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October 27, 2010

How much capital growth is enough?


House price growth in Australia is predicted to be slower from hereon in, but at least values are still expected to keep growing.

By Vanessa De Groot

At a recent QBE LMI conference I attended, BIS Shrapnel had compiled research to present its outlook for the Australian housing market from 2010 to 2013.

The seminar was held in several capital cities around the country, so by the time it reached Brisbane the media was already abuzz with BIS Shrapnel’s predictions for property price growth.

The predictions were for a maximum of 20 per cent growth in Australian house prices over the next three years.

The capital cities of Sydney, Perth and Adelaide are predicted to perform the best, with prices likely to rise around that 20 per cent mark by 2013, while the other cities are expected to have more modest growth.

Melbourne is forecast to experience the smallest increase among the capitals over the three years, with prices likely to increase by around just 10 per cent.

Brisbane house prices are predicted to grow by around 15 per cent and Hobart is expected to see price growth of 13 per cent, while Canberra and Darwin house prices will likely rise by just over 10 per cent.

At this QBE lmiHousing Outlook seminar, BIS Shrapnel managing director Robert Mellor actually expressed surprise that following the release of the report from the seminar, the media had run with headlines like ‘Perth house prices to surge 20 per cent’, indicating that growth of that level is phenomenal.

Compared to the growth the Australian property market has seen in the recent past, 20 per cent over three years isn’t exactly huge.

Twenty per cent over three years equates to around 6.6 per cent growth in house prices per year.

Meanwhile, according to Australian Property Monitors figures, for the past 10 years house prices in all Australia’s capital cities, except for Sydney, grew by at least 10 per cent per year and in most capitals it was 11 per cent or more per year.

Even in Sydney, where growth has been slower due to prices having overshot the mark earlier in the noughties, average annual growth has been 6.8 per cent over the past decade – more than the 6.6 per cent that’s forecast for the next three years.

Michael Yardney of Metropole even pointed out recently that properties in some Australian suburbs increased in value by as much as 20 per cent per annum in recent years.

While the expected price growth in Australia over the coming years till 2013 is going to be “solid” – as Mellor put it – rather than “spectacular” – the good news for investors is that there will still be growth.

And given that property should generally be viewed as a long-term investment, it’s likely those who do stick it out for the long haul will reap rewards down the track.

At least prices are likely to go up, no matter by how much, rather than fall which of course has been the case overseas, in the United States.

Vanessa De Groot is the deputy editor of Australian Property Investor magazine, www.apimagazine.com.au

API readers – tell us your thoughts about capital growth. Do you think 20 per cent over three years is enough for investors? Do you think BIS Shrapnel’s forecasts for property price growth are too conservative?

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