INVESTOR ROOM / Investing in Australia - Current Market Conditions


Current Market Conditions:  

The current market conditions are expected to provide excellent opportunities for investors, particularly in the Eastern capitals of Sydney, Melbourne & Brisbane. These three major Australian cities are currently set to enter the next property upswing with vacancy rates falling, rents increasing, supply limited and underlying demand continuing to grow.

Property, Safe as Houses

A report from NERA Economic Consultin g and Mercer found the following:.

It found that between 1982 and 2005, residential real estate performed better on a risk-adjusted basis than Australian shares, Government bonds and listed property trusts. Property showed a capital return (of 8.3 per cent per annum and a total return including both capital gains and rental yields) of 14.8 per cent per annum.

A critical question is whether returns for the past 20 years are a good indicator of possible returns for the next 20 years.

“We see the major factors that drove those returns over the last 20 years as being the same, if not stronger, over the next 20 years.”

Source: Aust ralian Prop erty Inves tor June 06:

Performance of Australia ’s capital cities:

Source: Residex April 2006

2006 Outlook:

According to ANZ Economics (March 2006), the current demand/supply trends are expected to continue, causing a further tightening in the market – reflecting first and foremost in even lower vacancies and rising rents. Building approvals in NSW, Victoria & Queensland are significantly below underlying demand and market pressure to increase construction will continue to build over the coming year.

Residential rental property yields in 2006 as predicted are improving markedly as contracts are renegotiated to reflect tightening vacancies. Vacancy rates are at the lowest for several years in most capital cities due to pent-up demand and reduced house and apartment completions.”

In Sydney , vacancies have fallen from 4% in December 2003 to 2.5% in May 2006; in Melbourne over the same period from 3.8% to 2.3%; and in Brisbanefrom 2.5% to 1.9%

When should you be buying in Australia:

“My best guess is that by about June (06), supply issues (shortages of rental properties) will start to generate significant numbers of stories about increasing rentals and investors will start to return to the market. Until then housing prices are likely to show a little further correction but no significant gains . It is a market for those of us who are well informed and are buyers positioning ourselves for the upswing that will come.”

Source: The Residex Report, September 2005

According to Bernard Salt, Property Partner of KPMG and well respected property commentator:

“I reckon there’s one last hurrah, one last shot at achieving residential property wealth. Position yourself for a slow take-off in 2007 or perhaps 2008. Put on your helmet and goggles, jump on board the property express, strap yourself in and wait for the rocket thrusters to kick in. You only need one cycle.”

Source: Australian Financial Review, 01 February 2006

The Residential Property Clock Source: Michael Matusik Presentation February 2006

A clock where 9 indicates the middle of an upswing, 12 indicates the peak of the boom, 3 is the middle of the downswing and 6 is the market trough.

In Feb 2006, Michael Matusik suggested (based on his current research) that Australia ’s various capital cities were sitting in the following sections of the Property Clock:

Sydney : near the bottom of the cycle (around 5.00 o’clock )

Melbourne : near the bottom of the cycle (around 6.00 o’clock )

Brisbane : near the bottom of the cycle (around 6.00 o’clock )

Hobart : near the bottom of the cycle (around 5.00 o’clock )

Darwin : still climbing (around 11.00 o’clock )

Perth : near its peak (around 12.00 o’clock )

Adelaide : in the midst of a downswing (around 2.00 o’clock )

Canberra : in the midst of a downswing (around 3.00 o’clock )

Now is the time to be investing in Sydney, Melbourne & Brisbane. At a time when these locations are at the bottom end of the property cycle with strong signs that they are beginning their next upward cycle.

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