HOUSING INVESTMENT – A SOFT LANDING?

HOUSING INVESTMENT – A SOFT LANDING?

Many people found the first quarter of this year unfathomable. A confluence of factors — the banking commission, accelerating drought, lack of housing stock and a mercurial lending market — a national election – all made the property market difficult to comprehend.

Now at least one of these factors has been settled after last weekend’s surprising election results. The result also has removed uncertainties around negative gearing and the capital gains tax. The buoyancy of bank stocks on the ASX immediately after the election result reflects these in particular.

At the same time, a number of positive factors remain in place. The first of these being interest rates which are at record lows and can be expected to remain this way for some time to come.

In the last three years, the populations of inner Melbourne and inner Sydney have risen in excess of 110,000 in each city per year. A significant number of retirees are not prepared to move into development blocks but are electing to remain in their existing properties putting pressure on the existing freestanding market, where the amenity advantages include shopping, transport and medical centres.

Meanwhile, the move to regional areas such as Newcastle, Wollongong (in New South Wales) and Geelong, Bendigo and Ballarat (in Victoria) is continuing. The evidence is that people are happy to stay in the closer inner areas as tenants, but likely to achieve greater appreciation from a regional area where cost advantage is foreseeable and possible.

As ever, market threats and complications present opportunities for those who play the property market cleverly and judiciously. Stock is limited yet inspections by potential buyers are increasing, and there is evidence now that prices in inner areas will start to firm after the election and reflect higher rentals, prices which reflect purchase levels below replacement and confidence in ongoing finance availability. The latter will be affected by the long-term bond rate but will be encouraged by bankers whose revenue from the mortgage market has been seriously reduced. Sydney and Melbourne population growth is dramatic and will underwrite demand for at least ten years.

It appears that we are about to witness a soft landing and a steady return to another growth cycle which will be significant and profitable.

 

Jock Bing | Director

         

Portfolio Management Services Pty Ltd

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