Australian Property Update - 7th December 2011

Welcome to our first “What’s Hot and What’s Not” report for a couple of months.  Our apologies for the temporary disruption in transmission due to a number of factors converging  - website redesign, our researcher Andrew Peterson travelling to Asia in the unrelenting search for property “hotspots” and the massive level of interest in our HotSpot projects in Newcastle, Orange and North West NSW.

Over the next 3 weeks, we’ll summarise some of the key issues in residential real estate as 2011 draws to a close, in preparation for our report on 2012 Hotspots to be published when we return to the trenches in January.

In this report

• ANZ says property more affordable that 30 years ago
• Consumer confidence and picking the bottom of the market
• Mainstream press catches on to the regional boom
• Real estate myths that still trap the unwary

In addition, we will include 3 reports coming into the end of the working year that will review the residential property learnings of 2011.

ANZ expert claims property is as affordable as the mid 1980s.

ANZ Bank’s Head of Property and Financial System Research, Paul Braddick stated last week that home purchasing power, inclusive of mortgage payments, was equivalent to the market of the mid 1980s

"Prices are justified where they are now," Mr Braddick said.

"Increasing incomes and a fall in interest rates have basically been capitalised in housing prices.  

"People tend to look at the period 2000-03 [when property prices skyrocketed in cities such as Sydney and Melbourne] but they were really only getting back to where they should be."

Mr Braddick was addressing the Urban Development Institute of WA, and predicted that the Perth market would bottom at $420k median house pricing early next year, followed by a strong recovery (RP Data’s median house price for Perth was $443k in October).

This is particularly interesting for we property investors, as WA has seen the best capital growth locations in Australia – RP Data’s list of the top 50 capital growth suburbs for the last 10 years shows 24 of them in the west.

So, if the areas that have seen the most growth are more affordable than they were 3 decades ago, what about the rest of the country?

This line of thinking only underlines the potential for investment in regional areas where housing is still cheap and the benefits of industrial investment have not yet flowed through.  Punters looking at Gladstone, for example, have already missed the first strong wave of growth.

What is the missing ingredient?  Assuming you actually pick an area with growth drivers for property – it comes down to confidence, both yours and the investing community.

Consumer confidence and picking the bottom of the market

As we’ve discussed previously and as indicated by the report above, the domestic economic climate is actually very positive, despite the perpetual bad news stance of the media.

We have strong GDP growth, strong employment and healthy wages growth – a recipe for optimism if ever there was one, the glass is at least half full.  Widespread negativity is partly understandable as the mainstream media concentrates on capital cities, which largely have modest growth prospects (particularly in the non mining states) as opposed to the real growth areas, which are clearly the boom regional centres.

The Commonwealth Bank/Mortgage & Finance Association of Australia Home Finance Index for September indicates that we are in a healthy position but very cautious, citing the following evidence;

• Over 20% of homeowners are saving over 20% of their take-home income
• 78% of mortgagees are easily meeting their repayments, up from 68% in May
• 17% of mortgagees under pressure to meet repayments, down from 26% in May
• Only 17% of those surveyed are planning to purchase over the next year, down from 22% in January

These results were published prior to the 2 recent rate cuts, which have seen an increase in mortgage activity, though no data is available as yet.

As usual, the king of “Hotspotting”, Terry Ryder sums it up beautifully;

“For the best markets in Australia right now, the bottom is already long past.

Anyone thinking of investing in the many vibrant regional markets across Australia - places such as Gladstone in Queensland, the Hunter Valley in NSW, Bendigo in Victoria and Whyalla in South Australia - has already missed the bottom. That doesn't mean there are no opportunities there to invest well - but if it's the bottom you were waiting for, you'd better get busy.”

Real estate myths that still trap the unwary!

One of Hotspotting guru Terry Ryder’s pet hates is the reluctance of the general investing population to let go of entrenched ‘urban myth’ type beliefs in the face of hard evidence to the contrary.

Some of our favourites are;

• Expensive suburbs in Sydney and Melbourne are attractive investment locations.  You can now add Perth.  Even basic research demonstrates that expensive capital city suburbs are poor long term performers whose capital growth is closely tied to the performance of financial markets.  This in addition to terrible rental yields.
• Coastal lifestyle areas are also attractive investment locations.  “Seachange” and “treechange” destinations have largely been hammered in recent years.  They are attractive places to live or holiday but need industry creating new jobs to drive capital growth.
• Renovation is profitable.  Certainly for some professionals but rarely for the owner-occupier hobby renovator, particularly after you put a realistic price on your own time.  Do it for fun or lifestyle, but don’t expect a profit unless you’ve really done your research.
• Your own home is an investment.  This one is more debatable and dependent on your personal circumstances yet many reputable financial advisers dispute it.  An interesting perspective is Robert Kyosaki’s (“Rich Dad, Poor Dad” etc) definition of an asset as “something that puts cash in your pocket”.  On this basis, your own home is anything but!

We’re always happy to discuss our thoughts and research – if any of these is worth a chat, please email or call us on 02 9917 8600!

Missed out on last weeks report? Click below to view the August 30th edition of