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Australian Property Market - Current Climate
Posted by admin | Posted in Real Estate Investments | Posted on 06-04-2008
Many people are wondering how the credit crisis and high interest rates will affect property investments in 2008. Property forecaster Michael Matusik urges people to take a “back to basics” approach and to consider the fundamentals in times of uncertainly. The 4 key fundamentals are all very positive – and will start to come to the fore as 2008 unfolds:
1. The Australian economy is growing strongly thanks to strong demand for our commodities in China and India. The Queensland economy grew by 7.2% in 2007, 2.1% of that growth was in the 3 months to December 2007. Western Australia grew by 9.7% in 2007, 1.5% of that growth being in the 3 months to December. Victoria also showed strong growth with 5.2% in 2007, 2 % being in the 3 months to December. NSW and South Australia also grew by 4.5% in 2007
2. Nationwide employment growth is very strong. Over 307,000 new jobs were created in across Australia in 2007. Unemployment is now below 4% in most states. In Qld unemployment is at 3.6%.
3. Australia’s population growth is near record levels, increasing 320,000 people over the last 12 months. More than half of the growth came from overseas migration (179,100). Queensland was the fastest growing state with an increase of 90,600 people over the year to September. Victoria’s population grew by 78,100, NSW by 71, 400, Western Australia by 48,600, and SA by 16,000. The ABS projections have the total Australian population increasing by 32% or 284,000 per annum up until 2031. Sydney is projected to grow by 45,000 per annum, Melbourne by 47,000 per annum, Brisbane by 52,000 per annum, and Adelaide by 4,700 per annum. 70% of the projected growth will be absorbed by the eight capital cities. That increases to 90% when you include the coastal areas adjacent to Brisbane, Sydney, Melbourne and Perth. When including these coastal areas the population of the major cities is expected to grow by 47% by 2031.
4. The underlying demand for new residential dwellings is currently at 180,000 per annum. Last year 151,000 new homes were created, 17% less than was needed. The cumulative effect of years of undersupply has resulted in new stock deficiency of 32% across the country. The greatest undersupply is in Qld (46%), NSW (45%) and Victoria (29%). Matusik believes that tighter and more expensive credit will result in less new starts over 2008 with the underlying undersupply blowing out to 40%. This will place pressure on residential prices which are expected to grow by 10% in 2008 and 2009.
Other commentators are also expecting a strong year for property prices. Craig James, Chief Economist at ComSec, anticipates that property prices will grow by between 10% and 15% while shares will slow to 3%. He says all major cities are experiencing extremely low vacancy rates, at a 33 year low. Sydney and Melbourne have vacancy rates of 0.9%. Rents in capital cities are expected to rise sharply in 2008 in all major cities.
