Articles
Property Outlook
What Does Real Estate Hold for 2011 - 2013
With the New Year here many people are looking at making 2011 the year they buy a new home or re-enter as investors.
Guaging the Temperature of Real Estate in Australia
We believe that the real estate market in Australia can weather the turbulence of the global financial crisis. Whilst it is natural that there will be challenges and headwind in the market, the Australian property market is resilient and Australians have a unique bond with property.
Whilst some commentators predicted a housing crash in Australia, the median price was actually stable in 2010. It is obvious that some areas will have performed worse but this was also balanced by areas that grew in 2010.
The dark horse in this race will be the impact of the new global banking rules and the availability of affordable loans. Unemployment seems to have stabilized and the government will be pressured to increase migration levels. The 2011 year will be very challenging period for business owners and the level of confidence could have a longer impact on price growth until 2013.
China has become an integral part of our success and closely linked to Australia’s prosperity. As it begins to stabilize itself, we expect that Australia will experience positive growth and fare much better than other countries.
Australia has a young population and along with young overseas skilled migrants coming to our country, we anticipate that the SPENDING WAVE will insulate us from the harshest financial turmoil. We believe that part of the reason we experienced a long economic boom was attributed to the baby boomer phenomenon. As the baby boomers begin to have less economic power in the next 10 years, the Gen X and Gen Y group will replace the spending wave phenomenon. This will be supported by the baby boom of the last 7 years and the new skilled migrants coming into Australia with their families.
As we witnessed the global carnage on the stock markets, central bankers and governments have undertaken a harmonized set of strategies to inject billions of dollars into the world economy to minimize the extent of the financial shockwaves, recapitalize the balance sheets of banks and get them to start lending.
The property markets in the USA and the UK have been severely damaged due to aggressive lending practices. However, whilst the property markets in these countries underwent significant and unsustainable growth, the core problem was magnified by the cheap debt that was freely available to large enterprises. The lack of risk assessment and careful oversight allowed aggressive market participants to create enormous leverage positions on the balance sheets of the borrower and the lender. The lenders attempted to mitigate their exposure by "on selling" these dents to the world markets thereby magnifying the underlying problem.
Companies underwent assumed significant debt in order to acquire, merge or undertake monumental projects in the belief that the global markets would continue to ascend to even dizzier heights.
Consequently, the trillions of dollars pumped into the global market created superficial asset values without adequately pricing risk.
It is our view that the USA will undergo a structural change in its financial system, however, this will take some time, most likely 3 – 5 years. The good news will be that the USA is capable of reinventing itself and will emerge from this crisis leaner and wiser.
The Australian property market, in particular the residential market will most likely retrace some capital gains and plod along this year, at which time, we will start a slow positive growth over the next five years.
Interest rates
The RBA will continue to fight the economic storm and manage the interest rates until we start to see normality return to the markets. Caution should be taken and you should look at undertaking some interest rate sensitivity analysis.
Take Note:
The RBA has commenced its strategy to return interest rates to a long run position.
The reason is simple, it will need to “withdraw” money from the economy to manage inflation.
Remember, the RBA and other central bankers have already pumped trillions of dollars into the world economy and are mindful that too much money floating around can cause significant inflationary pressures.
Affluent areas may not experience good growth in 2011, however, these areas usually bounce back stronger due to their high desirability.
Vacation homes and areas that are dependent upon holiday travel and tourism will stagnate until there is a steadying in the unemployment rate and a return of stable income.
Due to the fact that in 2008 / 2009 many people had to unload these “extra homes” as a result of financial difficulties, will put additional downward pressure on prices. The smart cashed up investors will have field day from the pickings.
Looking for Good Investment Opportunities
Many people were under the impression that foreign markets were stable enough to hold out through the recession in the United States.
However, markets fell all over the globe, not just in America.
Are There Any More Good Investments?
Absolutely.
The market has changed quite a bit in the last few years and continues to evolve according to economic trends and situations.
The markets that will do the best will be those that have a strong infrastructure and many conveniences in close proximity to residential neighborhoods.
Homes that are close to amenities, transportation centers and businesses that provide work opportunities will be the best bet for investors and will be the most apt to maintain their value in the coming years.
We expect that even if the economic tide continues in the way that it has gone in recent months, the homes in the inner and middle ring suburbs areas, that have a solid infrastructure system in place, will retain their value and marketability.