Property Market Update October 2009

Australian Property Market Update October 2009

Reserve Bank of Australia warns that the housing market is about to take off as Australia’s fundamentals remain strong with population growth at record highs and a lack of ongoing supply.  Melbourne property leads the way.

Excerpts taken from our Priority Investors Update in October 2009.  Subsrcribe now to receive the latest market updates.

Dear Investor

As the market continues to gain momentum we wanted to provide you with:
a)    A very brief market update.

b)    The latest information on our existing projects & information on our upcoming releases.

A Brief Market Update:

Australia’s housing market is about to take off!
This was the warning from the RBA’s Tony Richards just a few days ago.  He issued the warning at the Committee for Economic Development of Australia’s housing forum held early this week, and said that the nation was still not building enough houses to keep up with levels of demand that were driven by population growth.

As regards Mr Richards comments regarding population growth & housing supply he stated that:
“There are many more of us,” he said. Average annual population growth has been 340,000 over the last five years, up from 240,000 over the prior five-year period, an increase of around 40 per cent.

“Yet the number of dwellings we have built has not risen. Commencements of new housing over the past five years have averaged around 150,000 dwellings, versus around 155,000 over the previous five-year period. It would not be surprising if this was one factor that had contributed to the increase in the cost of housing over the past decade.”

“Population growth and the demand for housing are strong. Furthermore, as the recovery picks up steam, labour shortages in the building industry may again emerge,” he said.

“Looking ahead, we can be fairly confident that the housing market, like other markets, will clear. The task for public policies is to help ensure that this occurs with relatively higher construction volumes and lower growth in prices, rather than vice versa.”

The Melbourne Market:
Looking specifically at the Melbourne property market, it is moving from strength to strength, due to these fundamentals,  that we have been talking about all year – population increases leading to increasing demand and property undersupply, putting pressure on property prices and rents.  Set in an environment of low interest rates & government stimulus packages. 

The Reserve Bank Governor has just confirmed that the next interest rate movement, will likely be up, but no indication when this will be.  Whilst many of us love the low interest rates, the fact that rates are more likely to move up than down is a testament to the ongoing strength of our economy, which is excellent news for all of us.

With auction clearance rates above 80% and prices climbing, many are now suggesting that Melbourne is at the start of a property boom.  Whilst the number of first home buyers will likely decrease as the stimulus packages roll back, the number of investors is increasing, so we expect that the high demand will continue.

John Edwards CEO of Residex was recently quoted as suggesting that Melbourne unit prices would leap by over 30% in the next 5 years, using Residex’s predictive price modelling. This increase is well in advance of the Residex’s predicted performance of Australia’s other capitals.

Interestingly, according to the latest RP Data Monthly Snapshot, released earlier this week, it seems that Melbourne is well on the way.  According to the RP Data Melbourne has outpaced the rest of the nation for the first 8 months of 09, with prices rising 11.6%.  Sydney followed with 8.67% and overall Australian house prices are up 7.9% for the first 8 months.  As Tony Richards suggested in his presentation mentioned above, ““It is looking increasingly clear that Australia has avoided the large falls in housing prices seen in some other countries over the past two years or so”

One of the key reasons that we expect the continued property growth is the population growth:
Australia is experiencing a record population growth and this growth is expected to continue and as per the comments above from Tony Richards it is sure to put greater pressure on our property prices. Melbourne’s population has now hit 4 million, with Australia’s overall population quickly moving towards 22 million.

Treasurer Wayne Swan was quoted recently as suggesting that Australia’s population was on track to hit 35 million by 2049.  That’s an extra 13 million over the next 40 years.  7 million more than the government estimated just 2 years earlier.

In Victoria, the population increased by a whopping 112,000 in the year to March. Which means that Melbourne is expanding by around 90,000 per year, that’s just under 250 people each and every day, moving in to Melbourne!  Given Melbourne’s currently low vacancy rates, particularly in the inner city where they are well below 2%, what effect is this continued population growth likely to have on rents? In a market that already has an undersupply of residential property, it’s difficult to see property prices doing anything but going up.

