September 2008 Market Update - Uncertainty brings Opportunity

Welcome to your September edition of propertybuyer's market update.

In this edition we will look at:

1. What’s really happening in the property market
2. A Look at Australia’s future population growth
3. Hong Kong Property Expo
4. Sydney Property Club Seminar – October 14th -“Is the Property Market in Meltdown?”
5. Inspiration Corner - Thoughts of the Month
6. Readers Choice Awards – You can win great prizes

Disclaimer: Information presented in this newsletter is not to be taken as financial advice for your personal situation – please consult with qualified professionals before taking any action. (Full disclaimer available on our website: www.propertybuyer.com.au)

 

1. Market update –By Rich Harvey
A new Australian residential housing record was set last week with a Vaucluse (Eastern suburbs of Sydney) beachfront home selling for $47 million. Some agents are saying that it was a much needed boost to the top end of the market, while other agents are saying that more listings at the upper end are likely to come on the market from financially pressured vendors.

Auction results from around the country last weekend (as reported by Australian Property Monitors) showed that clearance rates are lagging. Sydney had a clearance rate of 53% with a total of 119 properties sold. Melbourne showed a 63% clearance rate with 303 properties sold under the hammer. Brisbane and Adelaide had clearance rates of 52% and 35% respectively.

The last 3 months has seen property prices across Australia experience a slight fall or stagnate. General economic slowdown, fear and the lack of available finance stemming from the credit crunch have combined to slow the property market considerably. It is an unusual situation to have both the property market stagnating and the sharemarket in decline at the same time. But thinking back to the early 1990’s, we don’t have a situation of interest rates at 17.5% (currently at 7%) nor unemployment at over 10% (currently at 4.4%). Despite falling numbers of property sales and capital growth stagnating, rental returns are on the increase.

While some commentators are quick to suggest the “R” word (“Recession”) is coming because of what is happening in overseas financial markets, the reality for the Australian economy is quite different (see the comparison I presented in the August Newsletter showing the difference in market conditions between Australia and the US). Now that the Reserve Bank has seen the light to stimulate economic growth by putting interest rates on a downward cycle (with the first 0.25% reduction in September), it is likely to take another 2 or 3 interest rate cuts of 0.25% each and around 6 to 9 months before the full effects of this filters through the economy. We are not going to see massive collapses in property prices like in the US because the fundamentals of our property market remain solid for investors over the medium to long term.

The Reserve Bank has said they are in no rush to reduce interest rates because inflation at 4.5% is well above their preferred range of 2-3%. However, they don’t want the economy to grind to a halt so have to judge between living with the uncomfortable effects of higher inflation or cut rates faster to ensure we get continued economic growth.

The impact on the humble Aussie property investor from the fallout of spectacular collapses like that of Freddie Mac, Fannie Mae and Lehman Brothers is that credit for housing is likely to cost more, and lending policies are likely to be tightened during the next 12 months because the traditional sources of finance have dried up for the banks.

To put things in perspective, let’s have a look at some of the key figures supplied by RP data for the last year:

· In 2007, investors chose to put their money into the sharemarket. In 2008, investors have put more of their funds into cash-based investments. Investor reluctance to put money into housing has resulted in fewer homes being built.

· Australian building approvals in July were 3.7 percent lower than a year ago and almost 7 per cent below both five-year and decade averages.

· In 2007/08, 158,938 new residential buildings were approved, up 3.6 percent on a year ago. Federal Treasury has estimated that Australia is significantly under-building, with demand expected to lift to 200,000 homes by 2009/10. Treasury’s estimate of underlying demand comprises 80,000 homes from net migration, 60,000 homes from population growth, 40,000 homes from a decrease in average household size and 20,000 homes to replace those that are demolished or destroyed.

· With fewer buying and building, the rental market has tightened. The Australian rental vacancy rate stood at 1.49 percent in the March quarter, just above the record low of 1.29 percent set in March quarter 2007 but well below the long-term average of 2.9 percent.

