Property Market Update August 2009

Australian Property Market Update August 2009

Property sales are strong as vacancy rates & interest rates remain low.  In our August Market Update we review our predictions for the last 6 months against what the experts are now saying.  For those looking to invest in property in Melbourne, Sydney & Brisbane, our fundaments are looking very positive. 

Following below are excerpts taken from our Priority Investors Update in August 2009.  Subsrcribe now to receive the latest market updates via email as they are released, including new property launches.

Dear Investor

As you would be well aware, given the number of emails from us of late, there is plenty of activity in the property market and sales have been very strong across our new projects.

Please scroll down for some further details &  John’s pick of the available apartments in each of our new projects.  There are still some excellent opportunities across the board and in particular some very good 2 bedroom 2 bathroom apartments in the North Melbourne project, great aspects and projected rental returns at around 5% plus.

But first, a brief market update.

Market Update August 2009

Well, let’s start with the anecdotal evidence.  Over the last 4 weeks, we have released new projects to the market in Sydney, Melbourne & Brisbane.  Each project has sold very strongly to date and sales have come from both investors  (local and international) and intending first home buyers.  Sales have not just been through us but in some cases through other agents in other cases direct from the developer.  So demand across the board, has been very high.

A  quick recap of what we have been suggesting over the last 12 months.  Looking through our previous updates you will recall that, in summary, we have suggested that:

There was & still is a vast difference between the AUS, UK & USA residential markets and we suggested that due to this difference we would not follow the lead of the USA & UK markets.

We reviewed the Subprime lending products in these markets and the fact there would be no effect seen in Australia at property owner levels.

We suggested a likely increase in unemployment and reducing interest rates.

We suggested that affordability would improve throughout 2009 mainly due to interest rates rather than a drop in capital values.

And we have constantly talked about the undersupply issue  and that this ongoing undersupply will hold up market values, yields and see us through any downturn relatively comfortably.

So let’s have a look to see how we are travelling so far!

Property Prices on the rise:
According to the latest data for the July quarter:
Property values in Sydney rose by 6.56% for houses & 4.14% for units.
In Melbourne 5.05% for houses & 4.62% for units.
In Brisbane 2.17% for houses & 5.62% for units.
 
So property values are certainly on the rise.
 
Looking at figures for how property has performed in the year to date, just to June 2009.

A few interesting figures here as well, units outperformed houses for both capital growth & rental growth.

Looking specifically at the capital growth of Sydney, Melbourne & Brisbane:
Sydney, houses grew by 0.79% & apartments by 4.03%
Melbourne houses grew by 2.69% & apartments by 7.07%
Brisbane houses by – 0.06% & apartments by 2.8%

See our section below re Undersupply as to why we expect this trend to continue, given the future demand for smaller dwellings.

Interest Rates:
The RBA reduced cash rates to 3% in April & that is where they are at today.  Whilst this rate is relatively low, it is still above the USA, Japan, UK & Canada.  So globally speaking, we are still in a far better position to stimulate the economy further, if required, via further interest rate decreases.

Glenn Stevens. Governor of the Reserve Bank, had this to say on August 4th 2009:
“Economic conditions in Australia have been stronger than expected a few months ago, with both consumer spending and exports notable for their resilience. Measures of confidence have recovered a good deal of ground. This suggests that the risk of a severe contraction in the Australian economy has abated. The most likely outcome in the near term is a period of sluggish output, with consumer spending likely to slow somewhat and investment remaining weak. Stronger dwelling activity and public spending will start to provide more support to overall demand soon, and growth is likely to firm into 2010”

In fact our economy is moving so well that the latest RBA board minutes,  released following their August meeting suggest that the next interest rate move is likely to be up, following previous months of not ruling out further rate cuts.  Though most economists are suggesting that we are not likely to see any upward movements until 2010, as the RBA will not want to jeopardise consumer confidence.  Though even the talk of rate rises is testament to Australia’s ongoing economic strength.

Unemployment:
Official unemployment has held steady at  5.8% July 2009 – this might indicate that unemployment does not reach Treasury’s forecast peak of 8.5%.  As we had suggested previously, even a rate of 8.5% is not huge, we will still have plenty of buyers in the market, but a lower rate will be even better for our economy.

