FYI | Jun 16 2008
By Chris Shaw
Whereas the previous few years saw consumers enjoy a wealth impact from
higher property prices such a scenario is unlikely over the next year
or so according to the latest assessment of the residential property
market by analysts at BIS Shrapnel.
According to the group’s “Residential Property Prospects 2008-2011”
report higher interest rates mean all of Australia’s residential
property markets are likely to experience only marginal price gains in
2008/09, though any downturn is likely to be avoided and going forward
the combination of high net migration rates and an undersupply of new
housing will see housing price growth increase from 2009/10.
Author of the report, Mr Angie Zigomanis, suggests as construction
remains below previous peak levels despite strong underlying demand
vacancy rates remain at low levels and this will continue to push up
rental growth. These improved returns, combined with a recovery in
credit conditions expected in 2009, will be the combination that drives
up property prices in most capital cities when the property market next
turns positive.
In Mr Zigomanis’ view an improvement in credit conditions will allow
banks to pass on lower borrowing costs to their customers and this will
drive the property market. He suggests those markets best placed to
record gains through to 2011 are Brisbane, the Gold and Sunshine Coasts
and Darwin, as these regions combine strong underlying demand with
strong employment and wage growth.
Sydneysiders can also expect some price improvement as the recent
correction in the market generates increased demand, while Zigomanis
sees more modest growth from the Melbourne, Adelaide, Canberra and
Hobart markets and weakness in Perth. The latter is due to “affordability issues”.
In terms of specific regions Zigomanis predicts a median house price for Sydney of $550,000 for June this year, increasing slightly to $560,000 this time next year as part of total growth through to June 2011 of 18%, with
this growth expected to be strongest towards the end of the period.
Similar growth through to 2011 is expected in Newcastle as the region
benefits from the lack of affordability in the Sydney market, while BIS Shrapnel expects the Woolongong region to record growth of 17% for the
period.
Melbourne should record 10% price growth in FY08 to bring its median
price to $455,000 by the end of June, while the group is forecasting price
growth of 16% and real price growth of 6% through to 2011. Brisbane
should exceed this with 15% growth in FY08 to lift its median price to
$422,000 in FY08, with 11% real growth or 22% nominal growth expected
through to 2011.
A similar rate of increase is forecast for both the Gold and Sunshine
Coasts, while Cairns and Townsville are forecast to deliver price gains
of 19% and 16% respectively as high levels of construction reduce the
shortfall of dwellings and offset to some extent the combination
of stronger economic conditions and lower median prices than
Brisbane.
In the Adelaide market low vacancy rates imply a shortfall in dwellings
and affordability is better than in other capital cities but BIS Shrapnel
expects the recent increases in interest rates to have an impact,
limiting the city to growth of 16% over the next three years.
The Perth market is tipped to struggle over the next two years as
affordability is currently poor but BIS Shrapnel expects strong wage growth to
subsequently deliver some gains in 2011. By the end of FY11 Zigomanis sees an increase of 6%.
A net outflow of people from Tasmania will limit the growth in Hobart
property prices in coming years and the group is forecasting an increase of
14% through to FY11, while a 15% increase is predicted for Canberra
after a weak FY09 given uncertainty over public sector employment
levels following the election of the new Federal government.
Affordability appears reasonable in Darwin in comparison to other
capital cities, particularly given the potential for higher income
levels on the back of strength in the mining sector. This leads the
group to predict the city will enjoy price gains of 21% over the next
three years, which equates to an increase of 10% in real terms.
