Property Prices in Australia

We are frequently asked by investors about the property market. In our last Investment News, we reported that dire predictions of the market’s imminent collapse had been shown to be wrong. As a result, one prophet of gloom, Steven Keen, now has to walk from Canberra to Mt Kosciusko wearing a t-shirt proclaiming his error.

So what has been happening in property in 2009?

The overseas picture

With the onset of the Global Financial Crisis, some property markets have experienced a significant downturn. The problems in the US are well documented and are likely to be ongoing, as the entire nation enters a sustained period of enforced saving.

The UK has also had a difficult time, with house prices recently posting their first quarterly increase since the third quarter of 2007. Closer to home, New Zealand is still down on its peak in 2007, although there are signs of consolidation and recovery.

Property in Australia through 2009

The experience in Australia has been markedly different. In 2008, the market reduced by 3% ‘peak to trough’ between February and December. However, by March 2009 it was becoming clear that this softening was limited both in scope and duration. At this time, Anthony Richards, the Head of the Economic Analysis Department of the Reserve Bank of Australia, noted that:

1. the weakness in housing prices was mainly at the higher end of the market; and
2. preliminary data was already showing a significant pick-up in the market.

Although we have obviously not yet completed the final quarter of 2009, it seems clear that Richards’ early assessment was accurate. According to RP Data-Rismark, by the end of the third quarter Australian house prices had risen by approximately 8%.

Of course, not all regions in Australia were equal. Darwin experienced 6.3% growth in the third quarter alone and Melbourne and Sydney easily exceeded the national average. However, other regions, such as Brisbane, Perth and Adelaide, have been less buoyant, despite having provided the best overall results in recent years.

Property performance and investment

There is no doubt that many who have ridden the recent roller coaster on equities markets would be looking enviously at the stability of the Australian property markets. But investors should always recall that the property market does not rise and fall uniformly. All investment, including property investment, involves risk.

Posted by LaTrobe Financial on 26/11/09

What does 2010 have in store for Property in Australia

With property prices in many capital cities hitting new highs, people are once again asking: “Can property values keep rising?”

We’re told that we have record population growth and we’re not building enough houses, and this is pushing up property prices.

So do we really have a shortage of dwellings? And can property prices keep rising?

Well…yes and no. Like most things –it depends.

You see, there’s not one housing market so it’s impossible to make a blanket statement about whether we have a housing shortage or not and whether property values can keep increasing.

Like most things in property it’s all about supply and demand.

While many first home buyers are looking to set up family in the new outer suburbs, a good proportion of them want to buy apartments in the “aspirational” inner suburbs of our capital cities close to their work and entertainment. This also happens to be the same market where many investors are looking.

At the same time, established homeowners are looking to upgrade their homes in these inner and middle ring suburbs.

With more buyers wanting the same type of properties in the same suburbs, yet fewer properties on the market than a year ago, we have a shortage of supply in locations where people most want to live…and this means property prices will keep increasing.

With very little construction of medium and high density dwellings (apartments and townhouses), this shortage of properties to buy or rent is unlikely to change for some time. Currently banks are reluctant to lend to developers, and when they eventually do turn on the taps there will be a lag of a number of years before new developments are completed. And these new developments will have come on stream at considerably higher prices than currently achieved to allow the developers to make the kind of margins that banks will want to see.

While there may be a surplus of CBD apartments in those new high rise towers, in general these cater for investors and over 80% are inhabited by tenants. Few homebuyers are keen on living in the centre of the city, so the many high-rise towers developers have on the drawing boards are unlikely to change the groundswell of unmet demand from homebuyers, who will head for the suburbs.

Yes property values will keep increasing in these inner and middle ring suburbs.

However there’s no shortage of housing in the outer suburbs of our major capital cities where builders are busy building new stock. There is also lots of land, resulting in subdued price growth.

Similarly in many regional and rural areas, demand is low and housing is plentiful, meaning there will be only modest price growth.

So is there a housing shortage? Yes in some areas and no in others.

Will property values keep increasing? Yes, but significantly more in some suburbs than others.

As home owners and investors (and tenants for that matter) head for the inner and middle suburbs, areas where the land is already built out, yet which offer proximity to workplaces, schools, public transport, shopping and entertainment facilities, rents and property values will keep increasing.

What about affordability? There will always be cheap properties around – just look in the outer suburbs or regional or rural Australia. The problem is most people just don’t want to live there.

Posted by Michael Yardney on 24/11/09

The Australian Property Market Wager

Followers of the financial press will by now have heard that doomsday economist Steve Keen has lost his high-profile bet with Macquarie Group economist, Rory Robertson.

Keen rose to national attention in 2008 after predicting that housing prices in Australia were on the verge of a collapse. Unsurprisingly, the tabloid media leapt onto the sensational story, generally failing to mention that Keen’s views were not shared by any other mainstream economist.

Rory Robertson was himself quite pessimistic about Australia’s economic outlook at the outset of the Global Financial Crisis. However, after a public email debate on the Australian housing market, Robertson challenged Keen to a bet on Keen’s views that housing prices would collapse by the end of 2009.

Keen has now been forced to concede defeat, following the release last week of data showing that house prices had increased by 6.2% in the year ending 30 September 2009 and were at a new peak.

Keen will have to make a 200km trek from Canberra to the top of Australia’s highest mountain, Mt Kosciuszko wearing a t-shirt saying “I was hopelessly wrong on house prices! Ask me how.”

The Business Spectator’s Christopher Joye wrote that Robertson had delivered a public good by holding “extreme views to account“. Joye was also critical of the print and electronic media, who had reported Keen’s views without mentioning that they were not shared by any other recognised authority in Australia. Joye wrote that Keen’s “dire prognostications” were simply “manna from heaven for journalists looking to shock their audiences.

Since the win, Robertson has been enjoying his victory. He reiterated his confidence in the fundamentals of the property market by saying:

“For fun, if Australian house prices ever fall by 40 per cent from any peak in my lifetime, I will follow in Dr Keen’s footsteps. Similarly, if Dr Keen proves the existence of the Loch Ness Monster, I will take the walk.”

One thing that we can learn from all of this is to be wary of relying on market predictions that we encounter in the tabloid media. Anyone who had sold a property in reliance on Keen’s predictions could have suffered significant losses.

Further, all of the levity surrounding the bet skirts the issue of what actually has been happening with Australian house prices since the beginning of the Global Financial Crisis. Certainly, the data shows that the market ‘cooled’ by 3.8% from its peak in February 2008 to its trough in December 2008. But the results for 2009 are clear – despite (or perhaps because of) the uncertainties surrounding the world economy, Australian house prices continue to grow robustly.

Posted by La Trobe Financial 12 November 2009.

Some property is just harder to finance!

You may have heard, lenders have made it harder for some people to get finance. A big part of this is due to a loss of appetite for property they class more risky, especially at lending levels where the loan is more than 80% of the property value (full doc).

So if you are out looking for the following types of property to buy, talk to your finance person as whilst not impossible, they will be harder to finance.

  • Small 1 bedroom units, less than 50m2
  • Company titled properties
  • Non Metro Area’s
  • Display homes
  • Units in high density area’s or blocks (greater than 30 units in a block)
  • Serviced Apartments
  • Student Accomodation