June 3, 2014
The initial response by some groups has tended to mask the underlying message of this year’s federal budget – we’re getting back in to financial balance.
The government forecasts spending of $414.8 billion in 2014-15 (a whisker less then the current year) however, its receipts are set to increase 6.1 per cent to $386 billion. Clearly the sums are going in the right direction.
Beyond the initial political uproar, business should respond well to this underlying strategy, to right Australia’s battered economy. Steadfast government policies and smaller government traditionally offer confidence to investors. In addition, the budget also did not include anything that would cause interest rates to rise or that will affect taxes on investments.
As property investors, we always keep a careful watch on infrastructure projects, as they have a major impact on housing demand. Both Federal and State governments have announced major infrastructure proposals and, as history has repeatedly shown, jobs and housing demand rapidly follow improved access and services to an area. The growth taking place along the Eastlink corridor in outer Melbourne is a classic example, as is the heavy expenditure in western Sydney.
Australia is experiencing above average population growth from natural increase and migration. Our workforce is also increasingly mobile (perhaps a consequence of the mining boom and the employment flexibility created by technology) which further adds to demand for rental properties.
Changing demographics are also an added factor in demand. The rapid growth in people reaching retirement age, reinforced by greater longevity, is adding to the housing shortage, particularly in the well serviced middle and inner suburbs of our major cities.
Melbourne is managing within it’s supply shortage at the moment, however, continued migration from both interstate and overseas to Victoria – a net increase of 96,000 people last year – will inevitably tighten availability again.
Regional cities such as Geelong in Victoria and NSW’s Newcastle continue to have strong economies despite some challenges. These areas are also now an increased focal point for government attention. Although these vibrant regional cities have also benefited from plenty of recent expenditure further adding to their amenity and services, transport links to their state capitals as well as both cities having major domestic and international ports.
Brisbane, unfortunately, has been somewhat overlooked in recent years but there is now likely to be an upsurge in city’s road and rail projects which should flow through to residential markets. Brisbane is a fine example of buyer opportunity, as property continues to sell (partly as a legacy of the floods of recent years) at prices well below replacement cost. Brisbane, too, has yet to be discovered by Asian investors so prices still offer very good value.
The city is also reaching a critical mass in population growth which will allow it to support greater city amenity as the population density increases.
Banks are experiencing an increase in funding demand from both small business and for housing. Generally, the banks are well placed to fund any lift in residential lending demand.
The blue sky element for housing demand is the growing presence of Chinese and other Asian buyers. This has been weighted to the upper end of the housing market, however, signs are emerging of increasing activity by Asian investors in the middle and lower priced markets, including multi-storey apartments, particularly in Sydney.
Asian investment has so far been both owner occupied and investment activity, however, Asian investors, in particular, have recently ramped-up their activity.
The stimulus of free trade agreements with South Korea and Japan is still to arrive and the big prize, a free trade agreement with China, is well underway.
Asian buyers, from here onward will be an even greater critical influence in Australia’s housing market. They are likely to consider a wider range of property in the future and move beyond the Melbourne and Sydney markets.
There are still plenty of colourful headlines about residential prices, especially when there is a sale at the top end of the market. However, properties are still changing hands in a great many areas at prices clearly below replacement cost.
Generally, gains in property values during calendar 2014 will not be across the board. Prices in some areas have moved – at least in the short term – to levels that buyers found too daunting, which has caused some easing back. The important consideration for investors, however, is to look ahead to see where business and commercial investment is likely to be directed during the next five years, especially following the infrastructure trail.
Overall, it is a rapidly changing property market but one with excellent opportunities especially once business starts to employ again and as our economy grows steadier.