Despite buyer confidence dipping over recent months, the
property market continues to perform well and offers good
opportunities for investors who understand the fundamentals and are buying for their medium to long-term portfolio. Released in April 2008, ANZ’s most recent Housing Snapshot provides
commentary on the residential market and their Chief Economist is quoted saying “Australian house prices have never fallen and going forward we believe they never will”.
(refer Graph 1 Source: ANZ Economics April 2008).
Current economic conditions in Australia are likely to support the ongoing increase of housing prices across the nation. Likely to be at a more moderate level, increases in prices places further
pressure on affordability which is already at record low levels. Interest rates have continued to increase since December 2001 decreasing the possibility for renters to move into home ownership
(i.e they are forced to rent for longer). With the dramatic increases in materials such as reinforcement steel (prices have increased by 60% over the past 6 months and are tipped to rise at a rate of 10% per month for the next year) and labour costs, Developers have no choice but to pass on these costs to
Purchasers, forcing median prices upwards.
Population Growth
Currently experiencing a 20-year high, and with the recent Budget increasing migration quota levels to 190,000 per annum, net migration is expected to have a continued and long-term effect on housing demand. Australia’s favourable economic conditions, excellent employment opportunities and our attractive lifestyle is likely to continue to attract migrants to the country. Net
migration reached a record high of 184,500 last year and is
expected to reach 227,000 over the next decade - as can be seen in Graph 2 Australia is currently experiencing much higher
population growth than other western countries. Population growth is a major contributor to a healthy economy and solid property market, underpinning the underlying demand for
housing.
Residential Rents and Vacancy Rates
Since March 2005, vacancy rates in all capital cities, have remained below 3%, being the generally accepted benchmark for a
balanced rental market. Darwin in particular is currently
experiencing the lowest vacancy rates (0.3%) of any capital city for the past 20 years (refer to our history file over for current rental performance in Darwin). All capital cities are currently enjoying record low vacancy at 0.6% (inner-Melbourne); 1.2% (inner-Sydney) and 1.6% (Brisbane).
Resulting from the tight vacancy rates, median rents for all capital cities have continued to rise over the past two years, rising from 7.1% in Brisbane to 33.9% in Darwin over the past 12months alone (refer graph 3).
Fuelled by the nation’s growing population and particularly strong migration levels into Brisbane and Melbourne, demand for rental properties continues to grow as fewer new properties are coming onto the market.
Outlook
With the Reserve Bank of Australia decreasing interest rates by 0.25 basis points at the beginning of September (and predictions of further decreases before year’s end), the outlook is positive for investors. Currently estimated to be around 32%
nationwide, dwelling undersupply is expected to worsen as
construction prices continue to increase causing fewer
development starts, thus placing even greater demand on the rental market. Simply, limited availability means higher rents; and higher rents mean better returns for investors.
Pacific Eastcoast works hard to ensure our property portfolio represents projects we believe will provide our clients with a mix of good capital growth and rental returns. We are proud to provide some evidence of this with the examples below.
Pacific Eastcoast History File:
Sales performance
“RIZE”, Richmond VIC
Townhouse Buck14: two level / two bedroom townhouse purchased in June 2007 for $490,000. With construction underway, a recent bank Valuation at the time of Land
settlement has valued the property at $560,000
(14% growth in 8 months)
“MGV” Malvern VIC
One bedroom plus study apartment purchased in April 2006 for $420,000. Nearing completion and re-sold in February 2008 for $482,000 (14.8% growth in 22 months)
“Kensington Crest”, Kensington VIC
Two bedroom apartment purchased in October 2006 for $354,000 resold in July 2008 for $410,000
(15.8% capital growth in 21 months)
“Sepi” Banyo QLD
Apartment: 2 bedroom / 2 bathroom
Purchased off-the-plan in June 2006 for $315,000. Now settled, the bank valuation for settlement finance confirmed at $420,000 (33% capital growth in 26 months)
Rental performance
“Morphis Double Bay”, Double Bay NSW
Apartment 5: 2 bedroom / 1 bathroom (no car space).
Renovated under the Morphis scheme in October 2006.
The weekly rent on the un-renovated apartment was $470 per week. Following the full internal and external
renovation, the current rental being achieved is $800 per week (7.1% gross yield)
“Mantra Pandanas”, Darwin NT
Apartment 903: 1 bedroom / 1 bathroom operated through the Mantra management pool. The hotel opened on 1st April 2008. Current return based on the high season
occupancy rates is 9.2% net (except body corporate levies and insurance).
To learn more about the property projects referred to in this summary, please login into the member centre.
To view the quartely market brief report for Q1 2008, please click here
Disclaimer: Information provided is of a general nature only, sourced from a variety of external research resources. The specific needs of each investor must to be considered before acting on any information provided in this document. Please talk to your adviser for a needs analysis to consider property as part of your portfolio. No warranty is made as to the accuracy or reliability of any information contained in this document and neither PECPL nor any persons involved in the preparation of this document accept any form of liability for its content. All images in this document are for general information only and do not constitute any representation to be relied on. All interested parties must make their own enquiries and obtain independent advice. This document is not to be reproduced in any part without the explicit permission of PECPL and all copyright remains with PECPL. Any person or entity wishing to use all or part of this document must contact PECPL to gain permission.
