It’s time to get serious about encouraging housing in regional areas

It’s time to get serious about encouraging housing in regional areas

By Catherine Cashmore
Tuesday, 28 February 2012

Australia seems to make half-hearted appeals to encourage regional migration.  I say half-hearted because despite “generous” housing grants offered to those who venture out into these comparatively desolate locations, there is little to entice migrants to make the move into neighbourhoods crying out for growth. The expectant short-sighted and stubborn belief that building new housing and granting one-off incentives will have consistent migrational effect is futile, without investing first and foremost into infrastructure, transport, education, health and most importantly jobs.

These are the only innovations that can open the door to a wider demographic and thereby ease inner-city inflation.  However, all of this comes at a cost, which is hard for governing powers to justify short term, therefore we’re condemned through need – and subsequently desire – to live in metropolitan locations, which are now beginning to strain at the seams. This places a tremendous responsibility on the shoulders of our town planners to get it right, as it’s their job to redesign Australia’s capitals and make the topographical alterations that will bare effect on our cultural progression. If they get it wrong, we can wave goodbye to the yet distinctive allure that sets Australian cities apart.

For the vast majority of buyers (roughly 70% of them according to the stats) purchasing a property is about purchasing a “home” and therefore a “lifestyle”.  So far we’ve been lucky in Australia.  Our cities are the essence of “liveability” – those who haven’t travelled overseas may not think it, however spend some time in the world’s other hotspots such as London, for example, and you’ll soon get tired of the comparatively high levels of crime, traffic congestion, pollution, cold winters, vandalism, unmanageable population, and the modern monstrosities architects have created in order to prove the point.  Australians love travel, but no matter how enjoyable the vacation, it’s rare to hear an Aussie express a strong desire to live elsewhere. Our national anthem says it all: here is always “home”.

For this reason, Melbourne, Sydney, Peth and Adelaide commonly drop into the top 10 of the “world’s most liveable cities” (according to TheEconomist‘s yearly survey).  A large part of this is due to our “walkability”. In the inner- and middle-ring metropolitan locations, there’s easy access to transport, schools, parks, and shops. However, this alone doesn’t make us liveable – what truly makes our cities liveable is the interaction we have with the people who share our neighbourhoods.

This interaction comes in various forms and fosters a valuable sense of community.  Shopping strips lined with small coffee shops and cultural delicacies, corner pubs offering live music, ample parklands, bike paths, museums, sporting events, theatres, festivals, backyard barbecues, conversations over the garden fence, those we meet on an summers evening stroll – the list goes on.  It’s interactions like this that nurture empathy and without getting too detailed, ultimately keep crime rates low and people grounded. However, this cultural interaction is only possible and sustainable because our unique architecture over the decades has evolved to allowed it. Height restrictions, heritage overlays and green bans protecting parkland have all played their part. However, this is now rapidly changing.

I remember Prince Charles daring to speak out over the subject of how “modernists” were ruining the look of England’s cities. He was correct in as much as he shared the majority opinion of local residents struggling to cope with all too wilful destruction of their local communities. London – home to some of the most magnificent architecture in Europe – has largely been destroyed by mountainous glass towers, which disproportionately squash as many citizens as possible into confined square boxes. The bigger the population, the greater the temptation to provide these quick-fix relatively low-cost answers, and the result is a move away from enabling the population to physically and socially meld with their local environment. Quaint rows of terrace houses (holding similar appeal in the UK to some of Australia’s streets, which are lined Victorian and Edwardian terraces) quickly lose their attraction when surrounded by these monstrous constructions and despite various heritage overlays and supposed safeguards, Australia is heading down the same route.

There has been many a discussion in Melbourne over the disastrous development in Docklands.  It was to be one of many golden answers to Melbourne’s shortage of supply. But why hasn’t it worked? Of all the inner-city suburbs in Melbourne, Docklands (along with Southbank) consistently holds the highest vacancy rates and lacks any lasting appeal for home buyers. It’s not just down to the type of housing provided – important oversights were made from the outset such as lack of schooling, parks, trees, open spaces, community centres, pubs and so forth. However, considering the largest demographic living in the neighbourhood are young singles, you would have thought close proximity to city amenities would have quashed any negative effects this oversight caused?  Not so! The most common, encapsulating, comment you’ll hear from unhappy residents is “it lacks soul”.

