Property Investment – a snap shot of this months article’s is:

1. Industry News - RBA hold raising rates but looks like the cash rate will be 4% by the end of the FY with variable rates at around 6.9%;
2. Advertised Stock on The Market - new listings are now higher in all states compared to this time last year, however stock is lower suggesting older stock is now being absorbed.
3. Number of properties advertised for rent - has increased over the last few months reasons are unknown, maybe seasonal but maybe not.
4. Australian Property Market - review of last decade of prices, demand and supply.
5. Building approvals data from ABS for Dec released showing approvals increasing, second consecutive monthly increase and the Dec level the highest since mid 2004;
6. First Home buyers impact on the market ;
7. Commercial; (1) Private Syndicate from Becton off market, industrial, warehouse/office, 10.200m2, 1.68ha, 9.6%yield, $11.8M subj 10yr lease 1.13M.pa,  (2) Vic, Surrey Hills office suite, $1.26M for 7% yield, $87.9K rent 8 yr lease, + 8yr option, 251m2, 7 carbays.

The sale of the 10,224 sqm office and warehouse building, situated on a 1.68 hectare site at 13-19 Wangara Road, Sandringham, generated a yield of approximately 9.6%.
Savills Australia industrial director, Greg Jensz, negotiated the $11.8 million deal, subject to a new ten year lease to Laserlite Australia at a rental of $1.13 million per annum.
Mr Jensz said the success of the off-market campaign reflected the strength of the private market for well located industrial properties with secure lease profiles.
“The recent lift in enquiry for industrial assets suggests we will see a significant rise in transactions in 2010, especially for such well-credentialed properties,” said Mr Jensz.

The RBA surprisingly did not raise interest rates following their Board Meeting. Most economists expected that the Bank would lift the cash rate from 3.75% to 4.0% which would have resulted in standard variable mortgage rates averaging about 6.9% (as long as the banks didn’t grab a little extra). By year’s end the ASX cash rate futures suggest the official cash rate will be about 4.66% which means a variable mortgage rate around 7.5%. Most of the economic news has been very positive of late however the ANZ Bank’s survey of job advertisements across the major newspapers and internet found that job ads fell by 8.1% during January 2010. Business confidence figures released this week also showed weakness with the NAB index recording a fall of 11 points during the month. Rationale for not increasing the cash rate in Feb is based on preceeding monthly increases in the cash rate in late 2009 and the removal of goverment stimulus funding. Despite what may seem like quite high interest rates, the amount of home loans in arrears (more than 90 days overdue) have remained below 0.6% for loans that are well secured by collateral and slightly higher than 0.6% for loans that are not well secured by collateral. We know the future for interest rates will depend on the Reserve Bank's interpretation of the moinotrs: Inflation, labour markets, housing prices, retail spending, levels of consumer and business confidence and global and domestic economic conditions.  The minutes certainly leave the door open for more rate rises, however the days of consecutive monthly rate rises are likely to be behind us.

The amount of new listings coming onto the market nationally are now higher in every state than at the same time last year, the greatest increases have been witnessed in the Northern Territory (29%) and Queensland (28%). The significant volume of new stock speaks for the current levels of confidence in the property market. Perhaps most interesting is that despite the significant increases in new stock, total stock sits below the level witnessed at the same time last year suggesting that homes for sale are being absorbed by the market at quite a rapid pace. Auction markets are continuing to see activity levels grow with more than 1,000 capital city auctions held last week, The weighted clearance rate across the combined markets jumped from 59% to almost 67%.

 

New data available this week shows a summary of the number of properties advertised for rent throughout the country. Over the last four weeks there has been 34,393 new properties advertised for rent
and 73,014 total properties available for rent. When compared to the previous month, numbers have jumped dramatically this month. This is likely due to seasonal factors with many leases coming up for renewal during the start of the new year. The significant influx of first home buyers to home ownership eased rental pressure and has been a factor contributing to falling rental rates in many regions during the second half of 2009. With an expectation that first home buyers will at least fall back to historic average levels during 2010 we anticipate a turnaround in rental markets with higher rents likely to become evident this year. We also anticipate that investors will become more active in the marketplace due to less competition, particularly from first and second home buyers, brought on by the higher interest rate environment.

 

Over the last ten years the Australian property market has recorded an annualised rate of growth just below 10% each year however, the results vary greatly between each city.

