G’Day,

The ‘Property Investor’ recently launched a ‘Property Market Health Check’ report that detailed the many issues facing today’s market and the thoughts and views of economy experts. I have taken some interesting snippets from the report that may interest those of you who have not seen it.

Researching the target area and market are vital steps in making a development a success. You’ve got to have tracked property cycles and really had your ear to the ground in terms of monitoring supply. Then you’ve got to look at the demand.

For those starting out in property development there are clauses, taxes, loopholes, financiers, design issues, open space contributions and market fluctuations at every turn just waiting to trip up a beginner.

‘The sentiment around whether it is a good time to buy a property is at the highest level since March 2002, when the housing boom was well established in Australia’. - Westpac chief economist Bill Evans.

‘Housing starts in NSW are at a 50 year low. Housing starts nationally are running at around 140,000 properties per annum whereas the treasury and others estimate we need to produce around 185,000 – 200,000 homes per annum as a function of property growth and so forth. So we have a huge deficit between the demand for housing and the supply of housing and that ordinarily means house prices ca only head in one direction – and that is up.’ – Christopher Joyce, Reserve Bank of Australia.

In the US, the rise in house prices elicited a very strong supply response so that by the end of 2007, there was almost one year’s supply of newly built unsold houses overhanging the market. US house prices stopped rising essentially because the supply of houses overtook demand. In Australia, the rise in house prices didn’t elicit such a strong supply response. There were pockets of overdevelopment in apartments in 03/04 but by and large there was never a serious oversupply of unsold new houses in Australia. – Battellino

Housing Industry Association policy chief executive Chris Lamont says interest rate cuts have rescued more than 350,000 Australian households from mortgage stress.

While the weaker economy, growing job losses, increased worker anxiety and the global credit crunch in general will continue to work to put downward pressure on home prices, further falls in the ABS House Prices Index will be limited by our lack of overbuilding, by our much more disciplined mortgage market – both borrowers and lenders – and especially by our central banks ability to drive mortgage rates lower. – Rory Robertson, Maquarie Bank interest rates strategist.

One difference between Australia and the UK is that Australia’s banking system has been relatively well insulated from the global financial crisis. Their banking system has more or less collapsed whereas ours is incredibly strong. You’ve seen three major banks nationalised in the UK and none here nationalized. - Joyce

The sharp interest rate cuts create a much more inviting market for homebuyers and investors alike. Lower rates have improved affordability and reduced mortgage stresses. The doubling and tripling of the First Home Buyers Grant has also created renewed interest from that market segment according to the report.

The RP Data – Rismark Hedonic Property Value Index, which reports on value movements more rapidly than the ABS’s index suggests house and unit fell 0.8% over the year to October 2008. However their figures show prices climbed 0.3% over the three months to October 2008. RP Data head of research Tim Lawless believes that up-tick in price growth signals the start of a new cycle. The number of home loans climbed 1.3% in October to 48,299 while the number of first homebuyer loans was up to 9901 from 9347 according to ABS data. Westpac saw the figures as ‘the beginning of a recovery’ in housing finance

Residex’s five-year annual growth predictions for the capital cities are as follows;
Canberra - 3.18% pa
Adelaide - 2.45% pa
Brisbane - 3.06% pa
Darwin - 4.80% pa
Hobart - 4.60% pa
Melbourne - 3.75% pa
Perth - 2.56% pa
Sydney - 4.95% pa

Housing continues to demonstrate its long-term low-risk status, having adjusted very little and is unlikely to adjust much further as Government and the Reserve Bank take action to put a floor under housing prices. John Edwards, Residex chief executive.

Monique Wakelin says the early months of 2009 present a unique opportunity to investors. “For investors ready, willing and financed, the first three months of 2009 is a golden opportunity but one only open for a short time.” The key areas to target are those with good infrastructure and access to employment, schools, recreation and shops. Well-located, quality established apartments and compact homes on the right streets consistently deliver increases in market value and rental income ad are the least exposed to market vagaries.

Carly & the CCORP Team