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February 20, 2013

Metropolitan is back in favour with investors


For the past few years, property investors have been obsessed with mining towns. It’s understandable – the dizzying profits and yields on offer in resource-rich regional backwaters were pretty incredible. The accelerated development of major projects and ballooning workforces meant the going was pretty good.

BY SHANNON MOLLOY

Sure, fortunes have shifted in some industry-driven parts since those post-GFC glory days – Moranbah in the Bowen Basin region in central Queensland is a good example. However, for a long time it was those mining towns that presented one of the few success stories in properties.

During the same period, most investors deserted capital cities. There wasn’t too much happening – even those pockets where positive territory was attainable weren’t worth writing home about. Cities just didn’t entice those still willing to park their money in bricks and mortar.

Coupled with the increasingly encouraging data on offer, I’ve had a few conversations in recent months that seem to indicate the pendulum is swinging back.

I spoke to the head of a national real estate agency recently about how things had been going for his business, and he could barely contain his excitement. His agencies across Brisbane, Sydney and even Melbourne to an extent were reporting their biggest December and January period in years. Enquiry levels were up, sale times were down, auctions were doing well and there were definitely more buyers out and about, he told me.

And here I thought December was typically all about food, family and festivities, followed by a January usually dominated by beach holidays and long weekends. Not this time around, it seems.

There was talk in the office yesterday about a house for sale in Brisbane. It was a dilapidated shanty shack on a relatively small and awkward block, a street back from a busy road. The agent was inundated with interest and it sold almost immediately for above what most of us thought it would be worth.

One of my places is on the market at the moment. I tried to sell it about a year ago after I finished the renovation on it and could barely get anyone in the door to check it out. This time around, there were 15 groups through at the first inspection. No serious offers yet, but that’s quite the encouraging start by comparison.

From a data perspective, the combined auction clearance rate across the country’s capitals was a touch under 59 per cent last weekend – a good result in anyone’s book. Melbourne was the star performer, recording a 66 per cent clearance, while Sydney came in at 63 per cent.

Already in 2013, house prices in Sydney are up two per cent while in Brisbane they’re about 1.7 per cent higher. Over in Perth, they’re also looking at a two per cent gain for January while Canberra saw a 1.3 per cent lift.

The minutes of the last Reserve Bank meeting were released yesterday and show the Board’s slowly growing confidence about house prices. It believes the regime of interest rate cuts could be starting to take effect.

“While conditions remained soft in the construction industry, there were some signs that the housing market had firmed, partly due to the series of interest rate reductions over 2012… and prices and rental yields in the established housing market had also picked up,” the minutes said.

In more good news, the Westpac-Melbourne Institute Consumer Sentiment Index released last week shows a 7.7 per cent increase for February. That’s the largest jump since the middle of 2010.

There are still a few wild cards at play. At home, there is still some pessimism about the state of retail spending, unemployment, first homebuyer activity, construction sector activity and nightmarish scenes in the political arena. Abroad, economists are closely watching the situation in Europe as well as the next round of spending cuts due for negotiation in the US.

The puzzle is still missing a few pieces but there’s little doubt some capital city markets, particularly Sydney, Brisbane and Perth, are looking set for one of their better years in a while.

Shannon Molloy is the deputy editor of Australian Property Investor magazine www.apimagazine.com.au

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