Looking forward: The Australian property market in 2014

 

2013 will be remembered as an exciting year for real estate in Australia, with prices experiencing a significant recovery and interest rates being cut significantly by the Reserve Bank of Australia. In light of this I have decided to share this story from Century 21’s Chairman and Owner, Charles Tarbey, with his thoughts on the recovery, interest rates and the removal of red tape in this article from the December edition of Property Investor.

THE AUSTRALIAN PROPERTY MARKET

Over the past twelve months the Australian property market has experienced a significant recovery from the trough that prices hit in May 2012. I believe that this recovery was driven in part by the price expectations of sellers.

In some instances, the high price expectations put forward by sellers has resulted in buyers paying what may seem like more than a property is worth. However, it's worth remembering that real estate is a long-term game and if you pay a little bit more for a property it shouldn't matter - so long as you are willing to hold on to the property in order to realise eventual capital gains.

With this being said, the property market in 2014 will again be driven by different trends and I've outlined some factors below which may define the year ahead.

INTEREST RATES

I'm concerned that interest rates may be too low in 2014 and while this may seem like an odd assertion, I believe that the rate should sit around 4-4.5 per cent to sustain stable growth in the property market.

If consumer interest rates were to move a little higher, this should provide a safe, stable market; slowing the current elevated interest in real estate and in turn helping to prevent the risk of a bubble occurring. By providing a safe, stable environment, the market will return to a point where buyers and sellers are negotiating prices and these discussions are not primarily driven by seller's expectations.

You may hear younger real estate professionals excitedly discussing the potential for a boom spurred on by future rate cuts. Conversely, experienced real estate professionals will likely welcome a decision by the Reserve Bank to raise interest rates, as they recognise that a property boom is a disruption to the steady flow of business and asset growth.

A TALE OF TWO MARKETS

While nearly all of Australia's capital cities have experienced price growth over 2013, it's worth remembering that this has been concentrated across three main capital cities - Sydney, Perth and Melbourne. Over the past twelve months, price growth in the other capital cities hasn't reached levels higher than 2.8 per cent year-on-year and in the case of Hobart, even declined over the same period.

This price growth should start to spread out over the coming year, as a result of people who are looking to unlock capital gains from their homes in areas that have seen substantial price growth and perhaps use this gain to move to remote or coastal areas.

Perth and Sydney are also the only individual capital city markets in which home values are now higher than they were at their previous peak and this highlights that the current recovery may have some steam left in it yet.

THE REMOVAL OF RED TAPE

In my opinion, Adelaide is the only capital city in Australia that currently has enough housing stock to meet immigration demand and population growth. All of the other capital cities seem to be lagging behind, primarily because of an excess of red tape forced onto developers trying to get projects off the ground.

In my experience, these developments are being stalled, or even stopped completely, due to this excess of red tape - not at a state level, but at a local council level. The amount of time and money spent dealing with red tape across Australia can be very challenging - in some areas of Sydney, developers will lodge their development application and lodge an application to the land and environment court at the same time.

The development of more medium density housing is essential if we are to be able to meet the present and future demand for housing in Australia's capital cities. The stark reality is that cities like Sydney, Melbourne and Perth will become victims of their own success if people move away because prices are driven too high by excess demand.

It's important that this situation is remedied as it's likely the only way to meet the projected demand for housing and in turn, ensure that future price growth is stable and steady.

I believe that 2014 will be a prosperous year for the Australian property market, particularly for secondary markets that may have missed out on price growth in 2013.

Buyers and sellers alike would be wise to ensure they take time to properly research their local markets and make investment decisions with long-term growth in mind.

Posted by Charles Tarbey on 22/12/2013 at 12:00 AM | Categories:

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