First National Real Estate has surveyed its 450+ offices throughout Australia and New Zealand to find that 2011 is expected to be the turnaround year for the property market. Some areas will perform quite strongly, others not as well, but overall there are signs the market will hold and pick up as the year progresses.
According to First National CEO, Ray Ellis, this is the picture building at the moment, based on expectations of interest rates, movements and local area member knowledge, underpinned by strong economic fundamentals as detailed in First National Real Estate’s 2011 Property Market Outlook released this week.
“The market has slowed and is flattening out but there are still some great opportunities out there. We expect investors will play a much bigger role in the property market next year, taking advantage of low vacancy rates, strong returns and reduced competition from first home buyers”, Mr Ellis said.
“This will boost some areas around Australia which will drag other non-performing areas along and provide benefits usually reserved for mining towns in a resources boom.”
Western Australia’s metropolitan markets are moderating but mining towns continue to perform strongly. Chronic supply shortages continue to underpin strength in The Northern Territory while Queensland shows similarities to Western Australia - mining towns striding ahead as a result of the resources sector while some metropolitan areas, such as those in South East Queensland, remain soft. Both states and the Northern Territory will continue to benefit from the booming resources sector into 2011.
Victoria has been the stand out success story of 2010, performing strongly throughout most of the year. However, affordability suffered as Melbourne became the least affordable Australian city to buy a home and regional Victoria’s affordability also deteriorated. There was a slight improvement in Victoria’s affordability towards the end of 2010 and it is expected this will continue to improve into 2011.
Tasmania and South Australia both performed consistently, characterised by neither boom nor bust and this is expected to continue, to some extent, into 2011.
The New South Wales market stabilised throughout 2010, laying the foundations to rebuild its strong market position in 2011. In regional areas of the state, upgraders and investors are already very active and this is expected to continue into 2011.
First National Real Estate members across the country were almost evenly split on their predictions for house prices in 2011 with 32 per cent expecting prices to trend upwards, 30 per cent expecting prices to trend downwards and 38 per cent expecting prices to remain flat.
“Broadly speaking, house price movements will trend upwards across the country by between 1 and 5 per cent, but there will be locations where moderation or slight negative growth will occur,” Mr Ellis said.
“Across all survey respondents, in 70 per cent of cases house price movements are expected to be between 1 and 5 per cent, between 5 and 10 per cent for 20 per cent of members responding and more than 10 per cent for 10 per cent of members responding,” Mr Ellis said.
“Basically, what we see is that our members generally expect the market to remain stable as a result of a strong economy, but this is contingent upon interest rates.”
Apartment/strata property prices are expected to follow a similar pattern, with the potential for movement of up to 5 per cent.
Land prices are also expected to remain relatively flat, with 40 per cent of respondents expecting them to remain flat, 40 per cent expecting them to trend upwards and 14 per cent expecting them to trend downwards, with decreases kept to a maximum of 10 per cent.
The rental market will be the strongest performing sector of the property market in 2011, with ongoing tight vacancy rates across the board, predicted increasing demand and strong possibility of rising rents.
“All states except the Northern Territory predict a downwards trend for vacancy rates of between 1 and 5 per cent,” Mr Ellis said.
“This chronic undersupply of housing for tenants will maintain upward pressure on rentals, with the potential to push weekly rentals up further by between 1 and 5 per cent in the majority of states, with Tasmania predicting increases of as much as 5 to 10 per cent and the Northern Territory expecting decreases by up to 5 per cent.”
Over 2010, rental vacancy rates were low in Sydney, Melbourne and Adelaide, with slightly more choice in Brisbane and Perth, but these are expected to tighten further in 2011.
Investors are also expected to play a role in forcing rents up higher, as they seek to compensate for any loss in capital appreciation as prices growth slows down.
Investor activity is expected to increase in all states except the Northern Territory and Queensland.
Based on the survey results, respondents expect there to be two additional interest rate increases in 2011, with the potential for a third.
“Should interest rate increases be kept to a minimum, the market should hold up,” Mr Ellis said.
“However, there is the likelihood if the increases are sizeable, affordability will be further eroded, bringing additional pressure on mortgaged home owners which will ultimately slow the market even more.”
According to Mr Ellis, interest rates will only be one mitigating factor for the property market to deal with in 2011. Mortgage exit fees, insufficient housing stocks, banks and anticipated electricity price hikes will also impact on the market.
“Nearly 70 per cent of our members believe the likely increase in electricity prices will impact on the types of energy efficient features being sought by home buyers, making solar the top of the list as the most sought after feature,” Mr Ellis said.
“Global events, new legislation, state elections such as NSW and the new government in Victoria will also impact in ways it is impossible to tell.
“But it is our job, those of us who work in the property market, to do what we can to ensure property remains as strong as it possibly can.”