· While demand for homes has softened, so has supply. Unless forced to by rising living costs or losses in the sharemarket, Australian home-owners have had few reasons to sell. As a result, Australian house prices grew by 8.2 percent over the year to June, broadly in line with longer-term averages.

· Evidence of lower housing supply and demand comes from listings and sales volumes. Figures provided by RP Data indicate that established home sales volumes fell 44 percent between March 2007 and April 2008. Sales volumes are around 30 percent below longer-term averages. The rolling monthly average of new listings stands near 12,000, below the long-term average of just over 14,000. Total listings have been broadly trending sideways at a 120,000 rolling monthly average rate.

· RP Data also estimates that “rental yields are up as rental rates continue to outpace dwelling values in the growth states. Nationally, the average gross rental return for houses and units is now 4.31 percent and 5.12 percent respectively.”

So what does all this mean for property buyers? I believe that a window of opportunity to buy while the market is currently at the base of the cycle is during the next 6 months. To find out if now is the right time for you to consider buying a property, speak to one of our friendly team and seek professional advice that fits your current situation. Click here to send us your wishlist…

 

2. A Glimpse into Australia's Population in 2056

According to ABS population estimates as at 2007, New South Wales has the greatest population of all Australian states, accounting for one third of all persons followed by, Victoria (25%), Queensland (20%), Western Australia (10%), South Australia (7%), Tasmania (2%), Australia Capital Territory (2%) and Northern Territory (1%).

Recent ABS population projections suggest that by 2056 (48 years), the portion of total Australian population by state will change significantly. Although New South Wales will still be home to the greatest number of residents, it is projected that the state will only have 29% of all Australian residents compared with the 33% it currently houses.

In contrast, by 2056, Queensland will be the second most populous state and will house one quarter of all Australian residents compared to 24% of all residents which are projected to live in Victoria. Queensland is projected to overtake Victoria as the second most populous state in 2050. Western Australia's portion of the Australian population is also projected to increase with the states population growing from 10% of the total Australian population during 2007 to 12% of the total population during 2056.

Essentially, this increase in population throughout all areas directly equates to demand for new housing. Based on a total population increase of almost 10.5 million people between 2007 and 2056 a significant number of new dwellings will need to be delivered to cater to this strong demand.

On a state by state basis, Queensland will require the greatest number of dwellings over the 48 year period, with the population projected to grow by 4,562,911 people. Based on an average household size of 2.6 people, this equates to demand of 1,754,966 total households or 35,816 households annually, a conservative estimate given that households are becoming smaller.

By 2056, it is projected that Australian capital cities will record an increase in population of 10,429,036 people and be home to 23,592,323 people, indicating that 67% of all Australian residents will live in a capital city area compared to an estimated 63.6% currently. The population growth within capital cities of 1.2% annually between 2007 and 2056 again, equates to significant demand for housing. In order to cater for this projected growth, significant densification of capital city areas will be required, which is likely to be achieved through higher density forms of housing.

Melbourne is the capital city which is projected to see the greatest increase in population between 2007 and 2056 with the population expected to increase by almost 3 million persons.

Another interesting trend for future dwelling demand is the number of persons projected to be aged 65 years of age and older. As at 2007 the ABS estimates that 14.8% of the population (or 3,021,890 persons) is aged 65 years and older, by 2056 it is projected that 27.8% of the population (or 9,860,652 persons) will be aged 65 years of age or older. The significant growth of persons in this mature aged cohort is an important phenomenon for future housing demand. Persons in this age category are more likely to live either alone or in a couple, contributing to a decline in average household sizes. Also, this age group represents the greatest demand for lifestyle and retirement properties, as such, demand for developments catering specifically for this target market will become more common.

