2008 - Is this the year of the Investor?
Investment in Australian real estate is still below the peak levels achieved four years ago. With rental vacancies at all time lows and weekly rental rates increasing, not to mention share market volatility, 2008 could be the year real estate investors return in numbers.
The level of investment in Australian real estate remains below the peak levels achieved during 2003 when $7.6 billion was committed to investment housing loans during the month of October 2003. The 2003 peak in property investment occurred at the height of the property boom, and investment in the market dwindled rapidly after this period.
Since the October ‘03 peak, property investment levels have struggled to recover. Apart from the month of June last year, when $8.1 billion worth of investment finance was committed to properties across the nation, the level of finance committed to investment properties has remained low compared to 2003.
The June 07 surge in property related investment activity is likely to be a consequence of the June 30th superannuation cut off. On this date the window of opportunity closed for one off tax free deposits of up to one million dollars into superannuation accounts. Many property owners would have capitalised on this opportunity, selling their home to place the proceeds into superannuation.
The owner occupier market also peaked during the same period in 2003, however a recovery in owner occupier spending was comparatively swift, with the level of finance commitments taking just over a year to recover. Since the recovery, finance commitments for owner occupied dwellings continued to trend upwards.
One of the primary reasons for property investments levels being slow to recover is the performance of the share market. Between the beginning of 2004 and end of 2007, the S&P / ASX 200 index had doubled. The strong performance of the share market has been a major distraction for property investors. An equal disincentive was the lackluster performance of the Australian property market between 2004 and the end of 2006. Perth and Darwin were the only true performers while other capital city markets were largely flat or slipping backwards.
Recent volatility in the Australian and international share markets is likely to influence investors to take more notice of the local real estate market. While capital growth is likely to peak early this year, rental yields should continue to improve, enticing more investors into the market. Rental yields are improving due to historically low vacancy rates across the nation pushing weekly rental rates upwards. Further interest rate rises predicted during early 2008 will place further pressure on the rental market as more and more potential buyers remain in the rental market due to affordability constraints.
For investors looking to enter the market, there are plenty of opportunities available. The strongest rental yields are generally located in the outer suburbs where weekly rental rate growth is outpacing growth in property values. For those investors chasing capital growth, last years top performer, Adelaide, is likely to remain the number one growth market during 2008. Adelaide provides comparatively affordable price points, a growing state economy and a burgeoning resources sector. Over the medium term, Brisbane is likely to be the best performer due South East Queensland’s ongoing strong population growth, large infrastructure projects and relative affordability compared to the Sydney market.
Source: RP data