There is no diversity of housing stock in Docklands to attract a varying demographic.  The abundance of high-rise accommodation (which I admit has its place in any city and is obviously needed in proportion) fosters no social interaction whatsoever.  Children playing in the street, dogs going for a walk or residents popping down to the milk bar to stock up on essentials – you won’t find these things in Docklands.  Who wants to pop out for a stroll when it involves waiting for a lift that stops at multiple floors on the way down and puts you onto a comparatively deserted street with no perceptible verve or spirit? Had planners envisaged the suburb to involve a “useable” range of accommodation options and community facilities that nurture a wider demographic and subsequently interaction (thus thinking beyond the cost benefit of simply squashing as many people as possible into each small square metre of land), it would have eventually evolved into the success story as planned. However what a tragic (arguably) waste of residential land it’s proven to be.

For a timeless success story in architectural design, you don’t have to look far from home. As any real estate professional will tell you, the housing that attracts the broadest demand from the general population is that which holds period appeal. Although many of these homes at the time of construction were built subject to a strict budget, they engaged with the environment around them enough to maintain their attractive street aspect and keep the localities thriving.  Commonly, the main attraction to buyers of these timeless designs is the rare and opulent period detail, which is now costly to replicate. However at the point of construction, space was just as much an issue to town planners as it is now. These properties weren’t created for backyard barbecues – Victorian terrace housing is essentially the forerunner to the modern townhouse. It was (at the time) a “cheap” space-saving option. However, it maintained a balanced connection and sense of proportion to ensure the community atmosphere continued to thrive.

For example, the veranda became an extension of the living areas – a place to welcome guests or sit in the shade on a warm summer’s eve.  Then, riding on the back of the industrial revolution, Modernist thinkers of the 1950s arrived and so did what’s often termed “Brutalist architecture” (or “streets in the sky”) – thereon followed a slow but steady demise. The tower blocks – options created by the new mass supply of building materials such as steel and concrete – were intended to be “protective and integrating” for residents, but when developed in abundance (providing accommodation for 150-plus residents), they proved just the reverse. Dark stairwells littered with rubbish, broken-down lifts, high levels of crime – even as design improved, lack of connection with the neighbours was a constant stranglehold on community participation.

Don’t get me wrong; I am not against high-density housing, nor do I have the curse of NIMBYism.  There is as much a place for apartment blocks as there is for the traditional Aussie house in the burbs – but when it’s developed vastly out of proportion with the local surrounds, it’s not conducive to society and there’s a point at which mass development must redirect its focus.

So what to do?  For those sitting behind local government desks, modern towers are the perfect solution to population growth. Like student housing, they have a place. For first-home buyers they’re a stepping stone to something bigger. For a growing population they’re essential. But step over that fine visionary balance and our cities will no longer have the appeal to top the most “liveable”.  The sustainable population debate has no easy answer – or I should probably re-express that as “no cheap answer”. Metropolitan locations will always be favoured by a majority, however we’re selling ourselves short if we don’t make the necessary efforts to unlock regional towns and encourage a broader pattern of growth.

For example, why not force large companies to locate their central offices in the smaller satellite cities that already have a strong established culture? Start to invest seriously into fast transport systems that link regional locations to the major capital cities thereby open up options for buyers.  Give back control to communities and allow local government to do what it’s essentially there to do – listen to the people and respond to residential needs.

All too often our local councils are bullied into submission by overriding federal control that never looks beyond short-term gain. All too often neighbourhood protests are ignored, because squashing more and more residents into a suburb takes a priority.  Australia has tremendous potential to be a lasting “garden of Eden” and envy of the southern hemisphere. No one needs fear population growth if we manage where we grow – however this growth must now move forward with a regional agenda.

