Putting the Property Price Rises in Perspective:

The market has had much talk of a property price bubble, although predominantly referring to the eastern states. It is interesting to note that according to the McGrath annual report by CEO John McGrath, that in the previous month, every capital city has recorded positive growth in property prices for the first time since the GFC.

Whilst this is good news for some, we must carefully understand what causes this result and its implications on the market. If there is growth in the market, it can generally be related to either an under-supply or an over-demand. In this case we look to the market indicators to give us an insight as to whether we are looking at supply or demand. For example, listed auctions in all capital cities were measured at 1,692 compared to 1,054 for the same week in the previous year. This is a clear indication that supply is on the increase i.e. there is no shortage of supply.

The indicators lead us to believe that there is a distinct increase in demand.

When we analyse the current sales patterns, we start to realise that the demand has been created by overseas investors, particularly the Chinese, closely followed by Indian investors. Their appetite for particularly luxury houses, for example those in South-East Queensland, are pushing up prices in the upper end of the market, particularly in Queensland and Sydney. Also creating demand are domestic investors that are enjoying low interest rates and reasonably high rental yields (of the total sales in Sydney, 60% were either domestic or international investors). What is decidedly absent from the market, are the first home buyers. (Although there was a slight increase in FHB’s from the March quarter to the June quarter it was off a low base).

Whilst this activity at the top end of the market does have a flow on effect down through the relevant markets below, it is questionable whether it will provide sustainable growth to the overall market once the investment appetite slows.

In order for the economy to capitalise on the current growth spurt, we must look closely at how we stimulate the lower end of the market in a follow up effect.

One of the interesting ways that may assist our market to stimulate the lower end, is the WA government’s push to develop localised urban hubs and with this, they are encouraging sub-divisions, granny flats and denser property development. Although this measure is essentially to combat the urban sprawl, it may also lower the prices in the lower end of the market.

With the WA government’s changes to legislation, it may be a great time to look at sub-divided or development property. If you would like to know about that process, please feel free to give me a call.

Andre Thane

Sources: Kaplan News in Review; MPA Market Watch 09/09/2014; McGrath Annual Report 2014

Disclaimer: The above content is of opinion only, and is not intended in its delivery to constitute advice. The content must be placed in context and is of a general nature only, the delivery of which is not specific to any one person’s circumstance or financial situation, and should not be construed as such