The Australian residential
property market has slowed down, with demand for home finance falling
sharply under the combined impact of three rate hikes in 2006 and
deteriorating home loan affordability.
The Housing Industry
Association (HIA) said rising interest rates have dampened home
building activity and high land prices and regulatory costs are making
houses more unaffordable.
First home buyers have been most badly
affected by deteriorating affordability and higher interest rates, with
the share of all dwellings financed by first home buyers at 17.4 per
cent in September, compared with an historic average of 21.8 per cent.
Rents rose 3.7 per cent
last year, their fastest pace since 1991, according to the Bureau of
Statistics. But the Reserve Bank expects worse to come.
"Information
on new rental contracts suggests significantly larger rent increases,
which are yet to pass through into the broader ABS measure for the
total rental stock," the central bank said in its latest statement on
monetary policy.
The Real Estate Institute of Australia (REIA)
said demand for housing finance weakened sharply in the second half of
2006 in response to interest rate rises and deteriorating home loan
affordability.
Australian families required 33.8 per cent of
family income to pay an average home loan in September 2006, the worst
result for 25 years apart from an 18 month period from March 1989 to
September 1990.
Three interest rate rises during 2006 have had a
significant impact on home loan affordability, as increases in median
weekly family incomes have not kept pace with the increased amounts
required to meet home loan repayments.
The REIA said the
situation has been aggravated by significant increases in house prices
in Darwin, Perth, and to a lesser extent, Hobart, during 2006.
Outlook
During 2006, house prices rose across Australia, ranging from 0.6 per cent in Sydney to 38.7 per cent in Perth.
A
slowing in demand for property, despite positive population growth in
all States and Territories during 2006, will limit price growth in 2007.
Rising
interest rates have dampened home building activity and high land
prices and regulatory costs are making houses more unaffordable, the
HIA said.
The REIA said current evidence suggests that Sydney and Adelaide prices will likely remain flat into 2007.
The
more moderate growth in Melbourne, Brisbane, Canberra and Hobart during
2006 has already begun to slow in all cities except Hobart. It is
likely that price growth in these cities will also be more subdued in
2007, it said.
The summer edition of the HIA Market Snapshot
report said new home builders had confirmed reasonable rather than
healthy home building activity.
HIA�s chief economist Harley
Dale said that there was a clear message of housing activity being
constrained by very low housing affordability.
"The cost of
land, council delays and regulations and higher interest rates have all
added, to varying degrees, to weaker housing conditions than would
otherwise be the case," Dale said.
"The modest growth in
national house prices, and negative growth in Sydney, combined with
many reports that rents are rising rapidly as vacancy rates fall in
capital cities, is a further factor to support interest rates on hold,"
said Spiros Papadopoulos, senior economist at National Australia Bank.
The
HIA said the Western Australia market remained strong and that there
was evidence of constraints on labour and materials together with a
shortage of suitable land in that state.
Outside of parts of New South Wales there was little sign of major weakness in new housing, Dale said.
"Conditions are broadly expected to be steady to a little softer over the next six months," he said.
"The
stabilisation in national house price growth between 5 to 10 per cent
in the past three quarters suggests that consumption is unlikely to get
a boost from any house-price effect in 2007 - except of course in Perth
and Darwin," Papadopoulos said.
Dale said new building activity will be softer this year but a recovery should slowly emerge over 2007/08.
"A
stable interest rate environment in 2007 will create the platform for a
gradual improvement in housing conditions as we move through the year,"
he said.
According to the HIA outlook, rate rises last year will
cause housing starts to fall by a forecast one per cent in 2006,
following a 13 per cent drop over the previous two years.
"That would see starts bottom at a level of 149,600," Dale said.
"The
risk is for a sharper decline, as New South Wales is yet to show a
sustained recovery in building as high land prices hurt Sydney and as
the drought weighs down regional building activity."
Citigroup
senior economist Annette Beacher said although the number of new
building approvals fell 1.9 per cent in December, the housing sector
appears to be on track for a soft landing.
"Building consents
fell seven per cent in the December quarter, but rose in the previous
quarter which is what a soft landing is about," she said.
"The
house price data from Australian Property Monitors shows a pickup in
Melbourne and a cooling in Sydney, again consistent with a soft housing
sector, but certainly not a strong retrenchment."
The HIA report
indicated housing starts are forecast to grow by three per cent in
2007/08, but sharp differences between states will be evident.
Housing
starts in NSW are estimated to rise by six per cent in the year ahead,
but fall by 13 per cent in Western Australia in the same period.
The
REIA said the two-year slowdown in residential building activity in the
eastern states will result in reduced availability of housing stock for
sale or rent during 2007.
