FYI | Jan 25 2011
By Chris Shaw
National Australia Bank's latest Quarterly Australian Residential Property Survey suggests conditions in the property sector will weaken considerably over the next 12 months. The December quarter survey shows a fall in the index to 27 points, down from 44 points in the previous quarter.
NAB group chief economist Alan Oster notes while the residential sector remains the strongest performing property sub-category according to respondents, the survey shows national house price expectations have now turned negative. A fall of 0.5% is expected nationally over the next 12 months, which compares to an expected price gain of 1.5% in the September quarter survey.
The Adelaide, Canberra and Sydney markets are tipped to post small increases, while the Brisbane, Perth and Melbourne markets should be weaker. The survey shows conditions in Queensland are expected to be hardest hit, as the bank's Residential Property Index for the state has fallen to a reading of just four points. This was before the onset of major flooding throughout the state.
Oster notes the survey shows expectations are for capital growth of houses to outpace that of apartments. This reflects stronger demand for houses in new residential developments and among existing properties, particularly those in inner city areas.
Demand for houses located in the middle/outer ring of cities was identified as fair, this after being identified as the strongest category in the September survey. Lower value properties, which are those priced under $500,000, are expected to record the strongest capital growth over the coming year.
Resident owner occupiers are expected to continue dominating the market for existing properties given they account for 52% of demand in this category, while Oster points out expectations from respondents are for this category of buyer to also account for 48% of new residential developments, up from 44% in September.
Resident investors account for around 25% of each category, while Oster notes foreign buyers have a 6% share of the new development market and 5% of the market for existing property sales.
Oster points out survey respondents continue to view tight credit conditions and rising interest rates as the major factors impeding new residential developments and existing property sales. The survey showed 71% of respondents expect interest rates will be higher over the next 12 months, though expectations for the magnitude of the increases have softened since the September survey.
Just over half of the respondents in the survey expect rate increases in the coming year of less than 1%, up from 41% in the September survey. Oster notes on average interest rates are expected to rise by about 50 basis points in the coming 12 months.
In terms of rental property availability, Oster notes Adelaide, Brisbane and Melbourne currently have the greatest supply but should experience the greatest tightening in the market, while Sydney will continue to lag in terms of rental property supply. The survey shows residential rents are forecast to rise by 2.8% over the next 12 months and by 4.1% over the next two years.
The largest gains are expected to come in the South Australian and Victorian markets, while Queensland is expected to continue to lag the other states in terms of residential rent gains.
In terms of where respondents see the best scope for capital gains, the regional towns of Gladstone in Queensland and Karratha in Western Australia were the most nominated. Suburbs in Sydney, Melbourne and Brisbane were also well represented.
See also "ANZ Remains Positive On Oz House Prices Outlook" published earlier this morning.
