Australian Property News

Confidence strengthens in Australian property market

Posted on Tuesday, September 14 2010 at 9:45 AM

Australians have strong intentions to buy property despite rising interest rates, independent market analyst Datamonitor has found.

The latest Datamonitor report reveals that eight per cent of Australians intend to purchase an investment property in the next 12 months, while seven per cent plan to buy their first home.

“Consumer confidence in the Australian property market has rebounded after the tremulous last year,” said Datamonitor financial services analyst Petter Ingemarsson.

Despite housing affordability being at a record low due to steadily rising property prices and interest rates, a Datamonitor survey found seven per cent of respondents intended buying their first home in the next 12 months, up from six per cent in 2009.

“The strong first-time buyer demand in the survey is largely driven by confidence in property prices,” Ingemarsson said.

“The residential property market weathered the storm of the financial crisis without a major price correction, contributing to the current strong consumer confidence.”

In a 2009 Datamonitor survey, 58 per cent of consumers regarded falling property prices as “very likely” or “quite likely”, dropping to 20 per cent in this year’s survey.

Investment property intentions have also reached a high, with eight per cent of consumers indicating they intend buying an investment property in the next 12 months – up from five per cent in 2009.

Ingemarsson said potential property investors were undeterred by the prospect of increasing interest rates, with only two per cent of respondents regarding falling interest rates as very likely over the next 12 months.

“The prospect of capital gains drives property investor intentions, with rent income a secondary consideration,” Ingemarsson said.

The survey also found that over the past year fixed-rate mortgages had remained unpopular. In the first half of 2010, less than three per cent of lending commitments to owner-occupiers were fixed.

Ingemarsson said relatively unattractive pricing of these loans, combined with a lack of marketing by financial institutions, had contributed to their unpopularity.

However, the low proportion of owner-occupiers opting for a fixed loan could also be attributed partly to poor previous experiences with fixed rate loans.

“When rates were near their high point in March, 2008, 25 per cent of lending commitments to owner-occupiers were fixed,” Ingemarsson said.

“These mortgagors fixed their rates at the worst of times and may thus be wary to opt for a fixed rate mortgage in the future.”