The beginning of a new financial year for property investors – Michael Matusik

Well goodbye fiscal 2013.  Business-wise, for most, you have been a real pain in the backside.  Federal politics hasn’t helped business matters much either.  Oh fcuk Matusik, that must the understatement of the year.

I am trying to stay positive here & not touch on the uncertainty caused by announcing the election date so early; the sheer lack of competence & the recent baton passing.  I cannot for the life of me, write ‘leadership spill’ here, as to do so would be to admit that either of them are leaders.  No!

So let’s cover the good news, real estate-wise….

Population growth
Things are improving here, with Australia seeing a big lift in population growth in recent years.  The country’s permanent population increased by 400,000 last year or by about the number of people who live in Canberra.  We need another Canberra like a hole in one’s head, but you get my drift.

[sam id=37 codes=’true’]I will cover this in more depth on Tuesday fortnight, as it is an important topic, but for now, suffice it to say that more people means higher housing demand.  This means more construction, better job prospects, and more sales.  And if supply remains tight, it also means price & rental growth.

House prices
The annualised results for 2012/13 are in and they show for urban Australia (the eight capital cities) that prices rose 3.8 per cent.  They actually fell, as an aggregate, across regional Australia last year, down by -0.4 per cent.

The winners were Darwin, up 6.1 per cent; Perth up 6.0 per cent & Sydney up 5.6 per cent.  Melbourne enjoyed a 3.4 per cent rise.  The other capitals didn’t do much at all.  Brisbane values were flat at 0.6 per cent.  Hobart’s fell by -1.8 per cent.

Economic forecasters BIS Shrapnel earlier his week have forecast some pretty encouraging figures, in terms of price growth, for the next three years.  I have highlighted the three years as many think BIS are talking about the next 12 months when they announce their forecasts.

So between now and the end of fiscal 2016 – that’s June 2016 – BIS think that Sydney’s average values will lift by 19 per cent; Brisbane’s by 17 per cent & Perth’s by 15 per cent.  Melbourne’s prices are expected to rise by just 5 per cent over that three year period.

BIS also think that the CPI during this period will average 4 per cent per annum which, for mine, means rising interest rates.

On that note, the Commbank has forecast, after the cash rate falls another 0.25 per cent towards the end of this calendar year, that they could lift by half a per cent by the middle of next year.

Now, this is all too like reading tea leaves for me – except to say that we are at (or near to) a new property growth cycle, which will play out in the next three to five years.

Property cycle
As the figures above suggest, Sydney’s recovery is well underway.  Demand is on the increase & strong prices are being achieved for properties priced under $2 million.  Weekend clearance rates are well over 70 per cent; loan applications are rising & almost half the buyers are investors.

This means great things to come for south-east Queensland.  The best shorthand here is “peaks head north” and they will come, with Brisbane, then both coasts seeing a lot more inquiry from later this year.  It is just starting to happen in Brisbane with Sydney investors starting to buy.

The Gold & Sunshine Coasts were oversold; have now corrected; are now both supported with practical infrastructure and will be seen as ‘great buying’ as this cycle improves.  Buying a canal waterfront home or apartment in the low million dollar range, with the likelihood of good capital gains over the next five plus years, is a very attractive proposition to downsizers, especially those coming from Sydney & Melbourne.

Housing supply
Three measures here:

Vacancy rates remain tight, mostly under 2 per cent across most major Australian centres.

The stock listed for sale is in decline across most centres, with the biggest falls in Sydney, down 23 per cent.

The underlying demand now exceeds new housing supply.

We need to be building about 170,000-odd new homes per annum, but could only manage 155,000 new starts last year.  This is a big turnaround from overbuilding just a few years back.

Employment
Jobs are being created across Australia.  Maybe not enough, but overall 124,000 new jobs were created across Australia over the last 12 months (year-ending May 2013).  More than half of these (56 per cent) were created in New South Wales and mostly in Sydney.

As I outline next week, there is a very strong connect between job growth & the health of the housing market. 

End note
So right now, business is asleep.

It has parked its forward plans & even current spending plans until there is a clear direction ahead politically.  Consumers are doing likewise.  Savings are up; credit card debt down.  Confidence in some areas is okay, but generally we are somewhat pessimistic at present.

Oh, but when the circuit breaks, and despite coal mining this & China outlook that, property bears might be in for a one hell of a surprise.

PS. I will be discussing such matters with Kevin Turner in this week’s  Real Estate Talk show as well as “Your Home with Kevin Turner” at noon today on 4BC1116.  I hope you can join me.



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Michael Matusik

About

Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


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