they have been on panels for years and never been approached for a request to quote,” he said.

“Small businesses also point to the high cost and investment of time required to tender, and lack of consideration of this opportunity cost by agencies. The provision of limited or no feedback when a tender is unsuccessful is also a source of bewilderment and vexation.” 

Another frustration was the need to have certain kinds of expensive insurances to participate in the tender – without there being a guarantee the business would win the contract and therefore need the insurances.

Submissions due 15 September

In 2021-22 the government and its entities awarded 92,303 contracts with a combined value of $80.8 billion, according to Mr Billson.

It is estimated that small and medium businesses were awarded 55% of those contracts by volume and 31% by value.

“Enabling SMEs to fully compete for government work helps deliver better value, supports innovation and drives stronger Australian-based capability – all worthwhile and important benefits for the taxpayer and our nation,” he said.

If you want to make a submission to the ombudsman’s inquiry, the deadline is 15 September.

The final report will be handed to the government in December.

One of Australia’s leading economists has forecast a positive spring selling season – in part due to a sharp decline in household savings.

“With savings rates now plummeting, what does this mean for property?” Ray White Chief Economist Nerida Conisbee said.

“With retail trade falling for the third straight quarter, savings rates plummeting and inflation trending down, it is looking more like we are now at peak rates. With more property coming on to the market, this greater certainty about the outlook is likely to make this a much better spring selling season than last year.”

 

How high savings affected the property market

To understand the connection between savings and the property market, we need to look at the rise and fall of savings over the past three years.

The household saving ratio jumped from 6.8% in the December 2019 quarter to a record 23.6% in the June 2020 quarter, as people cut back on spending during the pandemic. Since then, it’s fallen to just 3.7% in the March 2023 quarter – the lowest since 2001.

The high savings ratio during the pandemic had several impacts on property, according to Ms Conisbee.

“Despite Australia seeing negative net migration overseas, rents grew rapidly, increasing by 13% between March 2020 and December 2021. Although difficult to explain at the time, it has since been shown that average household size declined during the time and the number of single person households hit a record high. Rental demand jumped as more people decided they liked living alone more or in smaller households,” she said. 

“It was also a major driver of house price growth. Higher savings rates meant more to spend on other things when restrictions began to ease and it became apparent that the pandemic would at some point end. Extremely low interest rates and lots of saved cash meant strong demand from buyers, pushing up prices across Australia.”

 

How low savings will affect the property market

Since we emerged from the pandemic, savings rates have declined. That is impacting the property market in different ways, according to Ms Conisbee.

“Rising cost of goods, higher rents and higher mortgage payments are now leading us to dig deep. We are not yet spending more than we earn, as what happened in the Global Financial Crisis. However one more interest rate rise, energy price rises continuing or even a slight rise in unemployment could tip us into negative territory. All of this has implications for where the Reserve Bank of Australia will next move, and by extension, property,” she said.

Partly for that reason, Ms Conisbee predicted the Reserve Bank had come to the end of its rate hiking cycle.

Peak rates, combined with more stock coming onto the market and a more certain outlook, is expected to lead to a much better spring selling season than last year’s, she added.

Australia’s competition watchdog has refused to authorise ANZ’s acquisition of Suncorp Bank.

The Australian Competition & Consumer Commission (ACCC) said it had rejected the $4.9 billion deal, which was announced in July 2022, because it might reduce competition in the banking sector.

“We are not satisfied that the acquisition is not likely to substantially lessen competition in the supply of home loans to Australian consumers,” ACCC Deputy Chair Mick Keogh said.

“We consider there is an increased likelihood of coordination between the four major banks in the supply of home loans should Suncorp Bank become part of ANZ. Coordinated market outcomes mean competition is muted at best, to the detriment of customers.

“A substantial lessening of competition in home loans would have major flow-on impacts to Australians with a mortgage. More than a third of Australian households have a mortgage, with loans totalling around $2 trillion, illustrating how critical it is that competition in this market is not substantially lessened.

“The proposed acquisition increases the likelihood that the major banks adopt a ‘live and let live’ approach to each other, aimed at maintaining or protecting their existing market shares. This is instead of competing strongly on price, innovation and the quality of their service and products to win customers.”

 

ACCC concerned about mortgage competition

Even before ANZ and Suncorp announced their deal, the ACCC was concerned about the risk of coordination between the big four banks, due in part to their similarity and ability to price signal.

“While there is evidence of increased competition in the home loans market recently, we are not persuaded that this level of competition will continue,” Mr Keogh said.

“We note recent commentary by bank chief executives that they are stepping back from aggressive promotions. If this market was truly competitive, we would not expect to see banks publicly flagging plans to reduce the competitiveness of their offerings.”

 

How the ANZ merger would’ve affected Suncorp customers

Under the terms of the deal, it would’ve been business as usual for Suncorp Bank customers – at least in the short-term.

ANZ had licensed the Suncorp Bank brand for five to seven years, suggesting it planned to keep the brand alive for some time.

Suncorp Bank would’ve initially operated under its existing banking licence, with no changes to the total number of branches in Queensland for at least three years and no net job losses in Queensland for the same period.

Last month was the biggest July in the history of new vehicle sales, according to the Federal Chamber of Automotive Industries (FCAI).

Australians took delivery of 96,859 new vehicles, which beat the previous July record (92,754), set in 2017, by 4.4%.

FCAI Chief Executive Tony Weber attributed the record result to an ongoing increase in supply, following the plant shutdowns, microprocessor shortages, shipping problems and logistics bottlenecks that occurred during the pandemic.

“During the past 12 months the issue has been one of securing supply for consumers, however as these pressures ease, we are starting to see a return to more stable market conditions,” he said. 

“Many of these vehicles were ordered several months ago, so it is important to monitor the broader economic conditions through 2023 and their impact on private and business demand.”

The top-selling vehicles in July were the Ford Ranger (5,143 sales), Toyota Hi-Lux (4,670), MG ZS (3,852), Tesla Model Y (3,330) and Toyota RAV4 (2,750). 

 

Four different ways to buy a new vehicle

At this time of year, some Australians use their tax refund to help them purchase a vehicle.

If you’re thinking about getting a new set of wheels, you might have more options than you realise. They include:

 

Standard car loan

This involves buying the vehicle, by putting down a deposit of 10-20% and borrowing the rest. 

 

Balloon payment

A lot of car loans include a balloon option, which allows you to reduce your monthly repayments in exchange for making a one-off ‘balloon’ payment at the end of the loan term. Generally, a balloon loan costs more over the life of the loan than a standard loan.

 

Lease

You don’t have to buy a vehicle; you can lease instead. With a lease, you make monthly payments for a certain period of time; at the end of that term, you can either buy the car or return it.

 

Novated lease

With a novated lease, your employer leases the vehicle from a vehicle supplier, hands it to you and deducts the costs from your pre-tax salary.

 

Contact me if you’re planning to acquire a new vehicle. If you’re unsure whether to buy or lease, I’ll be happy to explain your options to you.