Property investors face short-term pain as the economy weakens

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 After eye-popping capital growth in many markets during the past 18 months, investors are warned to brace themselves for some challenging times ahead, at least in the near term.
 
According to the latest report from PRDnationwide, the main drag will be consumer confidence which has suffered dramatically following the release of the Federal Budget and the worsening unemployment situation in Australia.
 
The economic forecaster is expecting unemployment to trend higher in the year ahead as the economy undergoes its weakening phase.
 
“Unemployment rate continues on the path of slight rises until the economy is fully recovered,” it said. “Over the next 6-12 months growth in the unemployment rate could lead to a decrease in Australia’s overall economic wellbeing. “
 
On the bright side, the report noted that once the economy has fully recovered and enters a growth phase, unemployment should radically improve.
 
Investors are also facing lower investment returns amid surging supply in many markets, however, PRDnationwide points out this will be only for the short term.
 
“Improving dwelling construction and investor market continue to increase rental supply. But the weaker rental markets in some capitals are representative of short-term structural changes, however conditions to improve once local economies adjust. Continued population growth is set to keep rental demand strong in most capital cities,” it said.
 
Other key forecast for 2014-2015
  • Inflation expected to remain stable within 2-3% target range.
  • Reserve Bank Australia content to keep cash rate unchanged. Major lending institutions also to keep home lending rates at low levels as competition for borrowers remains strong.
  • Low interest rate environment to maintain housing affordability, fostering further growth in property market and housing construction activity.


 

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