Australian Property Regaining Favour

Array
(
    [0] => Array
        (
        )

    [1] => Array
        (
        )

)

By Chris Shaw

Equities have been the star investment class in recent years but the Australian property market appears to be making a comeback if housing data released today is any indication.

The data showed investor finance rose a strong 8.9% in February to be at its highest level since February 2003, global strategist Stephen Koukoulas of TD Securities suggesting it indicates a reawakening of investors to property as an investment class given rising rents and strong demand for accommodation.

Owner-occupied finance approvals rose just 0.3% for the month though, leading economist Joseph Capurso at Commonwealth Bank to suggest there was no smoking gun in the data in terms of a justification for the Reserve Bank of Australia (RBA) to push rates higher when it meets again next month.

GSJB Were agrees, noting the owner-occupied data was in line with consensus estimates while the investment data can be at least partly explained by investor repositioning before the changes to superannuation laws come into effect after June 30.

The broker also suggests the data is suggestive of simply not enough houses being built, Koukoulas pointing out further increases in approvals would set the scene for an increase in residential construction. This in turn would be an important addition to domestic demand, which currently remains buoyed by consumer expenditure.

ANZ Bank sees a similar strengthening trend in construction as likely, noting the increased interest in investment property is a reflection of a tight market and the upward pressure on rents this is producing. It expects this growth in rents will trigger a rebound in finance approvals in 2007-08 while at the same time maintaining the current status in terms of the risk to the monetary policy setting remaining on the upside in coming months.

As GSJB Were points out, the next significant data is the CPI figure due this month and with a benign outcome expected the broker sees little reason for the RBA to push rates higher next month, the housing data doing nothing to change its view.

Click to view our Glossary of Financial Terms