FYI | Jun 18 2007
By Chris Shaw
According to the latest findings of BIS Shrapnel the Australian property market remains something of a mixed bag given the rate of price growth is expected to vary from region to region, though the group expects gains in the Eastern states to produce a recovery in the market overall.
These findings are contained in its “Residential Property Prospects 2007 to 2010” report released today and detailing expectations of growth this year, a slowing in 2007/08 and a re-acceleration in 2008/09.
The findings suggesting Brisbane will be the pick of the markets in terms of price growth in coming years thanks to a combination of strong economic conditions and underlying demand, better affordability than a number of other markets and low vacancy rates generating solid rental growth.
Melbourne, Adelaide and Canberra are forecast to generate moderate growth as prices move in line with increases in wages, while the group expects poor affordability to slow any upturn in the Sydney market.
Hobart price growth is also forecast to be modest, while the Perth and Darwin markets appear poised for tougher times given affordability has declined in recent years and the strong conditions created by the resources boom are expected to ease.
Currently the market is being driven by strong labour markets as record employment and strong migration levels means markets are tight, so forcing up rents. This is sparking some investor interest but in the shorter-term is not sustainable in the group’s view.
It expects a 2007/08 slowdown as a function of a tapering in the level of business investment during the period, which should result in a pause in the rate of Australia’s economic growth. At the same time the possibility of a further rate hike in the September quarter suggests price growth in the residential market in coming months should be modest.
But taking a longer-term view the group expects interest rates to be on hold leading into 2008/09 while wage growth should continue, this combination seen as enough to promote an upswing in construction activity and price growth.
Looking at each state in turn, the group sees little short-term respite in the NSW market in the short-term as its forecast of a further increase in interest rates in coming months should keep a lid on prices. It estimates total price growth through to 2010 of 8% for the Sydney market, while better affordability in regional areas such as Newcastle and Wollongong should generate growth of 13% and 11% respectively over the same period.
In Victoria the group expects median prices to increase by 18% by 2010, primarily as the region is not as relatively expensive as Sydney given growth in housing prices has slowed considerably since about 2003.
The expected strength in the Brisbane, Gold and Sunshine Coast markets through to 2010 is also a function of slower conditions over the past two years, as well as a lack housing given strong economic and wages growth. For the period of the group’s report it sees price growth in the metropolitan centre of 22%, while for the coasts the respective growth forecasts are 16% and 15%.
These estimates are in line with its forecasts for growth in the Adelaide market, with much of the growth expected to flow through towards the end of the forecast period.
Signs in the Perth market are of a moderation in price growth, something the group suggests is no great surprise given a 184% increase in the median house price since June 2001. This leaves Perth as Australia’s second least affordable city, which the group expects will translate into a 5% fall in prices over the next three years for WA as a whole.
Tasmanian prices are expected to grow only modestly, the group estimating an increase of 7% as demand softens a little as interstate migration again returns to an outflow in coming years. The ACT has been one beneficiary of increased migration given strength in the economy overall, enough for the group to estimate an increase in median prices in coming years of 15%.
While trailing the increases in the WA market prices in the Northern Territory increased as much as 70% in the three years to June 2006, but as with the WA market the group sees this rate of growth falling as the resources boom slows in coming years and brings down the level of demand. In the period to 2010 BIS sees only 3% increase in median prices as a result.
