Property Market Update June 2010

Population growth at record levels, a major under supply & a very healthy economy.  The current market indicators suggest long term sustainable growth for property investors looking to buy off plan property.

Excerpts taken from our Priority Investors Update in March 2010.  Subsrcribe now to receive the latest market updates and pre-launch information on our latest off plan properties.
 

Anecdotally, as those who have been with us for some time will be well aware, the property market is very much alive and well at the moment with record sales this year & excellent growth to date.

Looking at some of the immediate factors that will be of interest to our Investors:

Pay $0 Stamp Duty in NSW:

The NSW government announced last Tuesday that for two years from July 1, those buying properties off-the-plan worth up to $600,000 in the pre-construction phase would pay no stamp duty under the government’s NSW Home Builders Bonus scheme.  You can see full details here   Our Hutchison apartments in Kellyville which we just released 2 weeks ago fit the criteria for $0 stamp duty, saving purchasers $17,000 to $20,000 in stamp duty.

This strategy by the government will no doubt bring further developments in to the market as demand increases for off plan apartments under $600,000.  We expect that it will also assist in pushing prices up.

Interest Rates:

The RBA has left rates on hold for June.  The current cash rate is at 4.5% and the RBA has indicated that it’s target rate is 4.5% to 5%.  RBA Governor, Glenn Stevens suggested that “the RBA’s current setting of rates was “appropriate for the near term”.  He said “interest rates to borrowers are around their average levels of the past decade”. 

Looking at the longer term:

Property is a medium to long term investment, so whilst the growth figures of late have been impressive, of far more importance is why we feel that the market will continue to grow steadily over the longer term, as it has consistently done over & over & over again in the past.

So let’s have a look at some of the fundamentals:

Supply & Demand
We do not have enough new dwellings being constructed :

Infact we had 78,800 too few dwellings just for last year.  Some of the reasons contributing to this are:
•    High development costs (land cost, taxes and levies, professional fees, construction, internal costs and interest)
•    High infrastructure costs & contributions – roads/water/sewage/ etc
•    Insufficient infrastructure linking greenfield housing releases
•    Banks unwillingness to lend for new developments in the wake of the Global Financial Crises.

Looking at demand we have the following factors in play:
    We are experiencing a record population growth (we had an additional 451,900 new Australians in 2009)
•    This requires an additional (estimated) 205,900 new households (2.2 persons per household – Census)
•    Only 127,100 new dwellings were built (after adjustment for demolitions and second homes)
•    We have a strong employment environment – the national unemployment rate averages 4.8% for the last ten year
•    Rental market – ongoing rises in rental rates (about 10% per annum over the last three years)

Looking at the increase in demand per property type:
According to the recently released housing projections from the Australian Bureau of Statistics
The number of Australian households will increase to 11.8 million by 2031 – up four million from 7.8 million in 2006
And just as importantly they suggest that while family households are predicted to remain the most common, couple-only families and those living alone will increase dramatically.

In fact, they suggest that if recent trends continue – couple-only families will overtake the number of families with children by either 2013 or 2014.

These projections are in line with the projections released by the National Housing Supply Council. The report focussed on the type of housing required over the next 20 years. What it found was that the type of housing required over the next 20 years is vastly different to what has been required over the past 20 years.

The report suggests that the following increase in housing types is required:

For Group households an increase of 28.5%.
For Single person households an increase of 63.7%.
For Couples without children an increase of 36.7%.
For Single parent families an increase of 23.7%.
For Two parent families an increase of 20%.

As you can see, the big demand is going to be in housing for singles & couples with no kids, so an increasing demand for one & two bedroom apartments.

Let’s have a look at the break-up of our population growth and just how quickly it will impact on the housing demand.
Our population is booming due largely to our intake of skilled migrants and demand is very, very strong.  Last year Australia allowed 170,000 new immigrants and knocked back over 1,000,000 applications.

This group of skilled migrants has the most immediate impact on housing demand, as they arrive in Australia with an immediate demand for residential accommodation, close to their place of new employment.

Historically there has been a very strong correlation between house price growth & growing immigration levels, with a 12 to 18 month lag.  Which makes sense as when people first arrive it takes them a while to find their feet, decide where they want to live etc and then (within 12 to 18months on average) they settle down and buy or rent a property.

Given that the Government has indicated that our skilled migration policy will continue (in fact with our aging population and high employment rate, we cannot afford to be without it) we would see no reason not to expect the correlation between property price growth and immigration to continue.

So, where will all this population growth leave our continuing housing shortage?
The suggestion by those in the know is that our housing Shortgage will reach unprecendented levels:


According to the ANZ Economics Report:

It is estimated that underlying housing demand is running at an annual rate of 200,000 while dwelling completions are expected to fall to under 130,000 in 2009-10.

An additional shortage of another 70,000 dwellings will have an immediate impact.

It is highly unlikely that annual completions will get anywhere near the 200,000 required to meet demand in the foreseeable future.

Here’s what Ben Phillips, Senior Economist from the Housing Industry Association (HIA) recently had to say on the matter:

"If we don’t get a comprehensive supply response to the accumulating housing shortage then the lack of affordable and appropriately located rental properties will only worsen, while pressures on existing home prices will continue at an undesirable rate."

The HIA’s “Housing to 2020 Report” suggests that if current building trends persist, then Australia’s cumulated housing shortage would reach 466,000 dwellings by 2020 and suggests that there is a current housing shortage that already numbers over 109,000 dwellings.

With an ongoing high employment rate, a relatively healthy & stable economy (which has it’s major exports to the growing Asian economies), continued high population growth expected and the ongoing property shortage, it is difficult to see property growth and rental returns continue to do anything other than moving on up.

 

The above update is part of our March 2010 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.