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I READ 2 articles this week (Sep '08), One commentator stated “we are in for the mother of all booms” and another one stated “we are in for a significant drop in property values”
The Reserve Bank has been putting interest rates up to “slow down” the economy yet some commentators are starting to the use the R Word ( recession)
My own interpretation is as always if there is demand more than supply any commodity or product will work and in most parts of Australia except South Australia and Tasmania there is a huge slow down of building.
PMI Mortgage and BIS Schrapnel in recent articles stated that rents are going to explode and how that is going to impact positively on the value of properties.
The Economist Magazine reported these growths over the last 10 years and the 3 countries we work in are Australia, Britain and South Africa.
So it is easy to see why our South African clients are so stunned now the way the property market is there currently. The recent introduction of the Credit Act has had a huge negative impact on the property sales there and their interest rates are very high again around 15%.
Reports from Britain indicate the property market is in decline. Our clients from both countries who have visas to Australia and needing to sell their house before they can relocate are reporting that there is just no activity in the second hand market. Whereas earlier just last year earlier if they put their property on the market it would sell within weeks. That’s property what is happening one year will not necessarily be the same the next.
USA is in correction due to the recent mortgage disasters from sub prime lending and it seems it will be some time before the market corrects. It still amuses me that people think this is the best time to buy when the market is falling as they think the are “getting a bargain”. How long is their money going to be tied up before they start to see profit whereas if they put it into areas which have started THE UPTREND they would increase their profit significantly and in a shorter period of time.
One aspect to be considered with the Australian property market is that migration and population growth is reaching record highs, causing an increased demand for dwelling accommodation.
Refer to our August 2008 newsletter for further on this.
Nationally the rental markets have also tightened considerably, with vacancy rates falling to historical lows and significant rental growth emerging in all capital cities.
The other side of this is that Australia has a significant undersupply of properties, and this is likely to get worse as in all states, with the exception of South Australia and Tasmania, Australia is building fewer dwellings than required by underlying demand.
I know I am like a broken record but the balance between demand versus supply is a key component for any property, commodity or product to increase in price.
With so much negative press and reports on falling property markets is it any wonder that people are thinking it is no longer such a good investment. For the investors who are diversifying and looking outside their own country it should be a long term investment and people should make allowances for property markets to go up and down and correct and likewise for interest rates to do the same thing. In the long run they will be financially better off with property as it is an historic fact that property prices double every ten years in Australia with the exception being between 1989 and 2003.
That is why we place so much importance on Population growth and Demand Versus Supply when we are doing our research into viable areas.
It is PEOPLE THAT MAKE PROFIT.
For our South African clients there is the added protection that they are taking steps to protect themselves from uncertainty of the Rand. In fact even the British clients are seeing the wisdom in investing in offshore property in a country with similar conveyancing laws and in a country with language that they understand. I hear many reports from people who bought in Spain, Bulgaria etc and have tales of woes resulting from not understanding their laws and language.
Property will always be a needed commodity and is not guided by fads or fashion. To put money into property in well chosen areas, where there is development and infrastructure happening and with demand greater than supply your money is safe.
Yes there will be ups and downs as nothing stays the same, just important that you exercise caution and do not let negative reports cause unnecessary panic.
