Australian Property Market Update – July 2010
Posted by taylor | Under property market Monday Jul 26, 2010Australian Property Market Update – July 2010
By: Whitehouse Capital Partners
The March quarter saw more investors returning to the market as first home buyers were phased out as a result of increasing interest rates and the scaling back of the First Home Owner Grant Boost.
A diminished selection of property for buyers in inner city locations has led to an increased focus on off the plan purchases. Over the last 12 months stock on the market in Sydney has fallen 30% (March 2010 vs March 2009), with new home starts being at record lows.
The RBA has kept interest rates on hold for the last few months, however minor increases are expected in the near future. Nevertheless, the critical housing shortfall and fall in new private sector home starts is expected to continue to keep an upward pressure on prices.
A downturn in auction clearance rates in May was noted in all capital cities. This phenomenon is not unusual during this period and is not of major concern. Furthermore, Sydney auctioneers report that a number of areas have maintained solid growth as a result of pressure from local and overseas investors. We see this as a good indication that the market is stabilising from the double digit growth it had in 2009 – 2010.
SUPPLY AND DEMAND
There is a widening gap between low supply and high demand, especially in NSW. This is mainly due to obstacles faced by developers (long approval periods for new projects; high charges by local councils) and the lack of bank funding available. Lenders now require a higher percentage of pre-sales, in some cases up to 100% of debt, before they will release funds. This is expected to underpin property prices in the next few years and place further pressure on supply and, consequently, upward pressure on prices.
Urban Taskforce’s chief executive, Aaron Gadiel said last month that “NSW private sector home starts were at about 64 per cent of the long-term average for the March quarter – that’s a long way to go before we return to the construction levels necessary to replenish the state’s housing supply”. The current row between Local and State Governments over capping of developer contributions is another obstacle likely to add to delays in development of residential properties, placing further upward pressure on prices.
The rental market is understandably strong with industry sources noting that rents have increased by 30% in the last few years. The lack of affordability for first home buyers will add further pressure to rentals. This is further supported by Herron Todd White who indicate a ‘shortage of available property relative to demand’ as an ongoing concern especially in Sydney.
Australian Property Market Update – July 2010
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