Market Update Sep-Nov 2009

With the First Home Owner Grant Boost officially halving to $3,500 from October 1st and then disappearing altogether by the end of 2009, it appears that the stimulus the federal government was aiming for has achieved its goal. Figures from the Australian Bureau of Statistics show that the Rudd Government’s National Building Economic Stimulus Plan continued to support housing sector jobs and first home buyers, with more than 153,000 Australians using the First Home Owners Boost to the end of August.

With low interest rates assisting purchasers, it’s no surprise to many that it’s not only been first home owners that have taken advantage of the ripe economic conditions of the day to invest in Australian real estate. With rental yields of 4-5% the norm in many suburbs of Sydney (more prevalent in properties in the sub $500,000 price bracket) the out of pocket real costs of holding real estate are suddenly not appearing as terrifying as they were some 12mths ago.

However, caution remains as the RBA begins it’s optimistic and upwards interest rate trend, indicating to all of us that whilst the worst of the recession may well be behind us, Australia’s economic strength is likely to drive interest rates higher, with the Reserve Bank’s governor recently saying expected weakness in the local economy had not materialised.

“The very low interest rate settings were designed for a weaker economy than we are in fact facing,” RBA’s Glenn Stevens said.

The real danger lies with those purchasers who have not allowed for increasing rates, with some forecasters seeing gloom ahead as first home buyers are forced to sell properties that were clearly beyond their means in the first place. Allowing a minimum buffer of 2% on top of your standard loan is always a recommendation as Australian home borrowers tend to have short term memory loss when it comes to interest rates and the very real impact they can have.

Despite the caution, however, investors are also re-entering the market and enjoying the benefits of the current yields and rates to ensure their investments are costing them as little as possible. Here at House Search we are experiencing increased interest from investors in the most popular $400,000-700,000 price bracket in Sydney, across a wide variety of suburbs. It is also apparent that it’s not only NSWelshmen who agree that Sydney is ripe for investing, but also our fellow Australians from other states and territories, with WA, Victoria, Queensland and ACT leading the interest in Sydney real estate. We anticipate this interest to continue, especially as Sydney vacancy rates still remain low compared to previous years. The latest data from REINSW shows a mere 1.3% vacancy rate average across Sydney, with outer Sydney suburbs actually struggling with a vacancy rate of just 1% Though times may be tough for tenants, it remains to be seen how the first home buyers activity this year will impact in 2010.

We’ve all heard the mantra “Buy property when you can afford it”. Now may very well represent that time if you’re considering entering the market here in Sydney. With both interest rates and yields more attractive, renewed interest causing an upswing in growth in many suburbs of Sydney may represent the new beginning of the next phase of the property cycle. Just be sure you allow for interest rate rises of at least 2%, realistic total acquisition and running costs, vacancy rates (I allow 6 weeks per annum as a guide) as well as your cashflow ability to hold onto property for the medium to long term.