EXECUTIVE SUMMARY
There has been much speculation, confusion and debate around the Australian property market in the first six months of 2010 as the market settles back down, following the turbulent times of the Global Financial Crisis.
What has become clear is that views are polarised, there is very little consensus on predictions for the remainder of the year, concern about the impact of the Government’s proposed mining super profits tax on the availability of future bank mortgage funding, and it may be too early to get a clear picture of what will happen overall. What is known is that it is starting to have an impact on consumer confidence.
The caution here is not so much the effect this proposal is having today, but the flow on effect to the property market in two to three years’ time if this is not resolved quickly and some of these future projects do not start as a result.
With more than 420 members on the ground in cities, suburbs and country towns across Australia, the First National Real Estate network asked its members for their view of their local property market in order to gain a state-wide impression of market conditions that would then be put together, like pieces of a jigsaw, to provide the big-picture national outlook.
Consensus amongst First National members is that although prices’ growth will slow, or even slip backwards in some parts of Queensland and Western Australia, the property market will broadly gain strength and they can approach the next six months with optimism as the market continues to provide unique opportunities for home buyers.
Supply and demand still dominate the market and will be the key drivers of the property picture into the future. Unless all levels of government work together to address this crippling growth factor, real estate in Australia will be unable to realise its real potential.
Small investors and people looking to upgrade their home were already returning to the market in the first half of 2010, and First National anticipates this trend will gain even more momentum in the second half of the year.
Australia’s leading mortgage aggregator’s figures show almost 40 per cent of loans drawn in April were to investors – the highest number recorded.
Broadly speaking, the $500,000 to $1.5 million market is the strongest bracket and it is interesting to see investors at the upper end of this bracket instead of the traditional sub $500,000 range.
Prices and prices’ growth have moderated in recent months, but both are anticipated to increase in the latter half of the year – what is uncertain is by how much. First National’s members are predicting increases of anywhere between 1 per cent and 10 per cent, depending on their location. This is on the back of an 11.9 per cent lift in national city dwelling values over the last six months, and 5.6 per cent increase in value for the balance of state dwelling values.
While first home buyers have reduced in numbers as a result of stimulus initiatives being phased out, activity by this segment will likely increase in the latter half of the year, returning to more normal levels.
The reduced numbers of first home buyers is anticipated to be balanced by stronger activity in the mid-range property segment for both home sales and renovations, which were up 2.4 per cent in March to a level of 9.7 per cent higher than 12 months ago.
An increasingly tight rental market will continue to yield strong returns, proving lucrative for new investors. While there is some easing of rental vacancies in some areas of Australia, First National agents, in the main, predict rental increases in the vicinity of 5 per cent to 10 per cent, acting as a further drawcard for investors.
Strong population growth predictions and increasing pressure on prices, as demand continues to outstrip supply, will provide real benefits for those states able to maximise their opportunities from ongoing strong immigration levels.
Risks
The major risk to the Australian property market from ongoing rate increases is mortgage stress, which may lead to increased defaults or worse, a negative-equity situation, which would leave many in a no-win financial situation.
Late payments of more than 30 days on top-rated home loans increased by 1.34 per cent in the March quarter, up almost 0.25 per cent on the December 2009 quarter.
Interest rate increases are also expected to adversely affect affordability – representing a double-edged sword as it effectively puts the home ownership dream beyond the reach of many, while at the same time providing greater opportunity for the second and third time home buyer segment.
Mortgage refinancing is also of rising concern as some home-owners, buoyed by double-digit rises in property prices, are increasingly using their mortgages to help fund the purchase of big ticket items from new cars to holidays.
Mortgage refinancing hit a record high of 37.2 per cent of all mortgages arranged in March.
Other risks that could undermine the Australian real estate market include:
- New taxes by local, state and Federal Governments
- Planning and approval processes
- The mining super tax and its effect on future mortgage funding availability
- Lack of land release for building new homes.
While the Federal Government announced the new portfolio of Sustainable Population, and appointment a new minister to the post, there is no real expectation amongst First National’s members that this will have any real impact on the property market in Australia.
Disclaimer: There are many uncertainties in forecasting movements in the market such as government policy changes, interest rate changes and global economies. Therefore, the forecasts in this report should be taken to be indicative of market directions. First National Real Estate takes no responsibility for actions taken on the basis of this report and we encourage all vendors and buyers to conduct their own research.
NATIONAL OUTLOOK
There is consensus amongst First National members, and most commentators, that interest rates will continue to rise by the end of the year, but there is a difference of opinion about how big these rate rises will be.
First National members are predicting anywhere from 0.25 per cent up to 2 per cent (in a small number of cases).
The impact of interest rate increases to date is already being felt with around 25 per cent of respondents saying there had been an increase in forced sales due to mortgage defaults. It is predicted that mortgages will be further stressed in the second half so the rate of mortgage defaults could rise, along with forced sales.
Sales volumes, in general, are expected to increase by the majority of
First National members responding to the survey, with around 70 per cent predicting sales to increase in the coming 6 months.
House and Apartment Prices
In the first half of 2010, as predicted in our January 2010 Property Outlook, house prices generally increased across Australia. Around 80 per cent of survey respondents experienced an increase in house prices, with the majority by between 1-10 per cent. Around 70 per cent of our members surveyed, said they saw apartment/strata property prices and land prices increase by between 1-10 per cent.
House prices are predicted to continue increasing by up to 10 per cent by the end of the year according to 70 per cent of our members surveyed, along with strata property prices and land prices.
Rental Market
The rental market continued to be tight for the first six months of 2010. While it is predicted rental vacancy rates may reduce slightly over the second half, and so ease pent up demand, weekly rental prices are predicted to increase, making it potentially just as difficult for renters to get into appropriate accommodation.
Our survey showed 65 per cent of First National members saw vacancy rates decrease, mostly by up to 5 per cent, and this trend is predicted to continue into the second half of the year with 70 per cent of First National members predicting further declines of up to 20 per cent in the majority of cases.
Rents were increased by up to 10 per cent by 86 per cent of First National members responding to the survey. They are predicted to continue escalating by up to another 5 per cent in the majority of areas, with 20 per cent of respondents predicting rent increases of up to 10 per cent.
Investor activity has increased for around 62 per cent of members surveyed, with only 7 per cent reporting a decrease. This is expected to increase by up to 5 per cent by 43 per cent of our survey respondents, by between 10 and 20 per cent by 45 per cent of our survey respondents, and by more than 20 per cent by around 11 per cent of our survey respondents.
Emerging Market Trends
First National members continue to report strong desirability by home buyers for energy efficient features when looking to buy a new home. A recent report showed 59 per cent of home buyers would pay more for an environmentally friendly property.
Almost 80 per cent of members responding to our survey said their customers seek energy efficient features, the top of the list being water tanks (82 per cent) and solar hot water and/or power (82 per cent). This is followed by native, drought tolerant gardens (26 per cent) and approved garden watering systems (25 per cent).
Just over 67 per cent of First National members responding to the survey agreed with recent reports that there is a trend that more Gen Xers and Baby Boomers are opting to stay in their homes, making it even harder for Gen Yers to get into the property market.
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