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Why investors are essential for our property markets

Why investors are essential for our property markets

By Catherine Cashmore
Wednesday, 22 February 2012

Suggesting we need more investors in the property market is bound to evoke strong emotions from the first-home buyer demographic.  Many blame Australia’s “generous” tax incentives offered to property investors as the prime instigator for what’s considered (by some) to be an “overvalued” market.  The argument follows that if fewer investors purchased property, prices would fall and more young people would aspire to the dream of owning their own homes.

The basic premise is correct.  Take investors out of the marketplace and there’s no doubt demand would ease substantially with prices experiencing an immediate drop.  Investors currently make up about 30% of our market; therefore it’s a significant percentage to bear influence on capital movements.  However, if Australia’s real estate prices did drop and experience falls on a par with various states in the US (say some 40% to 50%) would there be a sudden rush of happy first-home buyers eager to snap up the “bargains”?  I doubt it.

Due to increasing concern over the global economic outlook and general market uncertainty keeping a tight cap on real estate price growth throughout the past couple of years, along with low interest rates easing the pressure for borrowers, housing in some states is more affordable now than it’s been for  years,  Some areas have corrected by more than 20% – and although it should be noted this has not happened nationwide, neither has it been restricted to the outer-suburban “nether-regions” where demand rarely stays consistent – inner-urban areas have also suffered from the current malaise.

Furthermore, despite the challenges of our “two-speed economy” and increased financial pressure on small businesses, the overall outlook for Australia paints a comparatively pretty picture, so expecting the slump to continue perpetually is unlikely.  As the deputy governor of the RBA Philip Lowe recently pointed out, it is not an exaggeration to say Australia is facing “a once-in-a-century investment boom”.

Aside from this, it seems our prospects over the next couple of years are also sunny.  Forecast growth in the economy is expected to remain on trend, unemployment rates low, and underlying inflation is bang on track to fall within 2 % to 3%.  Just in case this isn’t enough to inspire at least a smidgin of confidence from the initial home-buyer demographic, should there be any financial upsets resulting from a European disaster, we at least have the flexibility to somewhat buffer the resulting fall-out – so the picture’s looking rather rosy.

Yet despite all the above calling out to first-home buyers to enter now and realise their “Aussie dream”, purchasers love a bargain, but when it comes to property let’s face it, no one wants to take on the expense of a 30-year debt if there’s any hint it won’t provide healthy capital returns for the retirement fund.

Considering what’s happened to the property market in Europe and the US, many purchasers worry it could happen this side of the Pacific.  In addition, due to our modern transitional lifestyles, it’s become increasingly important that the first purchase has a large investment component in order to leverage up to the second.  You see, unlike during the 1950s, rarely is the first property a place to call home for the next 20 years or so.  We leave it longer to get married, have children later in life, and change jobs often.

All in all, first-home buyers prefer the amenity of more expensive inner urban locations than the relaxed atmosphere offered in the middle-suburban city ring “family-friendly” suburbs. Therefore, single first-home buyers struggle to afford their version of the dream and property purchases are often postponed for a later more settled period – during which couples can employ joint purchasing power.  However while a combined wage certainly helps, without that initial purchase to tap into, it’s hard to envisage even the family home will be achievable for a growing number caught in the long-term rental trap.  Therefore, with this front of mind, it’s clear where our future model of home ownership is heading – more renters and fewer owner-occupiers.

I’m not here to argue with anyone’s personal financial choices in life, but it stands to reason, if fewer people take the opportunity to buy, more will rent, and therefore as we transition into Australia 2030 with plans to increase housing supply substantially, we better hope there’s a growing crop of investors ready to pool their funds into property to meet this growing rental demand.

There’s one outstanding problem – the type of accommodation largely being built to absorb the need is unlikely to hold the future capital growth investors have been used to experiencing previously. At the moment Australia’s level of home ownership is high, at roughly 70%.  It’s been the desire to own a property along with our robust growing economy and population growth, which has underpinned house prices throughout the decades producing (even in the worst of times) healthy capital returns over a complete 10-year property cycle.

Considering our lucky economic stance in comparison to the rest of the world’s developed counties, along with a smaller pool of competitive buyers in the marketplace, generous tax deductions and the ease of restrictions enabling investors to tap into their self-managed super to purchase residential real estate, there’s more to encourage this demographic than ever before.  However while some property prices will continue to attract genuine owner-occupier demand and therefore maintain the long-term upward curve on capital appreciation, it’s important all property buyers understand the changes our town planners envisage if they’re going to avoid what could be a dangerous and speculative bubble.

