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Bloom or Gloom? A Market Outlook by Michael Matusik

There is a lot of speculation about Brisbane being the next investment hot spot, but wading through the information can be overwhelming.

In this edition of Property Insight we have asked property commentator Michael Matusik to shed some light on what’s in store for Australia’s property market with a spotlight on Brisbane’s market fundamentals.

Michael is the Director of an independent property advisory, and is renowned for his perceptive and to the point property commentary. So let’s have a look at what Michael thinks. Enjoy!

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Just the beginning...

Well, the ‘bloom’ is starting to outshine the ‘gloom’ – especially in Queensland, Western Australia, Northern Territory and New South Wales. The Australian Bureau of Statistics (ABS) price growth figures confirm what we and a select group of others have been saying for some time – the housing market is recovering (and has been strong in many regional areas for some time) and 2013 looks set to be a much stronger year – property business-wise – than 2011 and 2012.

First home buyers have very little momentum. They represent just 15% of the money in the Australian housing market. There is no first home buyer upturn on the horizon for years to come. Those who have to do any of the heavy lifting are more experienced owner-residents and investors. Both segments show signs of improvement. For mine, unless stamp duties are reduced, many owner-residents will wait until a recovery is well and truly underway before they buy and sell, and that probably isn’t on the cards for 2013.

So it is up to the investor to bear down and show some grunt. And I think they will. Their money is wasting away in cash, the share market is all over the shop and residential property returns are starting to look good; often positive.

The cycle continues

The astute investor, and contrary to what the mass media says, knows that the property market cycles and that it turned the corner around the middle of 2012. Table 1.0 outlines the past ten residential cycles in Australia. Things might be slow, but they are looking up.

When we examine the official records – which started in 1887 in Australia, but with a gap of no records between 1899 and 1920 – we find that since the late 1800s there have been ten cycles in Australia, which have averaged eight years in length from trough to trough or peak to peak. There have usually been five years of improving market conditions – historically end values rose 11% per annum. There are also periods of decline, averaging three years in duration, where values – in the past – have fallen, on average, by 5% for each of the three downturn years. Overall, Australian residential property owners have – again in the past – enjoyed annual capital gains of 8.5% per annum when property is held for a whole cycle.

Table 1.0

Five market phases

There are five phases of the property cycle as represented in Image 1.0 – trough, upswing, peak, downturn and recovery. Many residential markets across Australia are in the recovery phase of the property cycle. Four capitals are in the recovery position including Brisbane, Sydney, Perth and Darwin, represented in Image 1.1. The recovery phase is characterised by rising sales, a return to price growth (albeit usually quite mild), improving yields, more building activity and a more equal market (i.e. not a buyer’s or seller’s market).

Image 1.0 and Image 1.1

Sun in the Sunshine State?

So let’s now focus our attention on the Sunshine State. It has been some time since the sun has shined on much of the State but the weather looks brighter for Queensland this year.

New dwelling starts have been slow, reflecting weaker population growth, but now population growth has improved and with it the potential for a supply versus demand imbalance. If the investor’s appetite for Queensland property improves, and if Queenslander’s can get out of their current funk, then the ingredients are here for a recovery in 2013.

End prices are expected to rise by between 5% and 8% per annum over the next three years across many Queensland markets. Sydney, Perth and Darwin are expected to show similar gains. The laggards are Melbourne, Adelaide, Hobart and Canberra. A change in the Federal party could see property prices actually fall in Canberra, if the past is any guide.

So what are the market fundamentals revealing for 2013?

  1. Queensland’s annual population growth is now over 91,000 per annum; almost double that of just two and a bit years ago. The system gives the option of claiming back tax regularly, rather than in one lump sum at the end of the financial year.

  2. Based on last year’s statistics, Queensland looks to be heading towards a massive undersupply, with 33,000 new dwellings needed during 2012, yet just 26,000 supplied – an undersupply to the tune of about 20%. The inner Brisbane apartment market is also undersupplied and in this case by as much as 40%. There is a need to build 2,650 new apartments across inner Brisbane every year, but just 1,600 new properties have been delivered (each year) since 2006.

  3. The state-wide rental vacancy rate remains tight and median weekly rents have risen, up $15 on average, for detached houses across Queensland last year.

  4. Economic forecasters, BIS Shrapnel, predict that Queensland dwelling values should start to grow in earnest in late 2013, accelerating in 2014 as the economic upturn gains momentum and the underlying dwelling deficiency becomes more pronounced.

  5. Official statistics show that new property prices across Brisbane have already risen by 4.9% during 2012, which was strong against the national average increase of just 1.4%.

  6. There has been a 7% drop in the number of properties listed for sale across Brisbane during 2012. Resale supply is starting to tighten.

  7. In addition, there has been a 17% increase in the number of settled sales across the South East corner of Queensland over the last twelve months. Overall properties are now selling faster than new ones are being listed.

  8. Whilst Brisbane isn’t an auction city, but when comparing Brisbane auction results so far this year, against those from early 2012, there has been a 56% increase in the number of properties sold at auction. There are increasingly bigger crowds at auctions and better results on the day.

There is always talk about “how it will be different” this time around. But history shows that there is a set of certain variables which, when combined in the right way (like ingredients in a recipe), drive the property cycle. The residential market is set to improve; and in some locations and for certain product types, quite substantially.


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DISCLAIMER: Whilst the publisher and author believe that the information contained in the publication is based on reliable and researched information, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. Anyone who intends to use the information as the basis for making financial or business decisions should first obtain advice from a qualified professional person. This article is published on the understanding that neither the publisher nor the author - is responsible for the results of any action taken on the basis of the information published; and is not engaged in rendering legal, accounting, professional or other advice or services. The publisher and author expressly disclaim all liability and responsibility to any reader of this publication as a consequence of anything done, or not done, by a reader relying upon any part of this publication. (C) This article may not be reproduced in full or in part without the specific written consent of Which Property? and the Author.

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