BY JEREMY ALLEN
It’s the chicken and the egg debate in real estate that is for sure! Will investors and home buyers artificially drive the property market? Or will the property market grow in connection with the economy?
With the Australian Property Market showing positive signs of growth for 2011, particularly in Sydney, I take a look at some “Emotional” factors for the predictions.
Markets can rise artificially, fueled by human emotions and a must have attitude. Real Estate markets start with economic drivers that fuel growth and end up artificially growing in the “Boom” period of a cycle. These artificial capital gains go through a correction period in the form of a price drop. As an example Melbourne will slow and correct this year and the artificial growth that occurred after the true boom ended in late 2009 will reverse. The market may fall by 10%, wiping off the emotional money paid in 2010!
Economists predict that the Australian economy will strengthen on the back of an already significant resource boom. Australia’s resources are vast, with some of the largest coal, nickel, uranium, gold, silver and natural gas supplies on earth. The ever-growing demand on these resources sees Australia’s labour market near full employment and with further increased economic activity, skills shortages could emerge, once again putting pressure on wages and salaries. While buyer activity may remain restrained in the early part of 2011, we foresee that the markets will strengthen and growth is forecast for the middle quarters of the year.
The drive of a robust and performing economy, the growth of household income combined with the underlying shortages of stock in most markets will put upward pressure on house prices and rents throughout 2011. Other than the Melbourne correction, the Australian Property Market is certainly growing organically and effectively in conjunction with the rest of the economy. There is definitely not a false economy in real estate in 2011.
We have seen the Australian property market grow in Melbourne and Sydney, these markets have risen in value well. They have risen and recovered faster than other world markets- Why? Melbourne and Sydney were due for growth as part of their cyclical market patterns and these cities have great property market drivers compared to Global Markets. These elements primed a market recovery and have lead to positive national property growth figures that are into the double digits.
I don’t say this to impress you, I simply want to stress the importance of thorough market research: I know these cyclical patterns and have advised my clients to purchase well before area’s are due to grow. We know there are still markets within the country that have been affected by deflated values. Those markets are absolute opportunist markets. They are risk markets for those who are novice to the property game but absolute gold for those who have had some experience, we all know Warren Buffet’s famous saying!!!
There are still fundamental economic reasons why we believe the Australian market will be strong into the future:
- Rental vacancy rates are the lowest we have had in about 30 years
- Interest rates are quite low – below the actual 20 year average which is approx 7.5%
- The population is growing and expanding fast with record levels of immigration – for four years in a row into Australia creating a huge under-supply of housing
- Jobs are solid; with the unemployment rate at a two-year low of approx 5%
- There is a massive under-supply of residential real estate and financing for developments is very difficult and that means that there is not going to be an oversupply anytime soon in the key markets we are targeting
There is no cheap labour anywhere near Australia at all for construction( unlike many other countries); so the price of construction will continue to rise – making it expensive to build new homes and forcing competition for tradespeople in the resource sector.
Head not heart.
Jeremy Allen (National Channel Manager at Positive Real Estate) has been researching various investment strategies for 10 years. What I’ve found is that Positive Real Estate EDUCATES rather than spruiks property. They have been in business for 7 years and have always “Learnt the clients situation and what they would like to achieve for their personal situations.” then they apply a “Teaching of the necessary strategies”, then an “Execution of the Plan”. Email: email@example.com to discuss your situation and where you would like to be.