Undersupply:
At the release of the new Housing Growth Figures, commissioned by the Residential Development Council, Federal Minister for Housing Tanya Plibersek said Australia could have an under-supply of 200,000 homes by 2013.

The Minister said more had to be done to encourage greater housing density and "transport-oriented developments".  (TOD’s)

There will be an increasing demand for more detached houses on smaller lots, townhouses, villas and apartments across inner and middle ring areas of major urban centers."

This follows on from the National Housing Supply Council – March 09 Report which suggested that:

The type of housing required over the next 20 years will be very different to what has been required for the last 20 years

On a moderate-growth, moderate-supply outlook Australia will be short of 108,000 dwellings by June. That will grow to 316,000 by 2018 and 431,000 by 2028

The growth areas are not the family homes of the past.  Demand for property for couples without children will increase 36.7% and single-person households demand will soar by 63.7%

This undersupply issue is not something that we will just be seeing in the future, it is upon us now, which is why rental vacancy rates remain at record low levels across our major cities, particularly for inner city apartments.

Development Feasibility & Approval Rates:
It is also interesting to note that due to funding issues and related feasibility issues, dwelling approvals remain low.  Looking specifically at Sydney, Melbourne & Brisbane, approvals over the last 2 years have significantly dropped.  So whilst we are suggesting an ongoing long term undersupply, less is being approved for development now than it was back in 2007.

One of the key reasons for this is the difficulty that developers are facing in obtaining finance.  Here’s a real life example from one of the developers who we have worked with previously.  They have an 84 apartment development in inner Melbourne, project value $58 million.  In 2008 the equity that they were required to put in was $10.5 million, and they could have obtained funding for the rest.  Today that equity requirement is $22 million, with a potential profit of $7 million.  Would you be risking $22mil for $7mil?  So you can see why we have a lack of stock moving forward.

Looking at where we might be headed, here’s what some of the experts have to say:

ANZ Economics Property Outlook:
Any post-grant market adjustment is likely to be overwhelmed by ongoing and additional stimulus from recent and prospective interest rate cuts; and further broadening the recovery from first home buyers to the ‘upgrader’ and investor segments.

Population growth is running at its highest level in 4 decades, providing an unprecedented call on national dwelling stock. Supply has been inhibited by high development costs, land availability and developer uncertainty.

The now chronic demand/supply imbalance will intensify upward price pressures, providing a key signal to investors and developers alike to engage the market for the first time in a number of years.

“We expect dwelling prices to edge higher for much of the remainder of 2009 with upside risk presenting from intensification of strong fundamentals, a shift in price expectations and a restoration in market confidence”

And looking at recent comments from BIS Schrapnel, as quote in local news:
The first home buyer demand has already been passed on to second home buyers and investors.

“By the end of 2009, strong turnover of the most affordable properties will be flowing through into the bulk of households positioned towards the middle of the market, as people who have sold their existing dwellings to first-home buyers upgrade to their next home”.

Housing affordability in Sydney and Melbourne is now at its best level for around a decade.

Looking at current auction clearance rates:
In Melbourne they were averaging around 50% to 60% in June 2008 to Dec 2008, with a spike up towards 70% in Sept & Oct.  Looking at April 09 to July 09 they are around 80%.  Sydney over those same periods, was around 40% to just below 50% and in April to July was around 65% to just over 70%.

So some major changes in these rates which are very reflective of the current market.  Things are on the move!

Looking at each of the markets which we are concentrating on now and in to the foreseeable future, here’s what ANZ  Economics has to say about these markets:

Melbourne:
The Melbourne market continues to be the most solid performer of all the capital cities. Throughout 2009 clearance rates have sat around the high 70 to 80%.

Melbourne is by far the fastest growing city in Australia adding 70,000 new residents last year alone.

First Home Buyer activity has marginally eased the squeeze in the rental markets, however the vacancy rate for inner and middle Melbourne remains historically low at just 1.4%.

Sydney:
The Sydney market was seen as vulnerable heading into the downturn, however the Sydney market was weak earlier and looks to recover ahead of other markets.

Sydney median prices that had eased as much as 5-7% through the year to March have seen solid gains of 1-2% for each of the last 3 months.

“The Sydney market faces the challenge of economic underperformance over the coming year, as such we anticipate only a consolidation of recent price gains over the medium-term, yet still see considerable upside over the long-term”.