Most renters are singles or young professional couples.  As has been demonstrated on numerous occasions by the ABS, the fastest-growing household statistic is the single person model.  The challenge of housing this demographic is providing our state governments with the perfect excuse to begin redesigning our capital cities into a potential (at least in the short term) graveyard of residential real estate.  What’s missed by the data is the type of property single home buyers really desire to own – and in many respects, long-term tenants want to rent – and I can assure you it’s not the accommodation currently undergoing mass construction.

If you take a look at an aerial shot of Australia’s “most liveable” city, Melbourne, it’s easy to see why it stays at the top of the yearly survey.  It’s largely a low-rise city that contains a wonderful feeling of human scale.  Streets surrounding the border of the CBD and running directly across it are lined with buildings of character and charm representing different eras and styles thereby giving the sense, not of urban sprawl, but of a wonderful liveable and personable nature.

However, instead of embracing this low-rise advantage and expanding the transport systems to enable the growing populous to move outward’s and commute, the local government is set to embark on an ambitious “mega city” of skyscrapers “stretching from the MCG to the West Gate Bridge and north to the University of Melbourne”. One in which the Eureka tower (the second tallest residential building in the world) could be dwarfed.  As I’ve pointed out numerous times before, this style of accommodation is designed, marketed and limited (due to lending restrictions) to a predominantly investor-based market – a market that attracts a large demographic of foreign investment from those buoyed up on Australia’s speculative growth.

As any astute property professional understands, these buildings can be poorly designed, have a tremendously high turnover of sales (and tenants), extortionate owner corporation fees and a lifestyle that often feels akin to living in holiday accommodation.  Furthermore, when you have a market dominated by investors, should there ever be an unforseen event to tip us over the brink, (something has simple as a sudden decline in demand for our underground resources, for example) we could be looking at a mass of sales, and a situation in our high-rise market, akin to the worst-affected countries in Europe (for a good example, look towards Sesena in Spain).

When times are tough, owner-occupiers will hold whereas investors will bail in an attempt to liquidise their assets – and considering such large numbers of apartment sales are focused on the foreign market, there’s no telling what other international influences may affect future growth.

Plans like this aren’t limited to Melbourne; inner-city rezoning allowing for a greater density of stock is happening country-wide – for example, Brisbane, the Gold Coast and Perth.  In all the high-rise markets over the course of the last 10 or so years, we’ve seen poor growth (from oversupply and low demand) and in some cases very poor rental take-up (a good example would be Melbourne’s Docklands, which currently has a vacancy of 7.9% (SQM) and has seen less than 5% capital growth over the past five years (RP Data).  Considering the abundance of planned construction, investors purchasing into this market can no doubt expect more of the same. Furthermore, many of these apartments are sold based on their spectacular views of the city surrounds.  This is an attractive aspect, however don’t be fooled! There’s no condition in the contract that states the view can’t be built out.  The better the view, the higher the price – often by hundreds of thousands – therefore, the consequent price drop is not marginal by any means.

All in all you have to fear the future potential of this market and the consequence any drops would have on the economy as a whole.  Make your own conclusions and assumptions, but I for one will not be placing my hard-earned dollars in this direction.  I maintain that good property that falls under consistent solid owner-occupier demand will continue to outperform throughout the foreseeable future. Just be warned however, that without plenty of due diligence, the risks of making expensive errors are more prevenient than ever.

Don’t be swayed by superstition

Don’t be swayed by superstition

By Catherine Cashmore
Tuesday, 14 February 2012

Ever had one of those days when you’re feeling a sensation beyond common understanding? Superstitious uncertain elements in our lives leave us with the uncomfortable feeling that some unknown, uncontrollable, pre-dictated event is “meant to be”.  It might not be the foundation of your belief; however, it’s a common feeling that most of us experience at some point in our lives and often bears unruly influence on the path we follow.  It’s particularly influential in the purchase of residential property – often stemming from elements that are buried deep in our subconscious memory.

