Property Market – Brief Update Oct 2008

Brief Market Update, October 2008


The Australian property market is very different to the US and European markets, our market fundamentals are strong, our banks are well capitalised and highly regulate, we have a massive under-supply of property.

This is an excerpt taken from one of our Priority Investors updates in late Oct 2008.  If you would like to receive our full upates and information on new off plan properties prior to their public launches, please see our Priority Investors section.

The worlds financial woes seem to have perhaps settled slightly over the last few weeks, but they are still very turbulent.  The most common questions that we are receiving, from both our local and international investors include, “How will it all effect the Australian market” “Wont the Australian property market follow the US & UK markets” “Can we still get funding in Australia”.
We are putting together a fairly comprehensive market update which we will have ready to go out in a few weeks, with all the supporting facts and figures etc.

So at this stage I just wanted to make a few short points:

1)    Our market is very different to the US.  We have an undersupply of housing, the US has an oversupply of housing.  We have one of the strongest current and forecasted population growth rates in the world, the US is going backwards.  We have had and will continue to have record low vacancy rates (around 1% in most major capitals) the US has had and will continue to have for some time a vacancy rate in excess of 10%.  And here’s the big one, the finance system is completely different.  The Australian market does not have anywhere near the exposure to sub prime mortgages that the US has and the Australian finance system does not allow individuals to just hand the keys of their house back to the banks and walk away, as is the case in the US.  We will expand on all of this in our major market update in a few weeks, but just to let you all know, they are very different markets.

2)    Our market fundamentals remain very strong.  Yes we will be effected by the world crises and yes things will slow down, unemployment will increase.  But, unemployment is extremely low at the moment, so we have plenty of room to move.  The Aust government has been quick to act, announcing a $10 billion stimulus plan.  Our Reserve Bank has been quick to act, dropping rates by 1% earlier this month, with economists tipping further aggressive cuts prior to Christmas and throughout 09.  Australia is very well equipped to weather the storm.

3)    For our international investors, our dollar has dropped from its historically high values, making Australian property far cheaper for those in say the UK & US than it was 6 months ago.

4)    Our banks are still lending.  In fact all the majors have dropped rates independently of the RBA in the last week, as their costs of funding are decreasing.  The major banks had earlier this year raised rates independent of the RBA and not passed on full rate drops from the RBA, due to their increased costs of funding.  All 4 of Australia’s major banks are in the worlds top 20 of AA rated banks.  They are all still making big profits and they are all still lending, some lending areas have tightened, those looking to finance without proof of income are finding it hard at present and developers are also finding it difficult to fund in some cases, though prime projects are still proceeding.

5)    History is no guarantee of future performance and we are certainly in changing times as the global economy effects us all more so now than ever before.  However, I still would not forget about what has happened in the past.  Following the stock market crash in 87, the next 24 months provided some of the strongest growth in residential property that we have seen in Australia.  Why, because people tend to move back to the security of bricks & mortar.

6)    We have a massive undersupply of property but many developers are finding it very difficult to find funding, so they are shelving projects which they expected to release over the next few months.  We are aware of several major projects across Sydney, Melbourne & Brisbane which have all been shelved due to the inability of developers to secure their finance.  So we have an environment at the moment where we are under supplied and the market is finding it difficult to provide further supply, rents are increasing and we expect that will continue , so the returns on property are increasing.  Interest rates are falling, so the cost of holding property is decreasing.

We will provide a very comprehensive update in a few weeks time (please see our Nov 2008 update).  We are not suggesting that property will go through the roof in the next 6 months but property is a medium to long term investment and we are suggesting that now is the right time to be securing a property that will complete over the next few years. 

Many of our investors have assumed that the current market is very dead.  Let me assure you that is not the case, the prudent investors & owner occupiers are buying now. 

Many of our clients are aware of an exclusive townhouse development that we have been marketing in Melbourne’s bayside suburb of Sandringham.  Townhouses are priced from $790,000 to around $1.5 mil and due to complete in late 2010.  Over the last few weeks over 20 have sold, around 10 in the last 7 days. 

We have just recently launched an exclusive project in the blue chip suburb of Malvern.  It was released to the public last weekend and well over $20 million worth of property (priced mainly from $2mil to above $4mil) was snapped up, mostly by local owner occupiers.

Seasoned investors and owner occupiers are active in the market now.  In addition, due to the governments increase in the first home owners grant, which will only be available until June 09 (part of the $10bil stimulus package) and the lowering interest rates, first home buyers are beginning to enter the market, which will put pressure on prices, given the undersupply.
In summary, at the moment things are looking fairly healthy on a medium to long term basis for Australian property.

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