Hunter and Central Coast Newsletter

Long term owners likely to get the best prices

Research conducted by Property Data Solutions suggests that property owners who hold for 6 years or longer are getting the best possible prices.

We conducted the analysis of over 120 property sales over the last 6 months in a variety of suburbs around Sydney and in nearby regional centres. Houses included in the tests had been owned for periods of between 1 and 10 years.

We estimated the market rate for each property using our PriceFinder system, and compared this to the actual sale price. This gave us an indication of a property being under or over market value, which we plotted against the number of years it had been owned for.

PDS observed some of the biggest discounts in properties that had been owned for 4 years or less. The vendor circumstances had not been included in the research, but we would expect some distressed sales in the sample given current market conditions

Those holding on to properties for 6 years or more were observed as being sold at above market rate when compared to those selling prior to the 6 year period. Vendor premiums improved by approxi-mately $9000 per annum for each year of owner-ship, once the property had been held for at least 6 years

Climate Change and Mortgage Risk

In the lead up to a NSW state election in the mid 80’s, the Liberal opposition at that time distributed a leafl et that claimed, ‘Once the Labor Government has mapped your area … the value of your property could be reduced by up to 50%’. With mapping and data now openly available to identify such environ-mental risks, the market will be free to dictate how property prices move. However the biggest impact

on housing may be attributed to the decisions of both government and insurers.

The CSIRO says sea levels are rising faster than ex-pected. If predictions are correct, 250,000 properties in Queensland alone may be at some level of risk between now and the year 2100. Having experi-enced the June long weekend storms in Newcastle last year, I can appreciate fi rst hand the problems we face with changing weather patterns.

Considering the wide range of potential issues that may impact housing markets, infl ationary costs and insurance are the most tangible risks. According to the Garnaut Climate Change Review, coastal infrastructure in the medium term (from 2030) will be impacted, requiring ongoing repair and increased maintenance. In Newcastle, the council has intro-duced a special rates levy to fi x the drainage prob-lems that contributed to the local fl ooding problems in the inner suburbs. Many other coastal councils’ are also experiencing added costs that can only be met by special levies and rate rises.

The special levy for the Newcastle storm-water drain upgrade is relatively small. But the necessary increase in rates to protect and maintain infrastruc-ture, as well as water rate increases from supple-mentation programs, higher power costs and other carbon trading related price increases, will all have an infl ationary impact. Applicable to many house price prediction models, GDP, infl ation, real wages and interest rates are signifi cant variables. All of these variables will be impacted to some degree by climate change and associated government policy.

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Property Data Solutions Update

Hunter and Central CoastLocal statistics , research and news

Property Data Solutions has a local representative

supporting businesses located in the Hunter or Central

Coast. Kent Lardner can call into your offi ce and offer

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Contact: 0437 770 123

property data solutions

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A leading insurer is currently running an ‘automatic flood cover’ campaign, but the first line of the small print states clearly, ‘Actions or movements of the sea are not covered’. Properties with increased exposure to bushfire, flood or coastal sea surges are readily identifiable using existing data and mapping services, which is good news for risk departments. The number of uninsurable properties is set to rise as general insurance underwriters seek to better man-age exposure to our changing climate. For a mort-gage lender, this promises to remain a crucial part of the approval process.

A home’s location can mean higher insurance costs, and higher insurance costs already make or break a sale. A study at Houston, Texas, found that flooding in 1979 had no real direct impact on values of those houses flooded. But as soon as insurance premiums increased considerably, house prices fell. Lenders also don’t generally approve deals if the property can’t obtain adequate insurance cover-age, further contributing to lower prices.

Some states in the US now prohibit the develop-ment of new housing in areas likely to be eroded. Concerned about the need to protect property rights, Maine, South Carolina, and Texas have imple-mented what is being called “rolling easements,” in which people are allowed to build, but under the condition that they will remove a structure if and when it is threatened by an advancing shoreline. Closer to home, the South Australian Supreme Court has recently ruled that predicted sea level rises are a valid reason to reject beachfront housing devel-opments.

What-If

Model simulations are limited, however, a free map-ping service is available enabling various sea-levels to be tested (go to http://flood.firetree.net). Whilst the estimates of how much the sea levels will rise vary, some reports say it will be up to 1.5m by 2100. But the experts also mention the risk associated with king tides and simultaneous storms. This is exactly what happened during the Newcastle long-week-end, so it is not a far-fetched scenario. As potential homebuyers become more aware of these issues, we may find more use of ‘what-if’ testing pre-pur-chase, with potential buyers entering sea-levels as high as 3m or more. The perceived risk could prove to be an important factor in home purchases, including consideration of current and future insur-ance premium costs.

According to Philip J. Trounstine, director of the Survey & Policy Research Institute at San Jose (CA) State University;

“My suspicion is that those who are highly educated are aware of this issue and there is some caution about purchasing in low-lying coastal areas. You are thinking in 50-year increments, which means leaving the property to children and projections in the rise in sea levels in 50 to 100 years”.

If we assume that the more luxurious waterfront properties will likely have a lower LVR (loan-to-value-ratio), the main risk for the mortgage industry would be for lower lying areas at higher LVRs. Locations such as Cairns, The Gold Coast and the Central Coast of NSW have been mentioned in a number of articles in recent months..

