Sunday, January 16, 2005

Housing boom over predict analysts - Australia

Price tags on Australian residential properties will stabilise this year, with market watchers saying the days of skyrocketing house prices are well and truly over.

Prices are tipped to ease only modestly this year, far from the hefty days at the height of the property boom in 2001-2003 when prices were up about 20 per cent per annum in Sydney and Melbourne.

Market observers say there are still pockets of hope for investors in search of growth, mainly in the smaller capital cities and regional areas.

"Stability has come across the whole market place (since the) volatility in 2003 and 2004," Real Estate Institute of Australia president Ian Wells said.

"The investor has changed locations around Australia from probably the major hot spots to the up and coming locations ... more outside of the major capitals in regional areas."

Forecasts from the Housing Industry Association (HIA) show Sydney and Melbourne, as Australia's two largest property markets, will drive the overall market in 2005.


House prices for established homes in both cities are tipped to ease between four and five per cent this year.

Across the major capital cities, Brisbane will rise a modest three per cent, Perth five per cent and Hobart between four and five per cent.

Adelaide prices are expected to flat-line after recent strong growth.

HIA chief economist Simon Tennent said Hobart would probably be the stand-out city with the best growth prospects this year.

"Housing is more affordable and they are enjoying a solid state economy and also population growth which is something that is keeping people there," he said.

"(Overall house prices) will be a little bit down and that is a Sydney and Melbourne phenomenon - the two biggest markets will affect the national figure."

Australian interest rates have remained on hold for over a year at 5.25 per cent after the Reserve Bank of Australia lifted the official cash rate twice at the end of 2003.

Economists say the next rate move will likely be a hike rather than a cut, but are divided about the timing.

BIS Shrapnel senior property analyst Angie Zigomanis said by year end interest rates would start to rise, likely impacting on house prices.

He said inflationary pressures would start creeping through in 2005 and as a result the Reserve Bank would have to start acting.

"There might be a couple of rate rises towards the end of 2005 but by (mid) 2006 the Reserve Bank will be a lot more aggressive in terms of combating inflation," Mr Zigomanis said.

"While prices will be flat or grow mildly (this year), 2006 will potentially see some house price falls."

While the property market may not be as attractive to investors as it once was, most market watchers say there is still money to be made, if you know where to look.

According to the HIA, medium density housing in middle suburbs - areas half way between city fringes and the CBD - offer the best investment and are the most sought after by the cashed-up baby boomers.

Mr Tennent said in 2004 house prices rose about 10 per cent following a 19 per cent rise in 2003, 18 per cent in 2002 and 16 per cent in 2001.

"People tend to think if we don't achieve 20 per cent we have suddenly got a housing crisis," Mr Tennent said.

"If you go up 60 per cent in three years and then you go down by five per cent you are still a net gainer.

"There is (still money to be made) in very select types of property."