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Real estate round-up

Peter Switzer
28 July 2009

My old academic mate Steve Keen might have predicted a 40 per cent fall in real estate prices but one of the country’s most respected property economists can’t see it on his crystal ball.

Rob Mellor, who for as long as I have been a business commentator has been ‘counting houses’ for the statistics business BIS Shrapnel, which in turn has monitored the building game for decades, has a very positive outlook for our precious property assets.

Construction boom

And for share players, he also suggested that a construction boom was in trail and that should help the big building names on the ASX such as Boral, CSR and others.

“Compared to what some people thought six or nine months ago, people might be taking a big sigh and saying ‘gee, it wasn’t as bad a we expected’,” he told me on SWITZER on Sky News Business Channel. “Property prices have not fallen through the floor, they have stabilised quite clearly just about around all of Australia other than the top-end of the market and we’ve seen some modest price growth in the last three or four months.”

He sees positive signs emerging and is not worried that it will all change when the First Home Buyer’s Grant (FHBG) starts to be reduced after October.

Price growth points

And hold on to your hats, as Mellor thinks price growth will re-emerge. This is what he believes will happen:

  • Modest price growth across the board to the middle of next year.
  • 2010 to 2011, it could get in the five per cent plus range.
  • The Sydney market could be 10 per cent or more around 2011.
  • Some odd markets in Queensland and Western Australia where mining investments might have been cut back could suffer price declines.

“We are through the worst,” he advised. “The next disaster to worry about will be higher interest rates down the track.”

City living

Looking around the country, this is what Mellor expects city by city:

Sydney is tipped to be rising by seven to eight per cent per annum in two years from now and might peak around 10 per cent growth. Over four to five years there could be 35 per cent growth! This is a very under-supplied market given its stock of properties and the population growth as well as tightest vacancy rates in the country. Mellor says you have to wonder where all of these people are living!

  • Melbourne will be sluggish over the next year, but then he sees a period of three years or so at five to eight per cent growth.
  • Hobart not as strong as Melbourne but a three to four per cent average growth was expected.
  • Adelaide is seen as a bit of a surprise to market watchers and Mellor thinks five per cent growth per annum over a five-year period is on the cards.
  • Perth has a question mark because it went up 200 per cent in a seven-year period! Price growth is expected to be modest but the market is not over-supplied and he thinks a four to five per cent increase per annum is still likely.
  • Darwin has been a great out-performer but Mellor says the stats are not as readable there, but he still expects out-performance for the capital of the Northern Territory.
  • Canberra will depend on the Rudd Government’s plans for the public service and Mellor thinks there could be some price restraint in the nation’s capital. However, it has been a great market for landlords or property investors.

Big tip

The big tip from BIS Shrapnel is that a construction boom is on the way and the history of economies shows that a building boom is a great base for creating an economic recovery.

Interest rates on hold?

Mellor isn’t worried about the change to the FHOG because, he says, low interest rates also explain the surge in first homebuyers and he doesn’t think rates will rise until the second-half of next year.

All I can say is — I hope he is right and my old mate Steve is terribly wrong.

For advice you can trust, contact Switzer Financial Services

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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