So what do these population changes mean for housing? Although consumer confidence is currently low and there are few buyers and lots of sellers, the projected rate of population growth suggests that ongoing demand for housing will continue to be strong. Based on supply fundamentals increasing demand for housing stock is likely to translate into future pressure on housing prices. One of the fundamental issues associated with population growth is ensuring appropriate levels of infrastructure, including transport, health care and schools are planned for and rolled out strategically. Planning and development of this infrastructure should precede or at the very least run in parallel with population growth rather than follow it, as has often been the case in the past. This is particularly essential for new affordable housing options being developed in the outskirts of the nations metro areas. It is these areas where commute times and costs make affordable housing an undesirable option for most of the market.

 

3. Calling all Expats - We're coming to the Hong Kong Property Expo

Are you dreaming of clean sandy beaches in Australia? Happy memories of growing up in Sydney? Considering buying your piece of Australia for when you return? Need a professional to help? Here's your answer...

If you are an expat or foreign investor looking to buy property in Australia, we're excited to announce that we will be at the Hong Kong Property Expo being held on Sat 27^th and Sunday 28^th September (Hong Kong Convention and Exhibition Center). We will be located at stall B05 and would love to meet you.

On Monday 29^th and Tuesday 30^th there are some remaining 30 minute timeslots available for personal meetings with our Director Rich Harvey in Hong Kong at the Harbourview Hotel, Wanchai (just near the Convention Centre). To book your appointment, please This email address is being protected from spambots. You need JavaScript enabled to view it. with your details and preferred time.

We can also assist you if you are seeking finance. We have special finance packages available through our alliance partners that specialise in multi-currency loans.

 

4. SYDNEY PROPERTY CLUB - SEMINAR 14^TH OCTOBER 2008

Has the sub-prime mortgage crisis in the US put the Australian property market in meltdown? What's next? What should property investors do? What should they look at?

When the terrorists flew planes into the World Trade Centre in New York on September 11, 2001 it was so horrible and so unexpected, that it was the only news being reported by media around the world.

In the same way, at the moment, you can't turn on a TV, radio or internet or even pick up a paper without being confronted by the gloom and doom of the sub-prime mortgage market in the US, with the collapse of some of the major institutions and the subsequent need for the US government to take over the debt e.g. AIG, Freddie & Fannie...

In 2001 property values in Australia were growing consistently. As we all know, their rise was extended to 2003 -2004 rather than dip similar to previous cycles.

In my personal experience I have found that whenever the stock market falls as it is doing now, the smart money just heads to property driving up prices. But is that what is happening NOW?

So the big question is where to now? What is the real state of the market? What factors are driving prices now? Is it the same in every state?

The real questions should be:

• What opportunities are there in the changes taking place?
• How can you benefit from them?
• What are the pitfalls you should look out for?
• When should you plan for the good times? Where do you start?

These are some of the questions and more that Propertybuyer's Managing Director Rich Harvey will talk about at the next meeting on Tuesday 14th October 2008 at the North Sydney Leagues Club. With his finger on the pulse of the Australian property market, Rich will give you some great ideas to help you move forward and achieve wealth through property.

Click here to book now:

http://www.conferenceonline.com.au//index.cfm?page=details_conference&pg=1&id=12792

With the tightening of the credit market will the lenders have money to lend? Will you be happy to pay higher rates? If not, will that mean pressure on price? So we should be asking:

What is in store for property investors and owners generally, over the next 12- 24 months?

• Will there be money to lend?
• What strategy should be adopted to manage your particular situation?
• What strategy should be adopted to take advantage of the trend?
• Is there a loan type that will suit the times better than others?
• With lenders tightening their contracts. What are pitfalls to look out for?

These are some of the questions that Compass Finance principal broker Ciara McConville will talk about at the next meeting of the Sydney Property Club on Tuesday 14th October 2008 at the North Sydney Leagues Club

That old saying still rings true, everything changes except death & taxes. Maybe not in those exact words but near enough. Some people think taxes are deathly.

I talk to a lot of people about their property investment strategies, how to structure them to minimise their tax - not just in the short term but also in the long term - which is how property should be held.

