Only a few weeks ago there were serious concerns about the state of the Australian property market amid suggestions that the economy was facing a number of headwinds, the low interest rate environment would change in the short to medium term and demand was beginning to fall. However, lending data and real estate prices in Australia for the first quarter of 2014 suggest a very different picture.
This will be a major disappointment for many who have been talking the market down, indeed in some cases for many years, suggesting that the mining industry was having an undue influence which was unhealthy.
New home lending in Australia
While owner occupier lending was up 3.6% in the first quarter of 2014 it is perhaps the increase of 4.9% to the investment arena which is more indicative of underlying strength. When we look at countries such as the UK, with property prices moving higher, there is still a distinct lack of affordable finance both for occupiers and for property investors. These figures, from the Australian Bureau of Statistics, paint a very different picture and would seem to indicate renewed confidence in the short to medium term?
Quote from PropertyForum.com: “On the surface, the International Monetary Fund’s (IMF) warning about a potential “overshoot” in Australian property prices and a suggestion that regulators need to scrutinise property investment finances, is starting to sound like the US mortgage crisis situation of 2008.”
At this point it is also worth mentioning that the Australian economy has been one of the best performers since the 2008 worldwide recession. Indeed Australia is one of few countries around the world which did not dip into recession after the US mortgage crisis and continued to enjoy economic growth even in the darkest of hours.
Property price rises
While much of the emphasis on Australian real estate seems to focus around the various capital cities it is worth noting house prices have maintained their recent strength. While first-quarter growth of 1.7% amongst capital city residential properties is slower than that we have seen in recent times it still equates to a 10.9% increase over the last 12 months. When you bear in mind the relatively low inflation, together with low interest rates, this offers a very attractive real return on investment.
Critics of the Australian property market will quite rightly focus upon the mining industry which has possibly passed its boom time and is now beginning to wind down a little. There is also the situation in China, which has been a very strong trading partner and investor in Australia, where the economy is struggling and many investors may be forced to repatriate their overseas assets. However, one fact which many people miss is that the Australian population continues to grow although for many years the supply of new housing stock has lagged demand by a significant margin.
What does the future hold for Australia?
While there will be a number of challenges ahead for the Australian economy, and as a direct result the Australian real estate market, like the UK, there has been a distinct lack of supply leaving ever-growing demand for property. This will to a certain extent support the average Australian property price although in the event of interest rate rises, an economic slowdown or other unforeseen circumstances we may see some of the froth blown off the capital city residential property sectors.
Those hoping for a collapse in the Australian property market seem to be well short of the mark although there will likely be a reduction in recent asset value growth rates.