Australia | Oct 13 2010
By Chris Shaw
National Australia Bank's Australian Residential Property Survey for the September quarter suggests growth prospects for Australian capital city house prices remain weak over the next 12 months. Gains nationally are expected to be around 1.5% over the next 12 months, similar to the June survey results but down from the 6% gains expected in the March survey.
Despite this, the residential sector remains Australia's strongest performing property market, with infrastructure the next best performer and then the office market. The survey shows the performance of all property sectors is expected to improve over the coming year.
The bank's chief economist, Alan Oster, notes the September survey shows Canberra is tipped to be the strongest market over the next year with gains of around 5%, while Brisbane is forecast to be the weakest in posting a gain of just 0.1%.
Respondents to the survey expect capital growth of houses to be better than for apartments, while lower value properties of under $500,000 are expected to post the strongest growth over the coming year. This reflects strongest demand coming for houses in the inner city and middle outer suburban rings. Demand for apartments is comparatively weaker.
In terms of who the likely buyers are, Oster notes Australian resident owner occupiers are expected to account for about 52% of existing property purchases and 44% of new developments.
Australian based investors are seen as accounting for 21% and 24% respectively of the existing and new market, while first home buyers are estimated to account for 16% of existing and 18% of new property developments. This is up from 13% for both categories in the June survey.
In contrast, the NAB September survey shows foreign buyers are likely to account for only 5% of existing property sales and 7% of new developments. This compares to 9% of sales in both categories in the June survey.
Oster notes the survey shows in both the existing property and new development markets access to credit is seen as the major constraint on market activity levels, while another key issue is the expectation of rising interest rates in the coming year.
The outlook for interest rates has softened since the June survey however, Oster noting on average respondents now expect rates will increase by around 50-basis points in the 12 months to September next year, down from 83-basis points in the June survey.
Also viewed as significant constraints according to the survey are employment security and the level of property prices in the market, though these are viewed as marginally less important than interest rates and access to credit. Oster notes lack of stock and the relative returns on offer from other investments are viewed as only somewhat significant constraints by respondents.
In terms of the rental market, NAB's survey shows Adelaide, Perth and Brisbane are identified as the cities with the greatest availability of rental property. Conditions in each market are classified as good at present.
In contrast, conditions in Sydney are seen as fair, while availability is forecast to improve in Adelaide, Canberra, Melbourne and Sydney over the next year. Both the Perth and Brisbane rental markets are forecast to tighten in coming months according to survey responses.
Average rent rises are expected to be about 2.5% according to the survey, though as Oster points out this hides a significant degree of divergence in performance between states. Strongest growth is expected in Victoria and New South Wales at around 3.3% each, while in contrast Western Australia and Queensland are expected to post more modest growth of just 1.4% and 1.7% respectively over the next year.
National Australia Bank's survey collects responses from real estate agents and managers, property developers, owners and investors, asset managers and valuers.