Despite a very turbulent 12 months, both analysts and commentators have currently adopted an upbeat and positive outlook across most economic fronts, in particular property.
The WA economy seems destined to lead Australia out of the worst recession witnessed in over 70 years. The $50 Billion Grogan Gas Project and other associated resource projects appear to have provided not only the punch needed to uplift the WA economy but the rest of Australia as well, and all states seem to be taking great solace from such initiatives.
The recent hikes in interest rates have also served as the catalyst for property prices to rise. As we come off an extraordinarily low interest rate environment we now find the couple of rate rises have jump started those investors and homebuyers who have been sitting on the fence, encouraging them to take action and purchase.
It’s interesting to note the much discussed wind-up of the first homeowners grant scheme, which was always touted as a point in the market which would see a possible correction in prices. Indeed, nothing could be further from the truth. Although the grants are being gently phased out, we have actually seen a lack of listings across the board in suburbs from Thornlie to Cottesloe and everywhere in between. Well priced properties are not lasting very long when they come onto the market. Combine the lack of listings, a promising economic outlook, rising interest rates and the biggest driver of all, lack of supply, and you have the perfect combination for substantial rises in both rents and prices within the residential market.
Forecasts such as those published by BIS Shrapnel WA indicate that Australia-wide, we are potentially heading for a shortage of residential accommodation, which will only have an upward effect on prices. In addition, the looming take-off in resources will once again place further strain on accommodation, as more workers are required. This will in turn cause price rises, especially on newly constructed properties. Yes, it appears to be a continual cycle.
However, placing all that to one side for a moment, I would add some words of caution. While everything does seem to appear very buoyant going forward, I can’t help thinking that it’s all happened a little too quickly. I have a feeling there may be an element of smoke and mirrors at play out there.
Personally, I believe we will see another correction sometime in the next six to 18 months as some of the very optimistic forecasts are pulled back because they have over shot. We are so heavily reliant on China; by all reports the huge infrastructure and government spending programs that have been put into place in that nation have some question marks over them, particularly with respect to how the capital, let alone the interest component, will be repaid on these huge government-funded projects.
Yes, we do seem to have reached the bottom but I would still err on the side of caution until we have convincing fundamentals that show, over a reasonable period of time, that positive economic times are here to stay.