US demographer Harry Dent recently predicted the value of the Australian real estate market could drop by up to 50%.
Meanwhile, Quentin Grafton, the former head of the Australian Bureau of Resources and Energy Economics, is concerned Australian house prices could be headed for a correction if recent house price growth continues unabated.
As we look back at 2013, RP Data-Rismark reported that house prices grew by 10%
nationally, with Sydney increasing by 14.5% and Brisbane only managing 5.1%.
This has resulted in house price to gross income ratios for Brisbane and Sydney
of 6.5 and 9.9 times respectively.
According to Fitch, Australian house prices are ranked as the second least
affordable in the world behind the United Kingdom. This ranking is based on
both the price-to-income ratio and house prices as a percentage of gross
domestic product.
Despite this, Fitch is forecasting another positive year for housing price
growth as interest rates remain at generationally low levels and the supply of
new residential properties remains low.
In the absence of first home buyers the trend of Self Managed Superannuation
Funds to invest in residential property may continue to support house price
growth as investors continue to search for higher returns.
In South East Queensland agents are reporting strong levels of enquiry for
existing dwellings, house and land packages and new apartments. It seems the
growth experienced in Sydney makes South East Queensland more affordable and
therefore highly attractive.
It isn’t all positive for Queensland however, as towns being hit by the
downturn in the mining investment phase, such as Mackay and Gladstone, are also
being hit by falling property values and declining rents.
Overall, Brisbane house price growth should be modest throughout 2014 and
markets like the Sunshine Coast and Gold Coast are likely to continue to
recover.
Whilst this is positive in the short term, ongoing house price growth increases
the risk of a harder landing down the track if interest rates and unemployment
both rise.
Finally, the other dark cloud in Queensland property is the Brisbane office
market, which was also hit by the downturn in mining investment. Vacancy has
hit a 20 year high of 14.2% as at January 2014 according to the Property
Council of Australia.
Ongoing deterioration in this sector, together with any increase in interest
rates, will see pressure on highly geared owners, not only affecting the CBD,
but also the fringe and suburban office markets.
Indices:
The
Australian All Ordinaries Index has moved up increasing by +3.3%
since closing last Friday to 02:15 pm today.
The
rest of the world as measured by the MSCI index increased +4.1%
in A$ from closing last Friday to end of trade Thursday.
Have
a great weekend,
The Team at IPS
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