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Is it time to panic about our property markets?

Meltdowns, busts, crashes and basket case real estate…open the papers or turn on the news and these are the types of descriptions you’re confronted with when it comes to the current state of Australia’s property markets. But are things really as bad as all that?

According to a recent article in the Sydney Morning Herald, while the end of property as we know it may not necessarily be nigh, there are more cracks emerging that suggest some sectors might be in for a bit of a bumpy ride over 2011.

Take apartments in the Sunshine Coast town of Noosa for instance, where prices have fallen by 21% since 2008, down to a median of $570,000, according to the Real Estate Institute of Queensland. Then there’s the issue of a significant slow down in sales along the Sunshine and Gold Coasts, where property transactions have more than halved in recent times.

Some are suggesting these “macro market” downturns are a sign of more bad news to come, with our property markets over priced by as much as 40%.

According to The Economist magazine, Australia’s housing is the most overvalued in the world, with more unaffordable homes than any other English-speaking nation. Toward the top of the “most expensive” charts were the Gold Coast and Sunshine Coast, according to a January report by consulting company Demographia, which compared 325 housing markets in seven developed economies.

Australia’s most recent house price index produced by the Australian Bureau of Statistics for our eight major cities, revealed capital gains in the order of 15% since the first quarter of 2008, with Sydney and Melbourne housing growing by 16% and 26% respectively over the period.

However analysts with the likes of RP Data, ANZ and Westpac have argued that weakening home prices in parts of the sunshine state are an isolated incident, with overall low employment levels and a dwelling shortage across the nation continuing to underpin prices and maintain market stability on the whole.

This is a different story to what’s occurring on the Sunshine and Gold Coasts, says senior RP Data analyst Cameron Kusher, where there’s been a saturation of stock in recent times that’s coincided with a fall in population growth.

According to RP Data, sales in these popular tourist towns halved in December from a ten year monthly average.

This has forced vendors to take drastic action and lower their price expectations according to  John Newlands, Gold Coast spokesman for the real estate institute and principal at an LJ Hooker franchise in Surfer’s Paradise.

“A lot of sellers are cutting prices and are preparing to meet the marketplace. In 2011, more investors will start to come back into the marketplace as prices fall,” he said.

RP Data’s latest figures reveal that median apartment prices on both the Sunshine and Gold Coast fell by 1.3% to $370,000 in the three months to December from the previous quarter.

But founder and managing director of Australia’s largest apartment developer Meriton insists that the Gold Coast market is the “opposite” of other parts of the country and falling prices there won’t be replicated Australia-wide.

Meriton is currently building the 1165-unit Brighton on Broadwater apartment development on the Gold Coast, but has no plans to undertake further development in the area once that project is completed.

Harry Triguboff says, “There’s not enough work there. So here, it’s overcrowded, and there, there’s not enough demand.”

According to the ABS, about 6.7% of the Gold Coast’s population was unemployed as of February, up from 5.7% six months ago, while on the Sunshine Coast unemployment rose to 7.4% from 6.6% in September. In contrast, unemployment fell to 4.9% across Australia in March.

RP Data reports that median prices across Australia’s eight capital cities were flat in February at $459,000, while the National Australia Bank predicts that prices will climb by a modest 0.6% to March 2012.

As for our property markets being over-valued, 63% of Australians believe this to be true according to a survey of mortgage holders commissioned by QBE Insurance’s lenders mortgage insurance division.

More than a tenth of borrowers who responded to the survey said they would struggle to repay their home loans if the Reserve Bank were to raise interest rates by a further quarter percentage point, with almost a quarter admitting that they would find two increases hard to manage.

Many are suggesting that the RBA will increase interest rates by another 0.26% over the next 12 months.

Melbourne based economist with ANZ Bank David Cannington, claims that the drop in parts of Queensland’s property sector has more to do with the continuing strength of the Aussie dollar.

“With a strong Australian dollar, Australian tourists are heading overseas and inbound tourism has been fairly flat. That’s what has affected demand for housing, especially serviced apartments, in the Gold Coast and Sunshine Coast markets.”

While it’s easy to look at examples like this in isolation and buy into the doom and gloom media reports surrounding Australian property, the fact is that we live in a country where there are numerous tiers in our housing sector. Some markets will outperform others at this time and some will stall – it’s always been the way.

Yes things are slowing down across the board, but to me that means opportunity, not time to hit the panic button.

Source: Sydney Morning Herald



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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


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