The State We’re In

Posted by Daniel Joseph

Over the last few years the mood surrounding investment has been gloomy, and any signs of recovery have been marred with pessimism and self doubt. Now there is a line of sentiment that is noticeably positive in Australia; we are the lucky country, and many are starting to remember that.

Anyone who attempts to categorise the ‘Australian property market’ as a whole is engaged in a fallacy. Our markets and their results are as varied as the people who inhabit them, which is why our research will recommend certain area over others at different times. There are, however, some overarching trends that will contribute to improved sentiment nationwide, which will inevitably contribute to a strengthening in property prices.

First, as John McGrath states in his ‘ten reasons why the Australian property market will rise’, the Australian share market is recovering. This will help generate increased incomes for many Australians. China’s growth, despite what some are predicting, is still on the rise with an 8% anticipated growth rate this year (and beyond), which Australia will benefit from more than any other country.

We have record low interest rates, which has resulted in cash and term deposits becoming far less attractive. This will promote a switch from cash into growth assets. On top of this, there is a nationwide housing shortage (far more pronounced in some areas than others), which will result in rents continuing to climb, providing investors with increasing yields over the next few years. There is also a new vehicle to invest directly in residential property – that of self-managed super funds (SMSF) – resulting in what can only be described as a revolution, with over 184 people per day joining and thus making this shift to take control of their financial future.

Second, the improvement in affordability ties in closely with recent housing market performance – nationally, house prices (according to RP Data) are about 5% below the peak levels achieved in October 2010, with capital city markets varying from a 3.2% fall for Sydney to a 13.9% fall for Hobart. This has occurred while wages have grown 12%, interest rates have dropped, migration has increased and housing construction remained stagnant.

Finally, a change in federal government (which many are predicting) has been forecasted to give increased confidence to the business community. If this eventuates, we may well see the ‘herd mentality’ in action, with a surge of confidence helping stimulate continued investment over the next three to five years.

Posted by Daniel Joseph, on 19th Jun 2013