We have the unfortunate ability to learn and speculate on future events based on influences that may or may not be working to our advantage, yet in order to really take control of our future, it’s futile to try and divorce ourselves totally from this questionable influence. The trouble remains, that all investment choices are – to some extent – speculation.  Using the recent financial catastrophe as an example, it’s possible (with savvy use of Google) to seek out those who predicted the fall and those who totally missed it.  With so much uncertainty circulating financial markets now, how enticing is it to bet on their other predictions to see if they also came to fruition?  Especially as the overriding sensation when looking at US or European residential markets is to think similar events could happen here – even if they were to occur under different circumstances.

However in Australia, when it comes to property investment there are certain things you can “speculate” on and be as close to 100% certain as speculation can get. Australia has the most transparent property market in the world.

In detailed surveys conducted by Jones Lang LaSalle, Australia consistently ranks as number one out of 81 markets across America, Europe, Asia Pacific, the Middle East, and North Africa.  For those interested, the survey covers, performance measurement, market fundamentals, listed vehicles, regulatory and legal environments and detailed elements of the transaction process. As Jones Lang LaSalle correctly point out, rising levels of transparency are important in terms of attracting both local and foreign investment and also ensuring market regulation.

However, while transparency doesn’t prevent elements that lead to market crashes, the free (or at least readily available) flow of information has the ability to speed up recovery in markets where transparency bears a priority – and Australia bears the best example.  The information available to our property investors is sight to the blind. In fact such is the detail contained in various property reports, including detailed suburb specific statistical information, the probability of walking into a property disaster is diminished considerably. Careful analysis of the data will also enable investors to time the market and purchase at the correct stage of the property cycle.  All in all, we have information and qualified advice available to ensure one of the top rules in real estate investment is adhered to: not over-paying in the first place.

Another sure thing in Australia is population growth.  In Australia, we’re averaging higher immigration than China, the US, Canada, Indonesia, Saudi Arabia and most other.  Furthermore, a quick analysis of information collected and free to all from the Australian Bureau of Statistics reveals exactly where our population is heading – the capital cities.  Even though we consistently rank in the top five for the least number of inhabitants per square kilometre, due to the unique topography of our land and climate, 85% of our population live within 50 kilometres of the coast in urban landscapes.  Well over 70% of our population is squeezed into the capital cities, with some growing faster than others.  The demands on infrastructure and existing amenities along with the challenges associated with sourcing skilled labour to build the accommodation needed to meet demand ensures consistent uprising pressure on existing property prices.

While it would be remarkably foolish to use these statistics to totally weather against the possibility of a “popped” market in some localities, it’s possible to pinpoint areas where demand will be consistent and land will remain in short supply and therefore continue to be a highly sort after asset.  A brief look at the 2030 plans of each capital city will give some scope of the relatively swift changes that are set to occur in our demographic structure, and this information will ensure educated assessment of the other major influence of property prices – supply verses demand.

If you get the supply/demand equation right, with the right property, suited to the right demographic,  you’re assured – even in the worst times – you’ll attract consistent tenancy and in the best times, solid capital growth.

For property investors, any confusion over the particular buyer market to target is another major deliberation that needs to be taken into account to ensure long-term demand.  However, risks of missing approaching trends can easily be diminished when evaluating the makeup of the future Aussie purchaser.   For example, by 2050, the Asian market is expected to dominate the Australian population.  As I’ve pointed out in previous articles, Asian buyers have a completely different emotional relationship to property than the now influential Australian/European purchaser.  Trends include a preference to modern interior designs, apartment living, or in areas of prestige, trophy home mansions designed to impress.

Providing you’re familiar with the local state or suburban landscape, it’s easy to pick out areas where this type of buyer market will have prominence.  Other considerations – such as school zones for example – indicate that buyer trends will incline towards family homes rather than units or townhouses.  It may be time consuming, however detailed information on local markets, developing infrastructure, buyer trends, zoning and heritage overlays, are free and accessible to anyone who cares to seek out the data, thereby cutting out the need for risky speculation.

