We’ve just released our Autumn 2013 McGrath Report in which I give my perspective on the macro factors affecting our property market as well as local trends in several key east coast city and regional markets, including my suburb picks for future growth.
By John McGrath.
Over the next couple of weeks, I’ll talk you through the key points in our report and I’ll go into a bit more detail on local market trends. Let’s start this week with an overview of where we are now.
In my opinion, this year will be the turnaround year in Australia’s property market. There’s already been a noticeable uptick in demand and sales across many key areas and mortgages rates remain exceptionally low.
Those who get in first will reap significant rewards as they ride the wave of price growth from the bottom. As prices continue to rise, the ‘fear of missing out’ will be a factor and more people will come off the sidelines.
As we begin the turnaround process, Sydney and Brisbane are clearly the two most exciting major markets in Australia right now.
Sydney is leading the recovery but Brisbane isn’t too far behind. Both markets are benefitting from national factors such as falling interest rates but Brisbane has a lot more going on locally that is likely to contribute to strong activity and good price growth over the next few years.
This includes a growing local economy and a population that is set to skyrocket, with 25% of Australia’s population growth expected to occur in South-East QLD over the next couple of decades. Yet today, you’ll pay $445,000 for an average Brisbane home compared to $600,000 in Sydney and $520,000 in Melbourne. That’s seriously good value.
In a recovery, confidence is key. The GFC had an impact on Australians’ confidence and while the market has presented fantastic opportunities for some time, many have been slow to respond, preferring to wait until the market has ‘found its bottom’. Believe me, the bottom has now passed.
Here are the key indicators proving an economic and property market recovery is underway:
- Improving business and consumer confidence. The Westpac-Melbourne Institute Consumer Sentiment Index has been at or above the 100-point equilibrium for three consecutive months after 14 of 16 months below it. Meanwhile, the NAB business index rose from -9 in November to +3 in January. With the upcoming Federal Election, most experts are tipping a Coalition victory and this should provide an even greater confidence boost.
- A stable global economy. We’re seeing some good news out of the US and Europe appears under control for now. An impressive 25% increase in the ASX All Ords since June 2012 will be a strong catalyst for growth in the more expensive price brackets
- Falling mortgage rates. Further rate cuts by the banks have brought the average three-year fixed loan to its cheapest level in two decades, according to RateCity.
- Low unemployment and inflation. Unemployment is low at 5.4% and inflation is at the bottom of the Reserve Bank’s 2-3% comfort band at 2.2%
- China. China remains on an upwards surge with an 8% anticipated growth rate this year (and beyond) and we will benefit more than any other country. Much has been made of the end of the mining boom, but there’s still plenty of benefits to come as we transition from an investment to production phase.
- Rising new loans. Australia’s largest mortgage broker, AFG, posted record months in January and February with between 35-50% of new loans in NSW and QLD going to investors.
- Major investment activity. Investors are driving a major restructure of our property market as first home buyers retreat. The investor trifecta of cheap money, rising rents and price growth is bringing them back in droves. Cash and term deposits are far less attractive and there’s continuing strong interest in purchasing via self-managed super funds.
Overall, I believe we’re at the start of a 3-5 year cycle of growth. At this stage, I’m tipping a solid 5%-10% growth rate across the major east coast markets this year. The lower to middle brackets of the market will remain buoyant, with the prestige sector firing up probably in the second half of 2013.
To read the full Autumn 2013 McGrath report visit www.mcgrath.com.au
By John McGrath