As a Property Tax Specialist, Shukri Barbara will talk briefly about:

• Are there any opportunities to plan to keep tax low in the current volatile situation?
• What can you do to make interest deductible when your first home has been paid off and you are using it as security for your new home?
• If you have to sell at a capital gain what is one option which may be used to reduce Capital Gains Tax? Is it available to you?
• What are warrants?
• If you have to sell & before you hit the panic button, How do you quickly estimate the capital gains tax liability?
• What is the one item that always surprises people when calculating capital gains?
• If capital losses can only be offset against capital gains, can capital gains be offset against negative gearing losses?

Not only will Rich, Ciara & Shukri share their knowledge, they will answer questions before and after their talk. Don't miss out on this opportunity.

Date: Tuesday 14th October 2008

Time: 6.00 for 6.30 start Registration & drinks

• 6.30-7.15 Rich Harvey
• 7.15-7.30 Ciara McConville
• 7.30-8.00 Shukri Barbara
• 8.00-9.00 Drinks

Venue: North Sydney Leagues Club - Kameraigal Room

12-20 Abbott Street Cammeray (Plenty of parking in the Club)

Investment: A private consultation with any of the presenters costs in the range of $200 to $335/hour plus GST. Just imagine if you had to pay all three at the same time. At an average of $275 x 3 = $825

But all we want to do is cover expenses. Normal Individual Booking Fee is $35 per person

• Early Bird Booking Fee is $29 per person (if you book and pay by Friday 10th of October 2008)
• Joint Booking Fee is $45 per couple (couples can be partners, friends, associates)

To make your booking please click here to register:

http://www.conferenceonline.com.au//index.cfm?page=details_conference&pg=1&id=12792

Money Back Guarantee

If you don't think you have learned anything from the meeting - you can have your money back. There is no risk.

But wait there is more....

- Shukri will also throw in the paper he presented at Kaplan's Tax Planning Strategies Conference for financial planners titled ‘How to Protect your property assets and plan for (minimal) tax' and a list of tax deductible expenses for property investors

With limited seating available it's wise to register now through our secure payment system at:

http://www.conferenceonline.com.au//index.cfm?page=details_conference&pg=1&id=12792

 

5. Inspiration corner

"Be curious always! For knowledge will not acquire you - you must acquire it. Sudie Back

"The mark of a successfule man is one that has spent an entire day on the bank of a river without feeling guilty about it." Anonymous

"Where the heart is wiling, it will find a thousand ways; where the heart is unwilling it will find a thousand excuses." Arlen Price

 

6. READERS CHOICE AWARDS

Your Investment Property Magazine and Residex are running a readers choice award and wants to know which service providers have played an integral part in your process of purchasing property. Now is your time to officially thank all the contributing advisors, agents and representatives that helped you achieve your property success.

Was it a particular mortgage broker who broke the loan deal of the century? Does your buyers' agent have you on speed-dial? Or was it a coach or a mentor that gave you the right advice at the right time?

Tell us who went above and beyond the call of duty to facilitate your property success.

One lucky reader to complete the survey will win-

$1,000 cash from Your Investment Property magazine

• 'Property and money strategies for an uncertain time' DVD/CD bundle from Investors Direct
• 2 x tickets to an Investors Direct ‘Property Finance Fundamentals' workshop
• 1 year subscriptions to Your Investment Property and Your Mortgage magazines
• 1 FREE property valuation, depreciation schedule and insurance valuation courtesy of Opteon Property Group

Click here to cast your vote and win: http://survey.yipmag.com.au/2008/Jun/

Entries close on November 7^th 2008.

 

Don't forget to book into the Sydney Property Club Seminar on October 14^th to gain a valuable insight into what is really going on in our markets.

Please refer your friends and colleagues. To help us bring you these updates each month I'd really appreciate if you could take a moment to hit the "Forward" tab on your email program and suggest your friends and colleagues subscribe. If you have an idea for an article, want to provide feedback or make contact, we would greatly value your input. Hope you have a great month!

Warm regards

 

Rich Harvey

Managing Director

Tel: +61 2 9975 3311

www.propertybuyer.com.au