It is widely recognised that Australia's residential property market has seen some ups and down over the past year. And with 2013 now well underway, some investors are likely looking for insights into what's in store for the year ahead. To this end, I've decided to share the following piece by Century 21 Australasia's Chairman and Owner, Charles Tarbey, which appeared in the February edition of Century 21 Wentworth's Property Investor.
The Australian residential property market: the year that was and the year ahead
It is my belief that the housing market likely hit the bottom in 2012.
While RP Data-Rismark reported that capital city dwelling values ended 0.4 per cent down over 2012, a closer look at these figures reveals that there was positive growth in residential real estate over the period of March to December 2012.
Last year could be categorised as a year where many investors chose to stay on the sidelines, but there are a number of prevalent market factors stemming from 2012 that could entice many people back into the market this year.
Robust stock levels, relatively low interest rates, reduced competition in many markets and a stabilisation in property prices present attractive buying conditions. Some prospective purchasers might say that "it's too risky" to buy at the moment, but others will likely say that "it's too risky not to buy."
While I could take out a crystal ball and try to provide some type of definitive answer in relation to growth in 2013, the reality is that it will be a different year depending on which market you are looking at. Contrasting economic variables and supply and demand factors will lead to mixed results. The only forecast that most market commentators would likely agree on is that 2013 should be a 'better year' for housing prices.
However, there shouldn't be any great expectations for the next 12 months other than modest growth.
Although, for investors, there should be an expectation that rental returns are going to remain fairly strong in most locations. This comes down to two main factors: firstly, the shortage of rental properties on a national basis and secondly, if interest rates continue to fall and rents rise - many yields will be positively influenced.
SYDNEY
Sydney, has a lot of room to grow. Some areas at the top end of the market haven't quite gotten back to where they should be and the bottom end of the market is still pushing along very strongly.
There is still a tremendous amount of buyer enquiry in the market and a substantial lack of quality properties available for sale. In addition, the city's rental prices haven't pulled back and neither have its vacancy rates.
We may have a situation where there is a shortage of homes for sale and properties for rent, while buyer activity is rising and interest rates falling. These factors, in combination, will likely create a strong push from buyers within the market, which should work to improve median house prices in Sydney.
As such, if I were a betting person who wanted to buy in a market that's solid and sustainable - it would be Sydney.
VICTORIA
Victoria is a state that is still very much in catch-up mode. There is an oversupply of apartments that have been, and will continue to come, on the market.
However, we believe the housing market may be in the midst of a recovery with Century 21 seeing increased activity and buyer enquiries of late.
Melbourne is, to me, the bellwether of the national housing market; when the market's auction clearance rates start making it into the sixties on a regular basis, it should be a strong indicator that the rest of the country's markets are going to get moving.
WESTERN AUSTRALIA
Western Australia is a marketplace unto its own because it's not affected by a great deal of talk from inside Australia.
Western Australia's economy is largely driven separately to the rest of the domestic economy and, as such, I would give very little weight to talk of price reductions in Perth. I can see house prices in Perth continuing to rise; the city has a significant shortage of good quality properties available for sale and strong immigration from inside and outside of Australia.
Rents will likely continue to increase for as long as the imbalance between supply and demand remains. Perth's rents have shown, on average, almost 12 per growth over the last 12 months (according to Century 21's internal portfolio) - the highest in the country.
I would say that the previous two years have seen a lot of caution on the part of buyers, but this group is starting to see many good opportunities. Of late, Century 21 has noticed an increased level of activity at open homes and even increased sales, all of which bodes well for the start of 2013.
Whether a global economic recovery is driven from the US, China or Europe, it will occur at some point.
In the meantime, I believe that the strong opportunities currently presenting themselves in the market, relatively low interest rates, vacancy rates, solid yields in many locations, and the relative strength of the Australian economy may, in combination, see the Australian residential market record moderate growth in 2013.