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Australian property markets generate debate

Reports of affordability issues, constant media bashing and a large dent in consumer confidence have made their mark on Australia’s property market in recent times.

According to figures from RP Data, the number of property transactions that took place last year was almost half that of 2002 and 2003, when more than 600,000 houses and apartments changed hands in each 12 month period.

In 2009, spurred on by the first home owners boost incentive, the figure stood at half a million, but in 2011, it was just 370,000; representing the lowest number of sales since the mid-1990’s.

According to a story in the Australian Financial Review, new housing sales have collapsed; housing credit growth has slowed; renovations are being postponed; and prices are sliding

This change in fortunes has commentators asking why?

Some believe all those “end is nigh” doomsayers may soon be able to say “I told you so”; others think it’s more likely a natural response to changing economic conditions around the world and our reversion to more wise, penny pinching ways.

Then of course there are those of us who have lived through three or more property cycles, and recognise it for what it really is – the nature of the beast.

Far from tumbling down like a house of cards (pardon the pun), research houses such as RP Data and Rismark suggest the Australian property markets are in their stabilization phase, with aggregate values holding steady across the capital cities during the March quarter.

Yes, there has been a decrease in prices according to the year on year figures, with aggregate values declining by 4.4 per cent across all capitals for the 12 months to March 31st, 2.5 per cent outside the capitals and more than 5 per cent in Melbourne, Hobart, Adelaide and Brisbane.

But as any savvy investor knows, Australia is not just one property market. Nor is each capital simply representative of one all encompassing housing sector.

No, there are markets within states, cities and even individual suburbs and streets!

This is clearly identified by the fact that some markets have been more adversely affected than others by the recent property slowdown.

Executive homes in high-end locations and holiday hotspots such as the Gold Coast and Noosa have experienced price losses in the double digits.

In fact recently Australian Property Monitors reported a number of suburbs in Melbourne that experienced double digit growth in the last 6 months.

The very fact that our markets are so divided makes it difficult for analysts to determine where all of this is heading. Is Australian housing moving up, down or sideways?

Generally, the answer depends on an educated guess at best and opinions driven by a personal agenda at worst.

A lot of international commentators would have us think we are in the midst of a deflating housing bubble that has no end in sight anytime soon and investors should take their bat and ball and go home.

But these people are comparing apples with oranges in most cases, trying to make our very different housing sector fit into that of the US, Ireland or Japan.

That being said, there’s no denying that we have become a far more conservative nation in recent times and the chances of things picking up in the next year with great gusto are pretty unlikely.

That just wouldn’t happen without a big shift in consumer confidence, which is clearly quite low at present. Especially with all the uncertainty in Europe.

RP Data’s head of research Tim Lawless, was quoted in the Financial Review as saying that our current downturn is cyclical, though compounded by the financial turmoil overseas and the new conservatism at home.

“If history is any guide, after a boom it will be two years before any upturn and five years before any strong growth.

“It will be a couple of years before consumer sentiment improves enough for people to make high- level housing decisions.”

“Investors need to realise they will not see capital gain for 12 months so they are buying to maximise yield.”

In the same article veteran analyst, and managing director of BIS Shrapnel, Robert Mellor says that future price growth will be a lot less than in the past.

“The last boom was too great . . . we are fully valued,” he says. “The 9-10 per cent annual gains of the past will turn into long-term gains of 5-6 per cent a year.”

But again, every market is different and according to BIS forecasts, chances are the likes of Sydney, Perth and Brisbane could achieve 15 per cent gains over the next five years, while little movement is likely in other cities.

The Reserve Bank has optimistically noted an improved environment for housing, suggesting in their latest Financial Stability Review that we may soon see some light at the end of the cyclical tunnel.

“At the national level, the ratio of dwelling prices to income has fallen over the past year, and is below the average of the past decade, while rental yields have begun to pick up, assisted by stronger rental growth as well as lower prices.”

In summary:

We’re in for some interesting times ahead, but nothing I haven’t seen before. We’ve had flat spots in our property markets for 3 or 4 years in every decade that I’ve invested (that’s 4 now). But when you look back, who wouldn’t like to buy their parents home for the price their parents paid years ago – when times were tough for them?



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Australian property markets generate debate' have 3 comments

  1. Avatar for Property Update

    June 13, 2012 @ 1:04 am opinder singh

    Hi Michael,
    wonderful article..But one thing After reading this I am bit confused that one should only think of buying in
    sydney, perth or brisbane as outlined in article predicting 15% returns by BIS sharpnels.
    So I shouldn’t think of buying in Melbourne..just wandering
    Thanks again

    Reply

    • Avatar for Property Update

      June 13, 2012 @ 7:28 am Michael Yardney

      Thanks for the question Opinder
      Firstly remember that there is not one market in Sydney, Perth or Brisbane – so you can’t just buy any property there either. Clearly not every property makes a good investment.
      I guess this means a top performing property in Melbourne will still be a better investment than an under performing property in Perth. Yes Melbourne is in it’s slump phase which means you will need to be very selective in any property purchase there – buy below intrinsic value in an area that has always outperformed and then add value through renovations to get capital growth

      Reply

  2. Avatar for Property Update

    June 13, 2012 @ 11:27 am opinder singh

    Many Thanks for the reply Michael….:)

    Reply


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