Before we take a look at the prospects for 2015 it is worth reminding ourselves of the impressive growth seen in 2014.
Australian real estate prices in 2014
Data released over the last few days has confirmed that the average increase in house prices across Australia’s major cities averaged 8.4% during 2014. There were some variations with Sydney showing growth of 12.7%, Melbourne 7.9%, Brisbane Gold Coast 5.3%, Adelaide 4.7% and Perth 1.4%. While these are pretty impressive performances many experts have highlighted stock market listed property trusts (now known as real estate investment trust) which showed growth in excess of 20% during 2014.
While no sensible investor would ever take historic figures and project them forward, there do seem to be a number of issues specific to the Australian economy and real estate sector which give food for confidence going forward.
Despite the fact that the real estate sector has performed admirably over recent months there is some concern about the economy going forward. The Australian government has been very proactive in years gone by and many experts believe we will see a reduction in interest rates during the first quarter of 2015 and a second reduction possibly as early as June. This will have the obvious impact of reducing the cost of finance which will support the real estate sector although there is a chance that investors will become more selective going forward.
At this point it is also worth noting that Australia was the only developed country that did not drop into recession during the 2008/9 economic downturn caused by the collapse of the US mortgage sector. During those difficult years the Australian economy was supported by the mining industry but nevertheless it did not drop into recession.
The expected ongoing boost from consecutive interest rate reductions during 2015 will have a significant impact upon the Australian residential property market. We may see other areas of Australia come to the fore during 2015 with some experts suggesting more modest growth in Adelaide with Brisbane likely to outperform other capital cities. After impressive performances during 2014 there is an expectation that house prices in Sydney and Melbourne will show more modest growth.
However, all in all it seems that both domestic and international investors still see the Australian real estate sector as a very interesting play for 2015.
Many people will be surprised to learn that demand for commercial property across Australia is picking up and likely to increase as interest rates fall. The expected proactive move in interest rates will help to buoy the economy and could result in Australia avoiding the worst of any worldwide economic volatility during 2015. There is growing demand for retail outlets and shopping centres and after a difficult period it seems that office investments are back on the international investment agenda.
Australia has been one of the better performing economies since the worldwide economic downturn of 2008/9. Time and time again sceptics have suggested a fall was just around the corner but so far the economy has performed well as has the real estate sector. A reduction in interest rates during 2015 will assist property markets, place more money in the pockets of the general public and obviously reduce the cost of finance going forward.
Does everything look too good to be true in Australia?