The real estate market continues to make strong gains mimicking the continuous economic growth that Australia is currently experiencing. This, in turn, is supported by sustained consumer confidence in the value of brick and mortar assets, making for a hot property market that consistently reports high clearance rates and market demand for residential housing and promising commercial investment opportunities.
Coupled with consistently increasing levels of migration, renters, foreign capital inflows and low interest rates, the enthusiasm for Australian property is also reaching further abroad. These factors have also increased competition for both residential and commercial real estate as primary residences and investment opportunities. Although potential slow downs in economies such as China are forecasted to yield a flattening effect on the Australian market, they’re moderate price corrections at worst that generally characterise the more ominous analysis’ of the property industry overall.
Real estate firm Situs RERC and Urban Property Australia note that their research into commercial property investment reveals that CBD office assets in Sydney, Melbourne and Brisbane remain the strongest investment opportunity with expected growth at 0 to 10% across 2017. Of these, the industrial and retail sectors were the strongest performers respectively, with returns sitting just under 10% followed by the suburban office category. Although the rental outlook is tipped to remain steady, adjacent sentiments suggest that now is a good time to sell commercial properties in Sydney and Melbourne, whilst in Brisbane it is recommended time to buy. This indicates that the strong upward trend in the commercial property investment is nearing a peak in some capital cities, but still a part of a wider investment portfolio.
Commercial property aside, residential property developers are experiencing an influx of investment from self-managed super funds (SMSFs). Credit Suisse notes that especially via senior debt, mezzanine debt and preferred equity, the SMSFs are stepping in from banks who are nationally tightening their investment loan criteria. Related to this, of course, is the decline of investor home loan lending from banks which fell 1% in December 2016, while owner occupier lending rose 1.3%. As a means to slow investor activity, the banks had been raising interest rates on this type of lending, yet, overall investor growth was up 19.9% for the previous year accumulatively.
With regard to new home builders in Melbourne, there is increasing interest in the build-to-rent sector with the Macquarie Group, Salta Properties and Greystar collaborating on a $330 million project in this field. Mirvac property is also investigating this option as an investment strategy that is currently more common in the UK property market. For developers, this option could yield healthy returns if larger contracts to reduce the cost of modern home building is attained, especially in high cost locations such as Melbourne and Sydney. This trend is also seen as desirable for renters, as tenancy options such as right of renewal could change the largely shorter term rental market in Australia.
Finally, the way we’re buying property in Australia has been recently evolving. ME Bank reports lending or gifts of money from parents is steadily on the increase, as is a rise in the purchase of property with friends, which until relatively recently was a rare occurrence. Furthermore, as a response to rising house prices in most major capital cities, the trend of purchasing a home to live in followed by an investment property is declining. In its place is an alternative strategy of ‘rent-vesting’ which sees millennials in particular purchasing an investment property and remaining in rental accommodation in order to live in their desired area or compromise their lifestyle less as a mortgage holder.