Here’s my outlook for the year ahead.
By RICH HARVEY
The property market slowed considerably in the last quarter of 2010 and is likely to show subdued activity for the first six months of this year. RP Data-Rismark noted a slight decline of 0.2 per cent in house prices of capital cities in November and expects very modest (four per cent to six per cent) to nil capital growth over 2011, depending on the number of projected interest rate rises. I believe this means we’re likely to see a window of opportunity over the next six months for buyers to capitalise on negative sentiment.
The period from February to May in 2010 saw a very active property market with competitive bidding and offers from buyers. But by mid year, the market cooled quickly and a surge of listings diluted the prices that were achieved earlier in the year. The supply/demand balance had swung back in favour of the buyers. Vendors will need to face a reality check in order to effect a positive sale in the coming months.
The impact of the floods will play an interesting role in the state of the property market – a negative supply shock for some goods will see prices spike for fruit, meat, coal and rental housing. Demand for qualified tradespeople will also increase.
Finance requirements from banks are still tight and lending policies are not likely to be relaxed much this coming year. Developers are finding it harder than ever to get finance for new construction due to pre-sale requirements – in some cases they require up to 80 per cent pre-sales to secure bank funding.
In regards to interest rates, we’re likely to see 0.5 per cent increase in the cash rate this calendar year. With flood devastation having a ripple effect through the economy, prices for many goods will increase, adding inflationary pressure. Higher rates will sort out serious buyers from those ‘just looking’. Higher interest rates will also have a ‘tipping point’ effect on the market – i.e. the point at which there is extreme negative consumer sentiment which sees the market grind to a halt.
The number of first homebuyers is likely to further drop off as affordability becomes tougher for those just getting into the market. The reduction in government grants has also dampened demand.
For upgraders and second homebuyers it’s likely we’ll see some trading up effect, as downsizers seek smaller homes and expanding families with young children search for the dream backyard.
For investors 2011 presents an excellent opportunity to take advantage of uncertainty again, although high interest rates will keep many investors away. Rents are likely to rise by seven to nine per cent this calendar year which will see yields improve across a range of property types.
Prestige buyers are sitting pretty and can capitalise on a sluggish market. RP Data reports an 11 per cent decline in top end prices in Melbourne and a 7.5 per cent decline in Sydney during the last six months. Perth and Brisbane have been languishing also from after effects of the GFC.
Despite the slowdown in market trends, the fundamentals of the Sydney market remain very firm with chronic housing undersupply, low vacancy rates, solid employment opportunities and falling building approvals. I believe the market is yet to find its equilibrium – the early auction results of February will be heavily reported in the media as the new trend.
In summary, the first six months of 2011 should provide a sound window for savvy investors and homebuyers to capitalise on changed market conditions. Conditions for a ‘buyers market’ are infrequent in the Sydney property cycle. There are generally more sustained upturns that last longer and favour sellers, while the downturns
favouring buyers are more short-lived.
Rich Harvey is a buyers agent, economist and CEO of propertybuyer ®. Rich was awarded the 2009 national “Buyers Agent of the Year”, the “Award for Excellence” 2004-2008 by the REINSW and the 2007 National Telstra Business Award. Find your next property faster: http://www.propertybuyer.com.au