Property Market Update May 2009

Australian Property Market Update May 2009

Interest rates continue to fall, vacancy rates remain low, first home buyers & investors are returning to the market, our housing shortage continues and our banks are well capitalised.  Investment property fundaments are looking positive.  Excerpts taken from our Priority Investors Update in May 2009.  Subsrcribe now to receive the latest market updates.

Just a quick update following on from our Feb & April property market updates.   If you missed our April update, just click here.

One of my colleagues recently attended an Economic Seminar run by one of Australia’s leading providers of industry research & analysis and I thought you may be interested in a few of the key points from the seminar as regards the Australian property market.  Much of it is very similar to what we have been suggesting over the last few months:
In general:
•    We are experiencing the “tailwind” of international problems
•    International investors have taken their investments home therefore the Australian share market has fallen dramatically along with the AUS $.
•    As we come out of the trough (09-10) the low AUS $ should underwrite strong growth.
•    Biggest issue in 2009: Availability of capital for property developers to attain their funding.  Purchaser funding is not a problem, nor are sales.
•    Migration cutbacks will not have a big impact on population numbers
•    The boom lasted 6/7 years, downturn/recession  will be deep but short with a slow recovery.

Residential Property Market:
•    Housing prices will rise over the next four years, slow during 2009, picking up in 2010 with years 3 and 4 turning into a strong growth market.
•    Interest rate decreases will continue to have a big impact
•    The First Home Owners Grant will have a big impact and already has.
•    Banks will come out of this cycle extremely strong with balance sheets pumped up by higher margins charged to corporations (including property developers) and on mortgages (general housing)
•    Predict further short term falls in the share market including commodities, focusing on the likely downside on forecast profit (company) figures.
•    Unlike overseas markets, Australian property markets are not oversupplied, the premature setback to investment has done us a favour.
As you can see, much of this information is what we have been talking about all year.  Though it is somewhat comforting to see that one of Australia’s leading providers of industry research and analysis shares our thoughts.

Interest Rates:
As regards interest rates, we have had a few clients asking whether we expected rates to fall further and whether we thought we had now reached the bottom of the interest rate cycle.
Looking at the current yield curve for cash rates from the Sydney Futures Exchange, it suggested that the cash rate would fall to a low of approximately 2.4% towards the end of 2009. 
This represents an expectation of a further 60 basis points (0.6%) cut from the current cash rate.
As regards fixed rates, most of Australia’s major banks increased rates on their 2 to 5+ year fixed rates by 0.2% to 0.45%.  As fixed rates are priced on the expectation of economic activity, the markets are obviously pricing in an economic recovery.

What the RBA has to say!
In a speech given recently the RBA governor Glenn Stevens declared that long-term growth prospects for the economy were sound in the face of the deep global downturn.
He also suggested that Australia was well placed to capitalise when the eventual recovery emerged. 

As we have said previously:
A number of investors have already liquidated out of a portion of their stocks. Privately, millions and millions of dollars have moved into cash – looking to diversify portfolios
At some stage, this cash will look for a home as investors seldom stay in cash for too long.
As the flight to safety continues, many people who chased high returns move back to investment fundamentals and for many that means property.

New Projects:
As we have seen from the projects that we have bought to the market recently, stock is continuing to sell very well.
We are currently looking at a number of new projects in the inner suburbs of Melbourne as well as some Sydney projects and expect to have further details to send to you in the coming weeks.

Currently available Melbourne projects include:
Some good 2 bedroom apartments & townhouse options in the boutique St Kilda East project, from $530,000 for the apartments and $650,000 for the townhouses, expected to complete in late 2010, 12 month rental guarantee at 5% available. 

Some one & two bedroom options in our Windsor project (just 5kms from the CBD), from $390,000, expected to complete in late 2010/early 2011, rental guarantee available. 

Some one & two bedroom apartments & 3 bedroom townhouses in the Brunswick project, just 5kms from the CBD and not expected to complete until mid 2011. 

The above update is part of our May 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.