Across the capital city residential property market, the last 10 years has seen home values almost double with an annual rate of growth of 9.4%. Today the capital city median dwelling price across the country sits at $451,000 with houses recording a median of $485,000 and units at $400,000. If you bought a home 10 years ago, you were probably looking at a median price of less than $200,000 for either property type.

As the capital city market pricing graph shows there has been distinctive periods of growth during the last decade. Between 2000 and 2003 there was a strong growth period which was following a long period of negligible value growth. Following this boom, values nationally showed little growth again until 2007. In fact, the majority of value growth recorded between 2004 and 2007 was due to the Perth market which was undergoing a significant surge in values due to unprecedented strength in the mining and resources sector. Conversely, in parts of Western Sydney in particular, some areas recorded significant falls in property values over this period. During 2007 there was another strong growth period which occurred in all cities except Perth and Sydney. During 2008, the global economy stalled as a result of the Global Financial Crisis (GFC) and values slumped 3.8% nationally from their peak during February 2008 to the trough in December 2008. Larger falls were recorded in Perth and Brisbane. In 2009 property values jumped again, this time in all cities as a result of the lowest interest rates in 49 years which has lured buyers back into the market, the Boost to the First Home Buyers Grant and a dramatic housing undersupply.

 

Over the decade, sales volumes were strongest between 2001 and early 2004 which was the time that nationally, property values were undergoing significant growth. Once the slowdown hit in mid 2004 volumes dropped by around 10,000 sales each month as the market cooled. During 2007 when markets such as Melbourne, Brisbane, Adelaide, Hobart and Darwin were performing particularly well, volumes again picked up but never reached those heights witnessed between 2001 and 2004. Once the GFC hit, sales volumes slumped to the lowest levels seen at any time over the last ten years. It’s not surprising as many with non-core assets such as holiday homes were forced to sell, as did some of those who lost their jobs or ran into financial difficulty. At this time there was plenty of willing sellers however, the problem was a significant lack of willing buyers at that time. Finally in 2009 as values rebounded and recorded growth only slightly below that recorded during 2007 sales volumes rebounded although not to the same levels as those recorded during 2007.

On a city-by-city basis Hobart has actually seen the greatest value growth over the last ten years with dwelling values increasing on average by 12.8% annually (to November 2009). It’s no real coincidence given that Hobart prices came from a very low base. Despite this, Hobart still provides the most affordable capital city housing. What is probably most interesting is the performance of the three largest cities (population wise). Sydney prices have dramatically underperformed the national average with average annual growth in dwelling values of just 6.3%. Melbourne has only just outperformed the national average seeing average annual growth of 9.7% whilst Brisbane has recorded growth of 11.0% p.a. The national figure is weighted by population and property type so given this it is clearly influenced by the larger population centre's such as Sydney and Melbourne.

It’s also imperative to remember that Sydney and Melbourne have had higher property prices and because of this fact growth rates tend to be lower as they are coming from a higher base.

Looking specifically at the last five years values have grown at an average annual rate of 6.5% which is much lower than the ten year growth rate showing just how significant the boom was in the early part of the decade. Over the last five years the standout performers have been: Darwin (17.2% p.a), Perth (13.6% p.a) and Adelaide (8.4% p.a). Sydney has by far and away been the worst performer during the last five years recording average annual growth of 2.3% p.a. The other poorer performing markets have been Hobart (6.8%) and Brisbane (7.5%).

Given what has occurred over the last ten years it will be very interesting to see what the next ten years holds. Undoubtedly property prices are expensive in most capital cities and the provision of affordable housing must be imperative. However, it appears that to-date Governments are unwilling or unable to provide affordable land supply with the necessary infrastructure. As population growth looks set to remain at high levels and we continue to fail to build enough dwellings to cater for demand, upwards price pressures on property is likely to persist.

Building approvals data for December has just been released by the Australian Bureau of Statistics which shows a positive upwards trend in the number of homes approved for construction. On a seasonally adjusted basis dwelling approvals rose 2.2 per cent in December with 14,869 planned dwellings given the green light. This is the second consecutive month of improved approval numbers and the highest monthly result since mid 2004.

 

First home buyers were an extremely important element in the property market recovery during 2009. This week we look at exactly what impact first home buyers had on the market in 2009 and how their gradual slowdown in demand may affect the market in 2010.

