Australia | Jun 15 2009
By Chris Shaw
The “green shoots” term has been used largely to indicate there are some positive economic signs emerging even while the global economy remains in a recession, but it can also be applied to other areas as market analysts BIS Shrapnel have done in suggesting in their “Residential Prospects 2009 to 2012” report the Australian residential property market appears set for a sustained recovery in coming years.
In the analysts’ view the current heat in the market for properties in the more affordable suburbs will be the impetus for residential prices generally to move higher as other factors such as low interest rates, solid growth in rents and a general shortage of housing are all favourable.
The current economic climate will also play a role in the group’s view, the downturn meaning any recovery in confidence in 2009/10 will likely be a slow one.
As senior project manager Angie Zigormanis notes, first home buyers have been driving the market of late as the first home buyers grant and lower interest rates have created a favourable environment for such buyers to enter the market.
On the group’s numbers there will be as many as 180,000 first home buyers in 2009 but demand from this group is expected to decline once the first home buyers grant fades out later this year. Zigormanis expects upgraders and investors will by this time be ready to step in as replacements. There is already some evidence of this in his view as the total value of housing loans has risen by 14% over the first four months of this year.
In Zigormanis’s view, from the end of this year the housing recovery will deepen as the strong turnover in affordable properties will flow through into the middle of the market, driven by the upgraders. At the same time confidence in the broader economy should be improving into 2010 and this is expected to bring investors back into the market given low interest rates and increasing rental returns.
Rising interest rates are unlikely to be a major issue as Zigormanis points out the first hike in any new cycle is not likely before 2011 and increases are likely to be modest, at least initially. This is due to the likelihood that local business investment and overseas demand growth will be subdued and thus house price growth will be needed to generate a sustained rise in construction activity.
While Zigormanis expects prices will only gradually improve in 2009/10 he sees stronger gains once unemployment peaks, which he sees as occuring at the start of 2010/11. This should mean a return to double-digit growth in market-wide prices in 2011/12 on his numbers.
Among the various markets, Zigormanis expects the best growth will come in Sydney, Melbourne and Adelaide prices as affordability in the first two is at best levels for about a decade, while prices in South Australia remain lower than in other capital cities.
More moderate growth is forecast for Brisbane, Hobart and Canberra, while price growth in Perth and Darwin is expected to be weak given weaker local economies in both regions on the back of a decline in investment spending in the resources sector.