Property to bounce back in 2012

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Australia’s property market will return to positive territory on the back of last year’s interest rate cuts, it has been predicted.

According to a recently released report by the Housing Industry Association (HIA), Australia’s property market defied the doomsayers last year – softening rather than crashing – and 2012 should see a return to growth.

“Another year has passed with portents of doom and gloom regarding residential property prices yet again proving incorrect,” says the report.

And with Australia’s median dwelling price returning to modest growth, according to RP Data-Rismark data for November, the HIA is hopeful that real estate will make its comeback this year.

“As the November 2011 result follows a period of controlled price moderation that has been in place since the middle-part of 2010, it provides some hope that the worst of the residential property market slump may now be behind us,” says the report.

The HIA does note that November’s price gains were modest – 0.1% for capital city homes and 0.3% for regional homes – but adds that this represents the first monthly increase in dwelling prices since December 2010.

“The good news is that with back-to-back rate cuts in November and December 2011, there is every chance we may see a return to dwelling price growth at some stage in 2012,” says the report.

It warns, however, that regional variations will continue to be marked – with some areas performing far better than others – and that the property market as a whole is likely to be influenced by the “game changer” that is the European debt crisis.

“Barring a complete meltdown in Europe, as interest rates retreat further prospective investors are likely to increasingly favour housing over term-deposits or shaky equity markets. Meanwhile, as the cost of repayments start to align more closely with rent payments, current tenants are also likely to look at making the leap into home-ownership,” concludes the report.

Reasons to be cheerful

The HIA report pointed to the following underlying strengths in the Australian property market:

  • Australia’s large housing shortage: The HIA’s Housing to 2020 report estimates that the national dwelling shortage stood at 229,500 dwellings as at June 2011.
  • Australian borrowers remain highly able to meet home-loan repayments and consumers have been saving heavily – suggesting many potential buyers have access to a house deposit.
  • Despite difficulties posed by the multi-speed economy, Australia has a healthy mining sector and business investment will remain an important driver of growth.
  • Although new home lending has been disappointing, lending for existing properties has been trending upwards which augers well for buyer activity over the next nine or so months.
  • Vacancy rates remain low in all the capital cities, driving up rents. Plus, lowering interest rates make buying a property more attractive – either to get out of the rental market, or as an investment.

Are you as hopeful about the property market's prospects for 2012 as the bullish commentators are? Have your say on our property investment forum.

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6 Responses to "Property to bounce back in 2012"

  • Brian says on 17/01/2012

    A few if and buts there, but I agree with the overall sentiment. I don't expect great things this year, but with any luck we'll see a turnaround.

  • Rog says on 17/01/2012

    I think interest rates will be important. I've heard some people say they expect three or four more cuts this year. I think that will persuade a lot of people to get back into property.

  • Allen says on 18/01/2012

    You are nuts? I am from the United Kingdom and if the rate cuts start your prices will fall. Think about it people are desperate to buy a home when the prices are rising but if there falling they will wait and especially if your predicting even further rate cuts later in the year. Good Luck

  • Nige says on 18/01/2012

    I'm not sure if the UK and Australia are comparable markets. We've got mining, and are more reliant on Asia than Europe/US. That said, if the interest rate gets as low as it is in the UK (0.5%!), the RBA won't have much wiggle room to react to the economy.

  • Harry says on 19/01/2012

    I DONT THINK SO

  • Shane says on 25/01/2012

    Allen, I disagree. In Australia I believe if rate cuts happen our house prices will rise. Has every other time so I can't see why it would be different this time. House prices are controlled by what the banks are willing to lend (amongst other things). Interest rates come down, banks allow people to borrow more as their payments are less, house prices rise.

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