July Newsletter

What a difference a year makes This time last year we were reporting the first signs of a significant improvement in Melbourne’s residential property market. Auction clearance rates had crept up to 75%, prices were firming and stock levels had picked up. We cautiously predicted the worst was over and that we were headed for a period of sustained growth. We placed one caveat on growth, namely the occurrence of an “X” factor which nobody could predict. The past year has seen some remarkable movement in the market with demand outstripping supply for the first nine months and prices rocketing in inner suburbs. Without question prices across the board are higher than a year ago with the REIV median price index growing by 29.5% for houses and by 25% for apartments and units. For property owners this is a comfort compared with the share market which only grew by around 9% over the same period. Other factors affecting our market over the past year have been changes in FIRB rules for non residents buying residential property, hefty interest rate rises, reduction in government assistance and the consequent drop in participation by first home buyers. Fortunately stock in this sector has been absorbed by investors returning to the relative safety of property. Will there be a factor X? At the time of writing the stockmarket is experiencing a painful re-adjustment led by international uncertainty, questions about sovereign debt, changes in our political environment and the rate of growth in China. Depending upon the strength and timing of these issues we may see some re-adjustment flow through to the property market. However any adjustment will be a levelling of prices rather than a fall. So long as Victoria continues to enjoy strong population growth and the shortfall in dwelling construction continues we will see a firm property market. On balance, we see the Melbourne market in particular, returning to more normal levels of activity and growth such as have been recorded over the past two decades. A principal reason for our confidence is the greater number of properties being adsorbed by the market via both auction and private sale. We are no longer operating in a market starved of supply, as was the case early this year. Sales numbers in some areas are almost double compared with a year ago and auction numbers are at record levels for this time of the year. More homes needed The National Housing Supply Council has now confirmed what every Victorian estate agent knew, we need more houses. A recent report by the Council advised that in 2009 Victorian housing fell short of demand by 22,700 dwellings, and the situation has been getting worse for years. With all the talk of affordability and tight vacancy rates it is clear we need to boost supply if the current housing shortage is to be relieved. In March 2009 27.6% of average household income was needed to buy a typical home but by March 2010 it had risen to 32.6%. A series of interest rate rises combined with solid housing price gains meant a typical mortgage had grown from $259,559 to $297,813. This translated into a hefty $398 per month in extra repayments for homebuyers. Melbourne’s vacancy rate continues to hover around a tight 1.6%; it’s now been below 2% since December 2005. Over the first half of the decade the rate was closer to 3.5% giving tenants much greater choice. FHOG still available With all the changes there is understandable confusion but first home buyers can still get government assistance in many instances. From today all first home buyers can still access the basic $7000 grant provided their purchase doesn’t exceed $750,000. The state will add a further $13,000 for newly constructed homes and an additional $6500 if built in regional areas. So for some there is a total of up to $26500 available until June 2011, depending upon how much you pay, whether you build and where you choose to live. Further details from www.sro.vic.gov.au Adrian O Jones FAPI, FREI, CEA (REIV), Dip. Bus. Chairman – Noel Jones Corporate Immediate Past President REIV 2009-2010

01-07-2010