Property Investment - September 2009

With reporting season well underway, many of the nation’s largest property developers have reported their 2008/09 financial results this week. Whilst the performances over the year have generally been weak, statements from the likes of FKP, GPT and Westfield have all given a fairly upbeat assessment of the property markets immediate future.

Overseas, US house price figures show the long running decline in housing values may have finally ended. Prices were reported to be up 1.4% in June after falling by more than 23% since US house prices peaked back in late 2005.This week we have also introduced our weekly set of ‘Key Statistics’ which will change from week to week. This week we are focusing on the amount of vendor discounting in the market (ie. the average difference between the original listing price of a property and the ultimate selling price of a property) as well as the average number of days it takes to sell a property. Both sets of statistics are trending downwards indicating buyers are able to negotiate less with sellers (discounting) and properties are selling faster than they were last year.

Auction clearance rates remained above 80% in Melbourne and 70% in Sydney suggesting that vendors are setting realistic reserves on their properties. The high clearance rates can also be tied back to an increase in competition amongst buyers as market activity improves. More than 1,100 auctions were held last week, the largest number in more than two months.

Are the mining towns set to rise again? 

In the mining boom the increase in the work force caused the Mining companies to demanded more housing to locate more and more staff near the projects due to demands on fly in fly out resources and costs. On the back of this mining boom, demand for housing rents and values increased and investors moved quickly into these areas due to low price and high rent yields.

The in 2008 with the gobal credit crunch demand for resources fell along with prices and along with the decrease in production, prospecting and projects being terminated came job losses and reduced demand for housing. I remember it all too well, Christmas came and went and the strong march sales figures did not materialise, a month later it was doom and gloom everywhere. Foer those that got in and out at the right time, great capital gains were achieved. For those buying at the top and still owning after the collapse, it was hard to sell and you probably are still holding the asset, a well know example of this is BHP's mothballed nickel project in Ravensthorpe, overnight 6000 jobs were lost and so far only 3 properties have been sold in 2009. 

If you one of those unlucky investors buying at the wrong time and still holding waiting for markets to improve........well their is some reason for optimism as the number of projects being approved, along with overseas econimc data has led some economists to predict the recession may be shorter and and weaker than predicted. Australia's largets deal "The Gorgon Project" reported being worth $50B with a deal signed with India for $20B in the week before, thas a prediced 6000 jobs at peak time, with predicted 000's more in related industries. A client of ours is working on the project and he said that they wanted him in and off the island (Barrow Island) when doing work so their was more room for people for construction, so it appears they're are not wasting any time in getting the project moving.

RP data records indicate that over the 5 years ending 2009, the central Pilbara Coast has rised by 230% and yields above 9%. With some investors being caught at the wrong time,and wanting to sell but can't, the turn in these mining areas may presenmt good buying opportunities for others, towns near the Gorgon project include Onslow (a small town) with the closes larger town being Karatha and Dampier. The median house price according to RPdata is $835K and rental yeilds are reported being over $1000 with over 10$ yield not uncommon. Resource towns to look at besides the Pilbara include the Kimberley's in WA, (Browse Basin LNG production), Darwin (Timor Sea) and Queensland Gladstone (Coal Seam methane Gas), Northern Territory the Inpex gas project is waiting approval, with project cost of around $24b and employment of 2K workers in construction phase, South Australia Olympic Dam expansion (waiting approval) with 10K jobs (peak const) with the township of Roxby Downs being the place to watch, New South Wales, Orange, Newcrest Mining Cadia East underground project prohjected to injecting $2.2b into the local economy with 1.3K jobs peak construction.

For the conservative investor these resource driven markets are likely to have a risk profile that falls outside their investment strategy. However, for many investors these markets are likely to be very attractive and should provide above average returns whilst the resources sector remains buoyant.

This article is derived from property research from numerous sources with RPdata statistics and research being notable