The institute said a continued
softening of the residential sales market in the eastern states, and
rental increases in response to tight vacancy rates, will ultimately
lead to improved residential investor yields, creating new interest to
re-stimulate the market and values.
It said a tight rental
market is an attractive proposition for property investors who intend
to make quality long-term investments and are not seeking short-term
capital growth.
The 2007 property market is likely to offer
significant opportunities for long-term investors, particularly in
locations where prices are moving downwards, e.g. Sydney.
Government Regulations
To
offset the impact of the introduction of the goods and services tax
(GST), the Commonwealth Government requested that the States and
Territories assist first home buyers through the establishment of the
First Home Owner Grant (FHOG).
The broad principles of the grant are:
* Eligible applicants from 1 July 2000 are entitled to a one-off $7,000 payment.
*
Eligible applications must be natural persons, who are Australian
citizens or permanent residents who are buying or building their first
home in Australia.
* To qualify for assistance, neither the
applicant nor their spouse (or de facto) must have owned a home prior
to 1 July 2000, either jointly or separately or with some other person.
* Neither the applicant nor their spouse (or de facto) must have owned and occupied a home after 1 July 2000.
*
Entering into a binding contract or commencement of building, in the
case of owner-builders, must have occurred on or after 1 July 2000.
*
An eligible home will be located in Australia and will be a new or
established house, home unit, flat or other type of self contained
fixed dwelling that lawfully can be used as a place of residence.
*
An eligible home must be occupied by the applicant(s) as their
principal place of residence within 12 months of completion of
construction or settlement of the home.
* Application for the grant must be made within 12 months of completion of construction or settlement of the home.
* Assistance will not be means tested.
* There is no tax payable on the grant.
*
Joint applicants will be restricted to a single application for a
single property and only one payment of $7,000 will be made. If the
consideration of the home is less than $7,000 then the grant amount
paid to the applicant will equal the consideration.
Major
Players Mirvac reported a net profit of A$208.3 million (US$164
million) for the six months to December 31, 2006, down 0.4 per cent on
the previous corresponding period.
Managing director Greg Paramor attributed the flat result to the weak NSW residential market.
Operating profit before one-off asset sales and acquisitions rose 11.8 per cent to $152.2 million.
Boosting
the result was Mirvac�s $1.1 billion purchase of the Walker Corp
assets, the $328 million acquisition of the Carlton Hotel portfolio and
the repositioning of the $3.8 billion investment portfolio through
sales of assets worth $346.5 million.
Mr Paramor said the
outlook was positive, with an expected improvement in the residential
market due to a shortage of properties at all levels except in the
premium market.
Property group Stockland (ASX:SGP) says it
remains on track to deliver earnings per security (EPS) growth of five
per cent for the 2007 financial year.
The group booked a 61.4
per cent jump in its half year net profit to $778.9 million, which was
boosted by a revaluation of its investment properties.
Stockland�s operating profit, excluding significant items, was up 7.2 per cent to $293.1 million.
Managing
director Matthew Quinn said the results were driven by a clear focus on
profitable growth with solid performances from all its divisions.
"We
had a strong half year, focusing on delivering our stated strategy and
creating long term value for our security holders," Quinn said.
"Stockland
is well positioned for financial year 2007 and we remain on track to
deliver our target earnings per security growth of five per cent."
He
said Stockland�s development business had an extensive diversified
pipeline of projects which will drive the continued performance of its
residential business.
"Despite a slow market in NSW, the overall
Australian residential market has excellent prospects due to the
growing imbalance between limited supply and strong underlying demand,"
he said.
Australand Property Group (ASX:ALZ) reported an annual
net profit for 2006 of $243.1 million, an increase of 20.9 per cent on
its result for the previous year. Australand made a profit of $27.5
million in December from the sale of 11 airport properties in
Melbourne, Adelaide and Brisbane.
Excluding $87.8 million in gains from property revaluations, profit for the year was $155 million, the company said.
"A
(residential) recovery is probably still, particularly in Sydney, some
way off…," Australand outgoing managing director, Brendan Crotty,
said.
Residential property developer AV Jennings Limited
(ASX:AVJ) posted an interim after tax loss of $2.4 million for the six
months ended 30 September 2006 against an after tax profit of $8.9
million for the previous corresponding period after being hard hit by
the soft housing market in Sydney and New South Wales generally.
Contract signings to September have been 1,215 units which is about 10% more than for the same period last year.
However,
delays in achieving title registration for pre-sold property,
particularly in Victoria, have resulted in lower turnover recognition
of $212 million for this reporting period. This is about 10% less than
for the same time last year.
Margins have fallen to about 17% compared to 25% last year.
The most significant contributor to the reduced margins is depressed prices and higher government charges in Sydney.
AV
Jennings said its performance in the current year has been severely
impacted by the state of the housing market in Sydney and New South
Wales.
