Decoding Real Estate Speak
Raine & Horne Commercial Newcastle
Read almost anything about the real estate market and at some point you may find yourself scratching your head, thinking, “Wait, what’s that mean?” Like anyone in a specialised field, real estate agents have developed their own vocabulary, and sometimes it takes a bit of decoding.
I’m not talking about the poetic licence you see in some real estate listings (after all, most of us have little trouble working out what “cosy” really means). It’s the real estate terms drawn from the world of economists, financial brokers, accountants, solicitors, engineers and architects that sometimes lead to confusion.
To help demystify common real estate lingo, let’s take a look at my latest wrap-up of Newcastle’s residential, commercial and industrial real estate markets, pausing to explore some of the terminology:
Strong clearance rates exist across the board in Newcastle, with agents having difficulty determining what a property will sell for as prices are rising fast due to strong demand. The fear of oversupply of apartments is unwarranted, as in the long run the sizable aging population will dominate this sector.
Clearance rate – The percentage of properties sold at auction in a given period of time. A clearance rate greater than 60% shows there is high demand for properties, which makes it a seller’s market. In the second last weekend of March, the clearance rate in Newcastle was 78% for residential properties.
Oversupply – When the number of properties on the market outstrips demand and there are not enough buyers. Oversupply leads to falling prices.
There has been a shuffling of the decks in the commercial property sector, as existing tenants relocate within the area. As predicted, tenants are looking for quality space on the edge of the city to avoid the looming light rail disruption. Vacant or partly leased city buildings are still in very high demand, with fully leased investment properties attracting record low yields.
Commercial property – Properties used for office and retail purposes.
Investment property – Units or buildings leased to tenants.
Yield – A measure of the annual income received for an investment property. Here’s how it’s calculated: from the annual rent, all non-recovered outgoings (the landlord’s payments such as council and water rates, insurance, land tax, nonstructural maintenance, fire compliance and management) are subtracted. That figure is divided by the property’s purchase price (not including purchasing costs), and then it’s expressed as a percentage. Currently, average commercial yields in Newcastle are x%.
In the industrial property sector, vacancy rates are lower than this time last year because of lower unemployment. There is still some potential to be absorbed in properties greater than 5000 square metres, but properties up to 500 square metres in size are leasing quickly if priced correctly. The big movement is in owneroccupied industrial strata units, with more than a 15% price increase for quality, well-located stock in the last 6 months. Fully leased investment properties up to the $5 million price range are attracting a strong level of enquiries from buyers.
Industrial property – Buildings used for warehousing, processing or manufacturing.
Vacancy rate – The percentage of a city’s or region’s total floorspace in a given real estate sector that is available for lease or sale. For instance, Newcastle’s industrial property vacancy rate is x%, which means x% of all industrial space in the city is currently available to lease or purchase.
Potential to be absorbed – Vacant space that is available to be leased or sold.
Strata units – Units that can be purchased separately by buyers who then each have ownership of an individual unit but share ownership of the rest of the property – such as foyers, grounds and parking spaces – through a body corporate. These units are usually the result of a developer purchasing a block of land, constructing a large building, then dividing it into smaller portions.
The message to take away from this report once it’s been decoded is that the Newcastle and Hunter property markets are showing strong results and improving prices in all sectors. This is in part due to the state of the local economy, with very low unemployment, increased spending by the coal companies and growth in sectors such as health services.
It’s no wonder the region has become the darling of the major tabloids and property investment magazines – our prices and our lifestyle are superb reasons to move to and invest in the region.