Introduction:

Although it remains very difficult to glean a clear indication, the outlook for the national residential property market for 2013 ought to be more positive than that of 2012. While many investors and commentators are taking the ‘wait-and-see’ approach, IPS is confident that there are sufficient signs pointing toward residential property remaining a solid investment option with opportunity for good income and capital growth – contingent, naturally, on the right asset and location. We have briefly detailed the most recent data as well as what we believe are likely to be the main catalysts for change in the market; positive or otherwise.

 

2012 Overall Performance:

For the 2012 calendar year both the Australian Bureau of Statistics and Australian Property Monitors (APM) agreed that national house prices rose 2.1%. Of most interest is the observation that there was 1.6% growth for the December quarter; significantly outperforming the rest of the year. While the annual growth is only roughly in line with inflation, it does perhaps suggest that the market has steadied and is returning to a growth phase.  This latest news for 2012 is also very welcome after the -4.80% fall in national house values that was recorded for 2011 and gives further credence to our belief that stability and growth are closer to returning when compared to this time last year.

 

House Prices: Growth Rates

growth rates

All major property data providers show growth rates returning to positive territory. While good news, the recovery appears to be far more modest than that experiences during recent ‘booms’.

 

Capital city markets have been recording steadily increasing rental yields and overall rental growth. On the ground, the IPS Property Management team has been reporting strong interest and competition for rental properties across metro Sydney. Sales volume has slightly decreased in Inner and middle ring suburbs and buyer enquiry and inspections appear to be on the rise. The second half of 2012 also saw increasing auction clearance rates and it will be interesting to see how the auctions scheduled for early 2013 will perform. Across a range of price points we are seeing an increase in buyer activity comprising an equal level of interest from investors and home buyers.

While there are signs of positivity the national housing market is not quite out of the woods just yet. As ever, there remain macroeconomic considerations that have the potential to subdue any significant recovery. Downturns in the resource and manufacturing sectors have the ability to significantly influence confidence in the economy (and subsequently the housing market) as does any growth in unemployment. Even though the GFC is approaching its fifth anniversary, its memory looms large and has undoubtedly added a healthy measure of caution in the minds of many current and would-be property investors.

 

Some cause for concern in the current market place includes the almost overnight evaporation of active first home buyers following the changes to the First Home Owners Grant (FHOG), the difficulty for some developers achieving off-plan and new stock sales and the decline in housing credit. Although interest rates continue a slow downward trend, it is becoming increasingly apparent that their continued reduction can no longer be seen as a sole catalyst for any recovery in the housing market. With interest rates approaching GFC lows it might be reasonable to expect growth in housing credit, especially if a market turnaround is a distinct possibility. However, current credit figures according to the RBA show housing credit grew by 4.5% over the year to December. This is roughly the lowest level of growth for 30 years, which can partially be attributed to the low numbers of first home buyers in the market.

credit growth

The ongoing decline in housing credit growth continues to obstruct any dramatic turnaround.

 

Findings:

With mixed signals it is unlikely that a magical turnaround will occur in 2013, especially with the recent announcement of a long federal election campaign. Rather, we tip it will be a slow shift that sees a measured migration back to property. The positive news is that any growth is likely to be more sustainable than the sporadic patterns experienced in the recent past. With Australians being generally conservative with their capital, saving cash and paying down debt in recent times, there is significant potential for growth should the public at large rekindle their romance with property.

It is estimated Australians currently have $1 trillion in term and other deposits and $1.5 trillion in Superannuation. Should a fraction of this trickle back into property the market is bound to experience positive feedback. As an all-encompassing upswing in the property market is unlikely (with different locations, price points and property types all performing differently), selective investment will be critical for prospective buyers to build profitable and secure long-term property portfolios. We encourage those contemplating being active in the property market utilising all the available information at their disposal to help define what will be the best approach to achieve their property objectives – no matter the size or scale.

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