So where will all the people go, well, lets have a look at ou changing Demographics:

The latest RP Data information has suggested that over the 5 years to June 09, home unit growth has been on par with housing growth.  Putting to bed, suggests Tim Lawless the National Research Director of RP Data, the myth that houses appreciate faster than units due to the underlying value of the land etc.

Lets have a look at why this is happening and more importantly why we expect this trend to not just continue, but increase.
Back in March of 2009 the National Housing Supply Council issued a major report. 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%.

Check out the increase required for singles & couples without kids. It’s easy to see why one & two bedroom apartments are and will be in such high demand.

According to the report, it’s estimated that on a moderate growth moderate supply outlook Australia will be short by 431,000 dwellings by 2028. These figures were based on previous population growth statistics which are now out dated. So this figure will no doubt be even greater.

Looking at where these extra households will be required, it was Melbourne who topped the list, followed by Sydney and then Brisbane.

A one or two bedroom apartment in inner Melbourne, suitable for a single or couple with no kids, should make an excellent investment.  If you are in the market for an investment, it is extremely difficult to imagine what factors will be in place that leads to a decrease in property values, so we would strongly suggest that the time to invest is now.


New Project launches & current project updates:

Brunswick Off Plan Apartments:

Following the success of the previous stage of this Brunswick project, which have now fully sold out, we are hoping to bring you the next small stage of this project in the coming days. 
I was tossing up whether to mention this one now or not, as currently it’s still probably a 50/50 chance that we will take it on.  But for those who have been with us for a while will not, I’m always keen to let our investors know what is going on as early as possible.

Here’s the situation:
All being well we are hopeful of sending out full details early next week and expect that like Gatehouse we will be accessing this project exclusively prior to its launch through other agents in the coming weeks.  We would expect a late 2010/early 2011 completion and price points from high $300,000’s.  14 apartments, 12 x 2 level large loft style one bedroom apartments (60sqm plus internally) plus 2 x 2 bedroom apartments, all apartments will have one car space.

Our hold up:
The initial prices that the developer presented to us, we felt were too high and would not be supported by valuations.  Given the demand for one beders and the way the market is flying, it’s likely that in time the apartments would sell at these prices.  But we let the vendor know that it would not be to any of our investors.  We have requested the vendor adjust their prices downwards to prices that will be supported by valuers and having chatted with a major research and valuing firm have suggested specific prices that will be in line with the current market.  If the vendor comes to the party then we should be ready to roll on this one by next week.  If not, we would not be recommending it to our investors and as such will of course not be taking it on.  So please stay tuned, as if we do get this one, it will be an excellent option for our investors.  If it happens, we will send out a brief email to let you know all the details.

New Prahran Off Plan Project:
As we suggested previously, the developer has now agreed to release the project to two local agents on the 9th of October and this will be followed by the developers public launch soon after.  There are currently some excellent opportunities available as we continue to exclusively offer this project to our investors, but we do expect that after the 9th of October we will see a flood of sales as the two local agents have large networks and a significant public presence in the market and the public launch following that will provide further momentum. As we have seen over the last few weeks with our projects in Brunswick & North Melbourne, whilst our investors had early access to access the best apartments, once further agents got involved the remaining stock moved extremely quickly, we expect that the situation with the Prahran project will be exactly the same as market momentum has further increased.

If this project is of interest, please have a look at full details now on our Investors website as choices will become more limited.

This is an excellent project, we have valuations to support the current prices and we have excellent benefits available exclusively for our investors.

North Melbourne Off Plan Apartments:

If you have been following this project you will know two things: 1.  It’s an excellent, high quality project, extremely well located, great floor plans etc & 2. It has sold very strongly since its release in August.  Most interest has been in the 1 bedroom plus study apartments & the 2 bedroom 2 bathroom apartments.  Stock is now very limited but there are still some nice 2 bedroom 2 bathroom options available and some good studio apartments, which we expect will rent very strongly in this location.

We have some excellent stock available and all of the indicators are very positive to suggest that now is an excellent time to be investing in the Melbourne inner city market.

Regards

John

The above update is part of our October 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 .