19 May 2010

Investors dominate housing market

Investors now account for the largest slice of housing financial commitments since December 2003.

The latest Australian Bureau of Statistics housing finance figures indicate that investors are currently driving the Australian property market.

In trend terms, the total value of dwelling finance commitments excluding alterations and additions decreased 0.5 per cent, owner occupied housing commitments fell 1.4 per cent, while investment housing commitments increased 1.0 per cent.

PRDnationwide’s Quarterly Economic & Property Report shows that investor financial commitment has now reached $8 billion. It has not been this strong since June 2007, when property prices were at their peak.

Investor finance now accounts for 36.8 per cent of all financial housing commitments and has not had such a large portion of the market since December 2003.

Over the past 12 months Australian property has experienced a 20 per cent price jump making us the fourth-fastest-growing property market in the world, despite the current slowdown.

David Airey, president of the Real Estate Institute of Australia, suggests property investors would do well to remain cautious until more bargains start to appear in the market.

“It’s probably a little early,” he says. “While the slowdown is probably seasonal in some respect with the cold weather, keep in mind that finance investment is very hard to get as well. I think there needs to be a little more contraction before people jump in.”

Airey notes that prices are likely to taper off even more.

“Larger property investments like multi-unit blocks are currently much, much harder to come by. The market isn’t going to fall so much as slow down, so investors would do well put to wait a little longer,” he says.

SQM Research founder Louis Christopher told Smart Company that timing really depends on individual investment strategy. But overall, he too recommends the slow and easy approach.

“If you’re timing the market perfectly, I don’t think now is the time to jump in,” he said. “When you start to see the RBA cutting rates again, or just about to cut rates, then that might be a point, but it has risks there as well. There’s certainly no rush right now.

“The bargains are certainly forming, but they aren’t there yet. I don’t think vendors have realised the market is slowing down yet, and haven’t reduced their asking prices. But we will get to that point fairly soon.”

PRDnationwide research director Aaron Maskrey anticipates that dwelling investment will grow by 7.5 per cent during 2010 to 2011.

One in ten taxpayers now own a negatively geared property.

In April the federal government announced tighter rules on foreign investment in real estate.

The government reversed the rules – conceived in late 2008 and established in March last year in order to enhance market flexibility – that relaxed the laws of property ownership by foreigners.

Temporary residents now have to go through pre-approval from the Foreign Investment Review Board before they are allowed to buy property.

As investors reduce their holdings of stocks, bonds and cash in favour of other options property is increasingly their focus.

What can we learn from Australia’s wealthiest individuals?

Of the 200 on the BRW Rich 200 list 59 made their fortune through investing in property.

Looking ahead Wakelin Property Advisors see the Australian property market exhibiting major discrepancies.

“Inner ring houses and two bedroom apartments will continue to experience good sustainable robust price growth – 5-8 per cent,” says Director Monique Wakelin.

“Conversely we see property values in outer suburban housing – on the urban fringe – being much more susceptible to movements in the economy. If the economy turns down so too will jobs, overtime and contracts and in turn house prices.”

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