There is broad awareness of the conventional wisdom suggesting sharemarket crashes are followed by an inevitable flight to property, the safe bet in uncertain times.
Following falls of 20% in the value of commercial property trusts in the last quarter of 2008 alone, statistics showed housing prices in major capital cities edged down only as much as 4% -- that was across the full 12 months. In Sydney where the market was already off and signs of recovery are first expected to be seen, falls were limited to less than 1%.
During sharemarket downturns, business is forced to tighten its belt and curtail expansion plans, directly affecting demand for the commercial sector i.e. office space, factories and industrial complexes. Therefore yields from, and values of commercial property trusts, weaken.This is where history dictates the residential market usually behaves in the opposite fashion.
In the southern Gold Coast residential sales have been rising since December 2008. Whether current levels will be sustained if the First Home Owner Scheme is not extended past June 30 is hard to predict but currently sales are running at levels not seen since 2007.
With our economy edging towards recession, as announced by the Prime Minister and the RBA in the past few days, business turnover could soften and the sharemarket might fall further. Business will naturally keep cutting costs by shedding employees and the RBA will, possibly, cut official interest rates again, to try and keep the economy moving - as predicted in the First National Property Outlook 2009.
For those who have job security, property becomes a viable investment option. Real estate holding costs for investors are about a 10th of what they were a year ago and rents have been rising strongly. In some regional areas across Australia, positive gearing is a new reality and there has been a quiet return of investment by buy-to-rent players.
Missed by the general media because first-time buyers are the story of the day, investor numbers were up nearly 3% after bottoming out right at the end of last year.
The laws of supply and demand will always rule the day and Australia shows no sign of solving its unique housing shortage in the near future.
If you're interested in receiving a copy of the First National Property Outlook 2009 e-mail me at DavidH@palmbeachfn.com.au and I will send you a copy.
by David Hamilton Next boom waiting in the wings?
palmbeachfn.com.au June 2009