Brisbane:
Queensland economy and property markets have been hit hard by the slowdown in the global economy and the reversal of the commodity boom.

Much of the recovery in activity is centred around the Median price with 80% of sales made in the <$500,000 and due to the lower relative prices the unit market is outperforming detached houses.

In recent months SE Qld and Brisbane are performing best with the latter reportedly seeing median price increases of 1-2% over each of the last 3 months.

So as you can see, the long term future for residential property investment is looking fairly rosey.  Bis Schrapnel have suggested that Melbourne & Sydney residential property could increase in value by as much as 19% by 2012.  Well, that’s a big call and we would not be suggesting that any investors jump in now and expect that return.  However what we would suggest is that now is the ideal time to jump in to an apartment or townhouse, close to the CBD and expect solid long term rental growth and capital growth.

Update on our Latest Projects & John’s best picks!

John’s Pick of available stock in our New Projects:

Melbourne:

North Melbourne: 
If you are looking for a very nice apartment in a fabulous inner city location, then this is the project. 

1 bed plus study apartments:
These have now all sold.  A few are still reserved, so there is always a chance that one or two may not proceed.  So please do let me know if you would be interested in one of these apartments if any come back on to the market.

2 bed options:
If you have got the budget then this one is my number one pick out of all of the 2 beders that we currently have available, they are an excellent design and all have good aspects and plenty of natural light to the living areas.

There are some great 2 bed 2 bath apartments available from $585,000 through to $740,000 on the top level.  Rental projections range from $600 to $725 per week.

Studio Options:
If you are after a studio then these are a good size and in this location they should rent extremely well.  If it’s a studio for you, then take a look at these, priced from $320,000 to $360,000, they are 37sqm internally plus a small balcony, no parking.  The upper level studios will have excellent city aspects.  Rental projections (unfurnished) range from $315 to $385 per week.  Though if you wanted to furnish one of the upper level studios I expect that they would rent very well, at a significantly higher amount. 

Brunswick:
This project has sold very quickly, and if you look at the price points and its location relative to the CBD and universities you will see why.  We have had strong interest from investors and first home owners on this one.  Stock is now limited, but all of the remaining 1 & 2 bed apartments are offering tremendous value.  The only ones that I would avoid are the ground level apartments facing South & east.  As these front straight on to the street, they may lack a bit of privacy.  But besides these few apartments:

A small one beder on level 1, for just $287,500 (42sqm internally plus balcony and car space). South facing and on level one it will have aspects towards the CBD . 

Large two beder  if you are looking for a great value 2 bed 2 bath, then you will have to be quick.  Just one remaining on level 1, first floor, facing north, a big 97sqm internally plus balcony and car space, priced at $490,000.  Given the size of this apartment and its location to the CBD, it is offering tremendous value.

Oakleigh:
A true middle ring suburb, 16kms from the CBD but within 2kms of Monash Universities biggest campus at Clayton.  This project will always have a high rental demand.  Sales to date have included investors and first home buyers.

These are all a fairly similar design (a nice split level townhouse type design) 2 bed 1 bath, personally I like the looks of units D block apartments that will look across to the park opposite, so a very pleasant outlook.  Priced at $385,500 they are 62sqm internally plus a balcony and car space.

Brisbane:
Woolloongabba:
Wow, this one is almost already gone.  The developer sold a few and then held back on any marketing until we released it last week.  Well, between the 2 of us, this small boutique project of just 22 apartments is almost sold out and given its location close to hospitals, Southbank and the CBD you can see why.  But there are still 6 nice 2 bed 2 bath apartments available, from $485,000 to $490,000.  They are all North facing.

Further Information:
Please note that as all of these projects are brand new to the market, we are still waiting on various details on each project. 

You can see a summary of each project (including the exclusive investor benefits which we have negotiated on the project), plus current availability, apartment sizes, aspects and plans on our Investors website.

Please submit your Priority Investor details to gain immediate access to our Current Projects and receive market and project updates via email.  Just click here to submit your details now.

If you would like any further information, please feel free to send me an email or give me a call.

Regards & have a great weekend.

John
 

The above update is part of our August 2009 Priority Investors Update.  If you would like to receive regular market updates and news on our latest release off plan properties, please complete your Priority Investor details.

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