Providing the purchase is a long-term acquisition of 10-plus years, all the major rules to diminish risky property investment are covered:  What to pay, where to purchase, and what to buy. However, other elements, dependant on real future unknowns, will certainly bear effect on short-term price movements (hence why property investment must always be a long-term plan).

It’s largely agreed that buyer and investor uncertainty has played a major part in the recent slump in Australia’s property cycle. When the RBA come out with statements such as “global uncertainty”, it’s effectively code for “we just don’t know”. From the recent overwhelming “expert” consensus that rates would drop to the out-of-sync movements between of the major banks and the RBA, it seems leading economists would have better odds betting on the Melbourne Cup than they would educating the general population.

Furthermore, in less than four years, we’ve gone from a generation that had no physical memory of recession and an $80 billion government surplus to some $153 billion of budget deficit and a global economy that looks a deeper shade of black.   Major retailers such as Borders have closed their doors, not to mention the scores of small traders and businesses who can’t keep their heads above water.  Job losses in manufacturing and a ridiculously high dollar just add to the mix.  It’s all very well stressing the strength of our mining sector, population growth, and  rosy outlook in comparison to other markets – however, short-term uncertainty has a far greater effect on  a society used to changing jobs every few years and milk-fed on Australia’s class-free “anyone can make it” mindset.

Look beyond the headlines to invest wisely in property

Look beyond the headlines to invest wisely in property

By Catherine Cashmore
Tuesday, 07 February 2012

It seems that just a couple of months ago we were reading headlines outlining the possibilities of a US-style crash in Australian real estate.  It was the most common question I got asked throughout the course of last year – “should I wait to buy – is the market going to drop further?” I never have to field such questions during the boom phase of a property cycle.  During these periods, despite cautioning the opposite, buyers are too busy following the herd mentality to take a step back and read the signs.  Now, less than two months after the barrage of media gloom, we’re under a new influx of subtle conditioning with headlines such as ‘Don’t bet on a property crash’ , ‘Property crash just a myth’ and ‘Sydney streaks ahead of national market’ working their magic.

It’s totally understandable why moguls such as Gina Rinehart would see investment in Fairfax – even at a marginal level – as a valuable and strategic move. It doesn’t take Einstein’s mentality to work out we’re all – to some extent – puppets of the media.  As the author Nicholas Johnson once said about television (and equally relevant to other forms of publishing), “All television is educational television.  The question is:  what is it teaching?”  It’s a loaded query and one of which we should take note, because for most people, the only education they get on market movements is via mainstream broadcasts.  Furthermore, the stories are staged involve us emotionally, using personal examples and photos to illustrate the bias of the editor’s slant – stories that affect us on a very human level.

I have contact with a wide range of people involved in the real estate industry and often get asked to provide case studies for media stories.  Throughout 2011 the requests were for individuals undergoing rental stress or those experiencing negative equity.  So far this year, the demands have been specifically for those who have made considerable money from property investment – usually over a short period of time. I guess “normal” stories of success through long-term investment simply don’t sell in profitable numbers to warrant report.  It will be interesting to see how the year progresses in this regard, and I’m sure many investors will be left with little concept of who or what to believe.

Even more confusing – the stats used in each feature are based on methods that differ considerably depending on the index provider used.  Due to space requirements, these methods generally remain unexplained in the main body of text. As an example, the REIA uses the simplest method of correlation – picking out the middle number of all recorded sales results published on a quarterly basis.  Under this system, unit sales include townhouses, apartments, villa units, and so forth – with no specification of the differences between each property type. Any in-depth analysis of our market should not be based on this information alone considering how broad-based the results are.  For example, variability of sales volumes and the physical nature of stock available are two of many components that can skew the data.

Others attempt to employ more accurate assessments by breaking results down to reflect individual property attributes (two-bedroom, three-bedroom and so forth.)  This system is known as a “hedonic index”, and RPdata-Rismark is at the forefront of the research.  Then there’s the “repeat sale” methodology, which limits samples to properties previously sold.