In relation to Cairns, comparisons to the New Or-leans catastrophe have even been made, due to its increased risk of storm surge flooding. With these rather nasty images etched into our minds, buy-ers may be increasingly cautious in years to come, reducing demand in some locations. Underwriters certainly will not forget the enormous cost of Hur-ricane Katrina

Has it started?

Several studies have found that properties situated in designated floodplains are often valued less than comparable properties situated outside the flood-plain. Price differences for flood prone areas can be -10% or more, however the estimates differ substan-tially between various studies and countries. Flood depth was also an important variable.

To try and understand if rising sea-levels will have a similar impact as traditional floods on housing markets is difficult. Comparing waterfront to non-waterfront prices is not appropriate for our research at this time. In a report created for 4BC radio earlier this year, PDS found comparable waterfront proper-ties in various SE Queensland locations were priced between 1.5x and 5x more than the price of an equivalent house only one or two blocks away from the waters edge.

So if price comparisons are not relevant, maybe growth levels could be used to judge the poten-tial threat of rising sea-levels? In a simple test, PDS compared a total of 20 properties sold in the past 12 months that could be considered exposed to a 3m surge level rise. The price growth of the waterfront group was then compared the average growth for the LGA (local government area). This was repeated for the Gold Coast (QLD) and for the Clarence Val-ley (NSW) for a 5 year period to June 2008.

The waterfront property sample average price growth was 64% in Broadbeach Waters and 37% in Yamba. Compared to the average growth of 35% for Gold Coast City LGA and 26% for Clarence Val-ley LGA, it appears that the waterfront properties have shown stronger demand.

Whilst it could hardly be considered in depth re-search, the data shows that if the risk does exist it is yet to diminish the desire to live next to our beautiful beaches and waterways. Time will tell, but the evi-dence appears that Australian buyers are lagging behind the US when it comes to responding to rising sea-level risk.

Kent Lardner


Sales and Growth Charts (Houses past 24 months)

From Q3 this year to Q3 last year we have seen an increase of 1 sale. In comparison to other markets, sales volumes are holding steady. The most active price segments for Gloucester LGA for the last 24 months have been <$200k (46 sales) and $200k - $350k (51 sales).

1. Gloucester

From Q3 this year to Q3 last year we have seen a decrease of just 1 sale. In comparison to other mar-kets, sales volumes are holding steady. The most active price segments for Upper Hunter LGA for the last 24 months have been <$200k (138 sales) and $200k - $350k (190 sales).

2. Upper Hunter



From Q3 this year to Q3 last year we have seen an increase of 5 sales. In comparison to other markets, this is a positive sign. The most active price segments for Dungog LGA for the last 24 months have been <$200k (44 sales) and $200k - $350k (79 sales).

3. Dungog

Muswwellbrook has experienced relatively large drop from 100 sales in Q3 2007 down to 53 sales in Q3 2008. The most active price segments for Muswellbrook LGA for the last 24 months have been <$200k (151 sales) and $200k - $350k (just over 300 sales).

4. Muswellbrook



Singleton has experienced moderate drop from 106 sales in Q3 2007 down to 80 sales in Q3 2008. The most active price segments for Singleton LGA for the last 24 months have been $200k - $350k (310 sales) and $350k - $500k (200 sales).

5. Singleton

Maitland has experienced moderate drop from 280 sales in Q3 2007 down to 244 sales in Q3 2008. The most active price segments for Maitland LGA for the last 24 months have been $200k - $350k (more than 1250 sales) and $350k - $500k (just over 500 sales).

6. Maitland



Port Stephens has experienced moderate drop from 245 sales in Q3 2007 down to 209 sales in Q3 2008. The most active price segments for Port Stephens LGA for the last 24 months have been $200k - $350k (just over 800 sales) and $350k - $500k (550 sales).

7. Port Stephens

Cessnock has experienced significant drop from 248 sales in Q3 2007 down to 189 sales in Q3 2008. The most active price segments for Cessnock LGA for the last 24 months have been <$200k (around 650 sales) and $200k - $350k (just under 750 sales).

8. Cessnock



Newcastle has experienced a significant drop from 723 sales in Q3 2007 down to 546 sales in Q3 2008. The most active price segments for Newcastle LGA for the last 24 months have been $200k - $350k (more than 2400 sales) and $350k - $500k (just under 1400 sales).

9. Newcastle

Lake Macquarie has experienced a large drop from 857 sales in Q3 2007 down to 587 sales in Q3 2008. The most active price segments for Lake Macquarie LGA for the last 24 months have been $200k - $350k (more than 2650 sales) and $350k - $500k (over 1500 sales).

10. Lake Macquarie



Wyong has experienced a significant drop from 799 sales in Q3 2007 down to 529 sales in Q3 2008. The most active price segments for Wyong LGA for the last 24 months have been $200k - $350k (nearly 2900 sales) and $350k - $500k (1200 sales).

11. Wyong

Gosford has experienced a large drop from 791 sales in Q3 2007 down to 508 sales in Q3 2008. The most active price segments for Gosford LGA for the last 24 months have been $200k - $350k (over 1700 sales) and $350k - $500k (just under 1700 sales).

12. Gosford



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