During 2009, 191,000 first home buyers took the opportunity to become home owners across Australia. It’s no real surprise that first home buyers were so active during 2009 given that the Government was offering the First Home Owners Grant Boost, interest rates were at almost 50 year lows, some State Government’s were offering additional incentives such as low or no stamp duty on more affordable property purchases and properties had become more affordable during 2008 thanks to a fall in values. The volume of first home buyers during 2009 represented the highest annual volume of buyers on record and saw a 55% increase on first home buyer activity compared to the previous year.

Between 1992 and 2009 there was an average of just over 116,000 first home buyers annually. Not only was the level of activity during 2009 the highest on record it was 64% greater than the long-term average level of activity.

 

Many people claimed that the active first home buyer market was artificially inflating prices however, it is important to look at just how much of the market first home buyers accounted for. During 2009, owner occupiers took out finance for approximately 739,000 dwellings of which 26% was taken out by first home buyers and the remaining 74% came from non first home buyers. Obviously first home buyers accounted for a much greater portion of the market during 2009 than they have in the past however, their portion still paled in comparison to non first home buyers.

Importantly, this data doesn’t include investors. The ABS doesn’t publish volumes of investor finance but it does publish the total value which shows that the amount spent on residential property by investors was worth more than 25% of the value of all housing finance during 2009. This result combined with the proportions for owner occupiers split between first home buyers and non first home buyers show that even though first time buyers were extremely active during 2009 compared to previous years, they still only accounted for a relatively small portion of the overall market, likely to be around 15% of the whole market.

On a month by month basis during 2009, first home buyer activity peaked at 28.5% of all owner occupier finance during May 2009. As the graph shows, following the peak and once the First Home Owners Grant Boost in full was removed, the proportion of first home buyers in the market fell sharply. During December 2009 first home buyers made up 21% of the owner occupier market. Historically, first home buyers have accounted for around 20% of the owner occupier finance market and we would expect that during 2010 they will sit at a similar if not lower level than the historical average.

On a state by state basis first home buyers during 2009 were generally most active within Western Australia where on a month by month basis they averaged 28.4% of housing finance commitments during 2009. The second greatest proportion of home loans for first home buyers was found in Victoria (26.9%), followed by New South Wales (26.8%). The markets which saw the lowest proportion of first home buyers during 2009 were: South Australia (20.6%), Northern Territory (21.1%) and the ACT (22.0%). When looking at the results of the most recent month you can see the impact of the slowdown in first home buyer activity with each state seeing fewer first home buyers during December 2009 than witnessed during December 2008.

Although first home buyers still only accounted for a relatively minor portion of all housing finance commitments during 2009, the impact of the greatest ever level of first home buyer activity was certainly felt across the rental market. Such a significant influx of first home buyers to home ownership eased rental pressure and has been a factor contributing to falling rental rates in many regions during the second half of 2009. With an expectation that first home buyers will at least fall back to historic average levels during 2010 we anticipate a turnaround in rental markets with higher rents likely to become evident this year. We also anticipate that investors will become more active in the marketplace due to less competition, particularly from first and second home buyers, brought on by the higher interest rate environment.

1. A private syndicate has bought an industrial property in Sandringham, Victoria, from Becton in an off-market deal.
The sale of the 10,224 sqm office and warehouse building, situated on a 1.68 hectare site at 13-19 Wangara Road, Sandringham, generated a yield of approximately 9.6%.
Savills Australia industrial director, Greg Jensz, negotiated the $11.8 million deal, subject to a new ten year lease to Laserlite Australia at a rental of $1.13 million per annum.
Mr Jensz said the success of the off-market campaign reflected the strength of the private market for well located industrial properties with secure lease profiles.
“The recent lift in enquiry for industrial assets suggests we will see a significant rise in transactions in 2010, especially for such well-credentialed properties,” said Mr Jensz.

2. An office suite in Surrey Hills, Victoria, has been sold by agents of Gorman Kelly with a lease already in place.
Suite 5 at 400 Canterbury Road, Surrey Hills, is one of 11 suites in the Wolfstep Projects-developed building.
Gorman Kelly agent, Sandro Peluso, marketed the property, which achieved a final sale price of $1.26 million.
The lease to Wealth Management Systems at a rate of $87,900 for eight years with an eight-year option gave the sale a yield of 7%.
The 251 sqm unit was sold along with seven car parking spaces.

Source: r p  - d a t a . c o m