Others only use detached dwellings thereby ignoring anything “attached”, and the preliminary “real-time data” each provider releases is only as good as the number and accuracy of results recorded from individual sales agents.  More confusing still, certain index providers assess capital city medians based on grouped suburb data – taking the 50% percentile from the correlated information to produce numbers that can differ quite remarkably in the short term to other research databases. To go into a detailed explanation of how each set of figures is collected would be an essay in itself.

Regardless, whichever is employed, it’s somewhat dangerous for investors to base their knowledge on one set of figures alone without a full understanding of the various instruments involved.  Having said this, to get a feel for overall “trends” in the market, median movements can be useful (hence why the RBA take close stock of the information).  When affordability is constrained during a downward phase of the property cycle, a higher volume of lower end sales will be reflected in the data and this can even be referenced when employing negotiation tactics.  However, they’re certainly not an accurate indication of an individual properties value.  For example, it’s possible for the overall median to drop while the price of an individual property rises.  A well-educated buyer will understand the fundamentals attributing to this quandary and override the waves of confusion – however, many will be left with more question marks than answers.

Every buyer likes to feel he or she knows the market, and opinions on the prediction of long-term price movements often take a political air.  For those entering the market for the first time, or wondering whether to diversify their funds into property, this conflicting information produces a thought bubble of question marks – especially considering it’s foolish and all but impossible to make blanket assumptions on the Australian real estate market without a thorough understanding of the fragmented elements affecting each state and suburb.

Furthermore, Australia’s median movements are generally so marginal, they don’t deserve the sensationalist headlines they create.  However, I don’t underestimate the importance of the data in scrutiny of overall economic health, especially when other indicators weigh in to show the trend could be reflective of more serious concerns.

Now we’ve moved passed Australia Day, market activity is about to begin once again. Weekend clearance rates will be published, poured over, and analysed, and investment advice will be spruiked from every corner.  Affordability has certainly eased, with last year’s interest rate drops being passed on by the banks, but caution still holds strong in the investment sector.  Those states benefitting from the two-speed economy have already turned the wheel on our downward trend, with Perth and areas of Sydney showing tightening vacancy rates and a marked reduction in stock.  For both states the bottom of the property cycle may have already passed, however in others – Victoria, for example – opportunity is still ripe (for the time being).

Melbourne is undergoing some challenges. The recent blows to the manufacturing industry with the downgrade of Toyota’s Altona-based factory and the challenges they’ll face when the carbon tax is implemented – including potential rises in the state’s unemployment, are all factors that will affect Victoria’s economy and general affordability and put a stop to any bullish ideas of a boom recovery.  As a consequence, any upturns in the market are likely to be perceptible later in year – and depending on a number of possibilities, may even push into 2013.  However, having said this, reported numbers attending open for inspections and buyer enquiry has certainly increased state wide – and with stock dropping and the population still rising, it’s inevitable that disparity between supply and demand in some suburbs will place upward pressure on prices.

The global picture doesn’t need comment at this stage – only to say it increases insecurity and will bear significant influence on the RBA’s decisions to further reduce interest rates – maybe more so than domestic matters.  Therefore, even though nationally we’ve seen a rise in the number of home loans, we’ve yet to see how many will be drawn down.

Indicators across all capitals show real estate around and below the state median is likely to be the strongest performer, with top-end sales still struggling.  This has been reflected throughout 2011 with a greater population push towards the more affordable outer-suburban markets and unit sales topping detached dwellings in the overall median data.

However, for vendors who have weathered through a complete seven- to 10-year property cycle, profitability in all states cannot be disputed – they’ve come out winning regardless of our current conditions. Even in Brisbane – which has taken the largest hit in its median value over 2011 (tumbling some 7%) –  when analysed over a 10-year property cycle, compound capital growth still shows rises in excess of 7% per annum.  The news won’t make headlines, but once again the long-term stability of wise property investment is demonstrated.

Back to current the current malaise and over all confusion, and it’s in an atmosphere like this that the greatest care should be taken when purchasing.  Only quality real estate is going perform well as we progress through 2012, and without plenty of due diligence, purchasers could find themselves making expensive errors.  However, if buyers can pull themselves away from the headlines and seek out more qualified opinions based on their own individual circumstance, opportunities to win in a gloomy atmosphere are in abundance.