Where to for for the Australian Real Estate Market 2008-2011?
Updated September 2008
During the past 12 months, Australian interest rates have gone up, and the Aussie dollar has remained strong against the US dollar. Occupancy rates for rental properties have started to reach record highs, and rents are rising.
Australia's unemployment rate is at a historical 32 year low. Migration is at an all time high.
The Australian economy continues to enjoy the commodities boom. Australia seems quite immune from the subprime crisis, due to fundamental differences in it's property markets, and ways of financing.
All these facts must have an effect on the Australian Real Estate market in 2008-2010. The question is what?
As occupancy rates for rental property reach crisis proportions around, many investors are keen to take advantage of the forthcoming rent boom.
The questions investors are asking are:
WHAT TYPE OF PROPERTY IS MOST LIKLEY TO BENEFIT FROM THESE RISING RENTALS, WILL PRICE RISES FOLLOW, AND WHERE SHOULD THEY BUY NOW TO MAXIMISE GAINS?
Typically, it is extremely difficult to pinpoint WHEN one should make their move into a property market, and many people rely on their friends , or the general media for information.
In many cases, this is often a fatal error. Research reports and media stories are often based on statistics. Statistics by their very nature are from the past.
By the time these figures are collated, analysed, and published, there can be a serious time lag, often by as much as 6 months.
What these statistics don’t tell us is that in fact for many tenants, they are having to out-bid others for property and that people are queuing for rental property.
Many tenants are simply NOT able to find anything to rent at all.
Will this situation continue, and how can an overseas investor take advantage of the situation?
As the Sydney Morning Herald reported on August 9, 2008:
"Fortune favours the brave, so they say, which should be a cautionary note to anyone waiting for the next big boom. By then, you've probably missed the boat. Experts agree that prices in select hot spots-especially inner city and beachside, and areas with strong population growth and soldi infrastructure plans - are primed for healthy capital growth when the markets take off again"
UNDERPINNING THE AUSTRALIAN MARKET :
The factors are currently underpinning the Australian housing market: -The Australian resources boom.
-Infra structure development by State Governments.
-Global liquidity increasingly seeing Australia as a "safe haven."
-Reasonable interest rates. (See www.citylifeproperty.com/pp_06.ASP
FOR THE LONG TERM INTEREST RATE GRAPH)
-Low unemployment, and strong consumer confidence.
-Very strong overseas migration.. In 2007 the ABS report it was over 400,000 people, the highest in 18 years. High migration greatly helps house price growth. -Higher Australian Dollar. This in fact has helped in many ways. Although meaning higher prices for manufacturing and commodities, it has acted on as a brake on the economy , ensuring no overheating. The economy has been able to remain extremely healthy.
- 1/3 of all people have absolutely no mortgage at all. Interest rates have no effect on these people.
-One third are renters, creating a good supply of tenants.
-Shortage of new supply. All cities are facing huge shortfalls in supply relative to demand: -this is a very important point : the massive and increasing shortage of supply (www.citylifeproeprty.com/pp_03.asp) increasing population as well as the massive amounts of wealthy new migrants arriving looking for property will continue to ensure strong demand, both for rental and to buy.
-High equity. Most property owners in Australia , both investors and for own use, have been required by the Bnaks to outlay at least 10%, and in many cases 205 of their own money, and have to face strict Mortgage qualification. This helps protect any defaulting loans. (The Reserve Bank reported in late August 2008 that Mortgage defaults was barely 0.4% of the Banks loan portfolios.) Unlike the USA which offered 100% housing loans,even to those with no jobs, no income, and no prospects.
-Rental growth. Residential rents are starting to grow throughout the country, as the shortage of supply hits.
-Capital markets opening, enabling world movement of funds.
-Global low interest rates.
-Huge liquidity of funds looking for a home from around the world.
-And Australia's own record economic run. There seems little risk of the situation changing in the short term in terms of the rents crisis. A massive shortage of new construction around Australia, with increasing demand and rising migration, has meant an imbalance in supply/demand has started to occur, and a new Golden Age for Australian property could be about to begin. If 400,000 people arriving every year is not going to create a housing boom, we dont know what will.
SYDNEY.
In addition to the rents crisis, Sydney is in the grip of a second property crisis with the supply of new houses falling to levels not seen since 1975.
There is a desperate need for more rental accommodation to be provided to ward off rent and price increases. But in Sydney, due to planning issues, and shortage of land, this can not happen quickly.
In fact the latest Statistics revealed in the Australian Financial Review Feb 2, show Sydney is currently undersupplied by some 30,000 homes, and this acute undersupply is forecast to rise to over 60,000 by the end of 2009.
Our experience is that most investors in Sydney wait too long to move into the market, and then miss the early capital growth that tends to explode in Sydney quite quickly.
Sydney has experienced its highest migration in 5 years, with 21,500 arriving, (compared to an outflow of people in 2004). Historically, we have seen prices rises in Sydney occur about 18 months after a strong migration burst.
Researchers are forecasting rents to rise by as much as 40 per cent within two years, and an upturn in prices will surely follow.
HOUSES: Last 12 months to March 2008
Values up +6.39% (Residex)
+ 5.9% (Real Estate Institute)
Rentals up + 14.3%(Real Estate Institute)
APARTMENTS: Last 12 months
Values up +6.18% (Residex)
+ 2.5% (Real Estate Institute)
Rentals up + 12.5% (Real Estate Institute)
EXECUTIVE SUMMARY:
STRONG BUY: INNER AREAS.
Sydney currently represents the best buying conditions in Australia.
It is now close to 5 years since the market peaked after the last boom and everything is in place for the next cyclical upturn in prices, especially in the tried and tested inner city and near city areas
However, it should be noted that it is the affluent areas that are seeing all the growth, the outer areas away from the harbour have shown little growth, and interest rates will keep this segment slow.
The good news for investors is that new construction is well short of underlying demand and at the lowest levels seen in Sydney for 5 decades.
Rental growth has been strong over the last year, but we are still in the early stages of the rental upturn. With high rental occupancy, a record level of new immigration and low supply of new housing there will be enormous pressure on the rental market for many years to come.
We expect to see ongoing and consistent rental growth for the next 3 to 5 years. Sydney’s rental occupancy is at all time high, not seen at this level since the mid 1980’s, a period which preceded the great property boom of that decade.
All the indicators suggest we are in for a prolonged period of increasing house prices and rentals in prime areas, WITH LITTLE IF ANY DOWNSIDE.
The simple fact of the matter is we do not have enough accommodation for our expanding population.
And with record migration figures and strong employment, combined with this chronic housing shortage, where will all these people live? 
"By 2010 we project a record housing shortage of nearly 200,000 homes”
The BIS Shrapnel price growth forecast is for an 18% price upswing.
other cities continued here:
WWW.CITYLIFEPROPERTY.COM/PP_25.ASP
