www.mcgrath.com.au
Thinking of making a change in property investments? Whether 2011 market trends hold a sale, a new rental or a complete sea change, John McGrath predicts where your cards will fall with property investment in the coming year.
I believe 2011 is set to be a turnaround year. In my opinion, the market will gather more strength in the first half of the year, particularly in metropolitan markets, with a spill-over effect into regional markets in the second half.
Sydney property values are now stabilising as interest rates continue to rise and we have seen some softening of prices over Winter. We experienced an upsurge in listing volumes in October and November due to the late Spring season (courtesy of the extended Federal Election) with auction clearance rates hovering between 50 – 60%. While this is down from the 70 – 80% clearance rates we saw earlier in the year, it’s still reasonably average for the market over the long term.
Sydney, Melbourne and Canberra continue to lead the way in what I anticipate will be a strong recovery period in 2011. These markets, being the key national markets economically and politically, reflect the Australia’s strong financial position. Sydney is, like BHP, the big blue-chip within Australian real estate that generally outperforms as markets improve.
Rising rents, a national housing shortage and an improving economy are the key drivers of the market. In Sydney, demand is strongest from upgraders and investors and I’m expecting prices to continue rising over the next three years – possibly by 8% – 10% in 2011, especially close to the CBD and the beaches.
Market Observations
Here are a few of my key observations and views on the current market.
- Investors are not yet deterred by interest rates and some are using their self-managed super funds to buy property. Australia’s largest mortgage broker, AFG, reported last month 35.4% of new loans were to investors.
- It’s disappointing to see the Reserve Bank of Australia and the Big Four banks have both raised rates again as I see some levels of fragility in borrowers, especially those who borrowed not long ago at rates around 5.0%. We can only hope we may be close to the end of a raising rate environment. Otherwise we may see some forced selling taking place.
- The strong Australian dollar has caused a reduction in expat demand, although local property owners based overseas are seeing an opportunity to sell. Investors outside Australia remain very interested in our market. Chinese interest is particularly strong following their government’s tightening of property taxes – they see Australia and London as two stable growth markets which are particularly attractive to the rapidly growing middle class.
- Properties under $1 million have been less affected by recent softening of the market, but there is still some caution being displayed in $1.0 million-$3.0 million price range. I have no doubt that the overall market will increase considerably but it might not be in a straight line. Some sectors will increase sooner and faster than others over the next three years.
- The prestige end of the Sydney market remains fairly stagnant. Due to relatively thin demand, some downsizers are sitting on their hands and waiting to sell in better times. Once the prestige sector improves in line with the sharemarket, we’ll see increased downsizer buying both in metropolitan regions as well as other coastal lifestyle locations.
- There is less first home buyer activity than last year with only 12% of new loans going to young purchasers nationally, according to AFG. First home buyers are more active in affordable regional markets.
