Australian property a housing market in waiting

The rental market is a huge sector in Australia and a shortage of new homes is set to strengthen landlord returns. The ANZ Bank’s latest property report states “shortage of dwellings and the flight of investors from the residential sector are causing a decline in rental vacancies and placing upward pressure on rents”. Research at ipac securities indicates that over the very long term property price increases are estimated to be at an average rate of 1 per cent to 3 per cent above inflation. However over shorter periods, the returns can be lower or even negative.
Australian property investors benefited from a once buoyant Australian real estate market. A ten year period to 31 December 2005, saw residential property nationwide return on average a 9.5 per cent annually. The real boom years for property in Australia were between 1999 and late 2003 to mid 2004.
The Australian housing market today does not appear to be attracting Australian property investors. Research conducted by real estate money management firm Jones Lang LaSalle found that Australian investors spent $US5.3 billion ($A7.06 billion) into overseas real estate in the first half of this year, up from only $US1.2 billion ($A1.6 billion) in the first half of 2005.
Jones Lang LaSalle head of forecasting services John Sears said an increase in the amount of superannuation allocated to listed property trusts (LPT) was largely driving the flight overseas, with LPTs seeking to diversify their portfolios and capitalise on high overseas yields.
Australian property experts estimate that housing starts were on the decline. The Housing Industry Association revised its national forecast from an expected 3 per cent rise for 2006-07, to a 1 per cent drop in a survey released this month. HIA chief economist Harley Dale said that while the majority of housing analysts had expected a recovery this financial year, it would now take longer, with relief for homeowners and investors not arriving until 2007-08.
Citigroup has issued a warning for Investa Property Group, saying that while its office and wholesale fund operations are high quality with growth potential, its residential development arm will feel some pressure.
“Investa has a current weakness in its residential development division, which has led the analysts to drop their earnings per security forecasts for 2007-08 by 4 per cent and the 2008-09 EPS [earnings per share] forecast by 3.9 per cent,” the broker wrote in a note to clients.
The high demand for Australian rental property combined with lower Australian house prices seem to be good conditions for the overseas property investors.

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