Market Update

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2014 Can Be a Great Year For the Property Market

consumer confidencePete Wargent was more ebullient than many of his peers on Sydney’s property market scene and boy! Was he proved right?

For the year 2014, he feels the same sense of ebullience. The good news, Wargent believes, is that none of the analysts have so far come up with dismal predictions and there is a consensus that the year ‘2014’ will be positive for the property market. He gives “7 reasons to be positive about 2014” in his article on the Property Update.

Impact of fall in mining investments

Wargent starts with how property laymen have become apprehensive, fearing that a fall in mining capital investments may automatically lead to recession. This is just not going to be the case, he asserts. The 7 reasons then:

7 reasons to be buoyant

  1. Export volumes will more than compensate for the mining investment debacle, given that the new mines are shifting from the construction to the production stage.
  2. Depreciating Australian dollar will offset the decline in commodity prices.
  3. The selfsame dollar will help infuse life into the Australian share market, not that we have had any reasons to complain so far. Foreign investors will also take a greater dig in the market, now that the lower dollar provides them with higher purchasing power.
  4. Unlike last year and the one before, everyone is sanguine about the property market this year. Prices will keep rising in the vicinity of 7%-10% but the bottom line is that they will keep ‘rising’. In Sydney alone, the prices are up by 20% since the market collapsed during the meltdown.
  5. Continued low cash rate environment is bound to generate buoyancy in the retail sales market; what with the consumer confidence level being sky high. In a scenario when people remain positive and benefit from lower mortgage rates, Wargent assumes that the extra “disposable income” will readily find its way into the shops.
  6. Already, building approvals are giving a merry signal. Housing construction will press on the accelerator, come 2014.
  7. Are you looking for the 7th reason….I fear Wargent has got only 6.

You can read the original article here.

Housing construction

I am equally cheerful about Australia’s prospects in 2014. Recently, I read that housing construction figures for December 2013 quarter was the highest since the year 2005. Both, detached houses and units are benefiting at large from a happy wave of construction.

Growth may return to sustainable levels

This said, I will remain a little more conservative on housing prices. Yes, Sydney has definitely hogged the limelight in 2013 but I feel it cannot keep growing at such an unsustainable rate without posing problems of affordability. To me, one reason why demand had been so high last year was the pent-up demand for so long.

We will do well to remember that we are looking so very good only because the prices were at the ebb before peaking. Because the price hike succeeded back-to-back cycles of fall, the market gave an apparent impression of buoyancy.

While I think that the growth will be a lot more modest and sustainable (close to 6%) this year, the housing market consumer sentiment, as Wargent points out, can certainly help kick-start the year on a high. By the way- and this does not occur to me as an afterthought- I continue being impressed with the auction clearance rates.

Which between the two will laugh louder this year- rental yields or capital growth?