Around the beginning of each year, it’s interesting to take stock of where we’ve been and where forecasters predict we might be headed in the sometimes-tempestuous world of Australian residential real estate commentary.
The last twelve months have been a time of great opportunity for investors to break into housing or grow their already established property portfolios.
While many homeowners who thought the ‘Great Australian Dream’ to be unattainable had their faith restored, as continuing low interest rates and aggressive bank competition for new mortgage business made property far more accessible than it had been for some time.
Finishing on an investor high
Property investors were feeling pretty good about housing as 2014 came to a close, claiming around 50 per cent of all new dwelling loans at the end of December – the highest ever recorded.
Overseas investors were further fuelling the fire under house values, along with continuing strong population growth, with Australia’s capital city property prices increasing by an overall 7.9 per cent across last year (according to CoreLogic RP Data).
Riding high on the real estate wave, Sydney in particular has experienced a much needed resuscitation of its housing market, clamouring back with a healthy 13.4 per cent growth rate across 2014 and 15.2 per cent in 2013 (RP Data).
It’s important to remember that this came off the back of a prolonged period of stagnation across the Harbour City in general though, and as such is more a necessary recovery than unexpected ‘boom’.
Naysayers keep making noise
Of course these steady conditions are not enough to prevent the likes of Steve Keen, head of economics, politics and history at London’s Kingston University (and long time antagonist of Aussie real estate), from talking potential bursts of a so-called ‘property bubble’.
Keen says two things could put the brakes firmly on dwelling values across the ‘Lucky Country’, being:
- A rapid economic slowdown that causes negative returns in the rental market to become excessive. Keen refers to our unique negative gearing environment, implying that the financial burden of holding housing assets is being passed on to the general population through tax incentives for property investors.
- A serious downturn in China. Although Keen concedes that this could go either way for the fortunes of Aussie property values, with the potential for more Chinese investors looking to park their capital in our housing markets as opposed to local assets.
Are our markets faltering?
While alarmists from abroad such as Keen like to make lots of noise about impending market crashes, the reality for Australian realty is actually a lot less alarming, according to local analysts.
For one, what many overseas commentators fail to account for is that Australia is a vast continent, where there are markets within markets.
As such, to make generalizations about the state of our ‘housing sector’, as though it’s one gigantic mechanism is seriously misguided.
Local analyst and managing director of SQM Research Louis Christopher, has criticized recent bluster from some of his counterparts who suggest Sydney house values are set to back right off in 2015.
Although Christopher concedes that continued growth in the vicinity of 15 per cent is unsustainable, he says if interest rates remain low or fall further as some predict, we won’t see a marked deceleration in the city’s prime property enclaves.
Speaking with The Adviser, Christopher suggested SQM’s forecast for Sydney property across the 2014/15 financial year, would be around 8 to 12 per cent growth.
“Over recent summers – and including this one – we have been getting the usual commentary from the usual suspects stating the market is about to slow down or is slowing down,” he observed.
“It is increasingly feeling like the boy who cried wolf. Sooner or later they will be right, but right now, a slowdown currently happening in Sydney? Hardly.”
What about elsewhere?
As for the rest of the nation’s capitals…
Christopher says tidings are looking increasingly optimistic for Melbourne after a drop off in December, which was most likely due to standard seasonal market fluctuations as opposed to a loss of favour among property punters.
And while concerns regarding a glut of new CBD apartment stock, set to come on line over the next 12 to 18 months are warranted, Christopher says that vacancy rates overall have experienced a slight downward trend since 2013 and stock levels remain relatively tight.
News isn’t so rosy for Darwin property investors, where vacancy rates have been on a steady upward trajectory, sending rental prices plummeting by a significant 14 per cent across last year.
Christopher says data for Perth is producing conflicting forecasts, with vacancy rates trending high on the one hand, while asking rents for residential accommodation is creeping upward on the other.
“It could just be a statistical aberration in the ongoing down market,” says Christopher. “It is possible too, it may represent a signal of the bottom in the market.”
He reports that sales remained steadily flat across the Perth housing sector in 2014, and are expected to continue on this slower course throughout 2015, on the back of the commodities downturn.
Christopher says the Canberra property market has also been a difficult beast to read of late, with initial impressions of a bottoming in the rental sector being overshadowed by a rebound in December’s vacancy rate back to 2.3 per cent.
“That said the sales market appears to be strengthening as stock on market is trending down, implying that supply is being absorbed by home buyers.”
Christopher says locals in the capital city are likely taking advantage of a weaker market and lower interest rates to move up the property ladder.
Christopher says now is a good time for property investors to operate in, “If you do your research and study how each region is moving and what is influencing these movements.”
Overall, it’s about keeping abreast of the various macro and micro fundamentals and importantly, having a sound understanding of the specific real estate market you’re working in.