Latest figures from the Australian Bureau of Statistics show the annual rate of growth in rents across the country has jumped to 8.4 per cent in the year to last month, up 2 per cent from 2007. The statistics also reveal the increase in rents has jumped from 5.4 per cent to 8 per cent in Sydney, 11.2 per cent to 12.2 per cent in Perth and 8.6 per cent to 10.1 per cent in Brisbane. Adelaide also recorded an increase in residential rental growth of 4.7 per cent to 5.4 per cent and Melbourne jumped to 6.6 per cent from 5.4 per cent.

BIS Shrapnel senior economist Jason Anderson said the rental market was only going to get worse as the country’s economy faced a possible recession. He said the roots of the rental crisis before the economic downturn were the significant increase in immigration and high interest rates that left a shortage of about 100,000 houses.

But falling interest rates were yet to have an impact on the rental shortage because construction of much-needed properties had decreased because of worsening economic conditions and higher unemployment. “This means the shortages are going to get worse over the next two years,” Mr Anderson said.

From: The Australian January 29, 2009

The Federal Government has relaxed rules over foreign investment and it should benefit more than 7500 overseas buyers.

Market flexibility will be enhanced, while compliance costs for temporary residents and the construction industry will be reduced, Assistant Treasurer Chris Bowen said.

The definition of temporary residents will also be aligned with contemporary visa categories.

Under the present structure, all temporary residents and non-residents, including foreign businesses, must notify the Federal Government if they wish to buy a property.

They must also comply with post-purchase conditions, including rules surrounding its use, development and resale.

Residential real estate makes up more than 92 per cent of applications received by the Foreign Investment Review Board.

The changes, to be implemented early 2009, will update regulations that are almost two decades old.

>>> Buying Australian property to be made easier for foreigners | The Courier-Mail.

In the current round of Web Seminars we are offering, I highlight four key factors that are a MUST… if you expect to draw any credible conclusions.

1.    Record Population Growth
2.    Investors Have Fled The Market
3.    Home Ownership Unattractive
4.    New Construction Has Stalled Badly

1. RECORD POPULATION GROWTH

Australia is currently experiencing the fastest population growth in 200 years. Our population is predicted to grow by 350,000 this year for the first time in over 200 years. That represents approximately the combined total population of Geelong, Cairns & Bunbury; or the whole of Canberra.

The 1850’s Gold Rush years, Post World War 1 (1919 onwards) and post World War 2 (1946 onwards) saw our 3 previous population explosions. Today we see a similar pattern emerging; i.e. rapid and prolonged growth, too few workers and pro-immigration government policies.

Record population growth means a significantly stronger demand for new housing! Given our record numbers of new migrants will generally rent for a season, demand for rental properties will continue to strengthen.

2. INVESTORS HAVE FLED THE MARKET

Rising interest rates in recent years have squeezed rental yields making property look unaffordable. Add to the mix a booming stock market (averaged over 20% per year between 2004 and 2007) and one can see why property has not been the preferred investment vehicle of recent years.

Since becoming familiar with the term “subprime”, seeing the global credit crisis unfold… and hearing of property values in the US & UK falling by 30 & 40%, many would-be-investors have opted to stay on “strike”. It’s fair to say that since the highs of mid 2004 only the ‘brave’ have continued to invest in property.

Investor demand accounts for about 50% of all new housing starts and about 70% of unit starts. Therefore, that investors have fled the market means significant negative impact on the supply of new housing and increased demand on existing rental accommodation.

3. HOME OWNERSHIP HAS BEEN UNATTRACTIVE

As with investors. the housing affordability barrier, rising interest rates (& general living costs) and of course the US initiated subprime crisis has left many would-be home owners lacking the confidence to purchase.

Scared, priced out of the market, unable to secure funding or unable to service a loan? regardless of the reason why new home ownership has been unattractive; the result has been that many renters in recent years have simply continued to rent. This has placed further pressure on existing rental housing stock

4. NEW CONSTRUCTION HAS STALLED BADLY

Since 2005 the absolute number of completed residential properties has fallen and they are forecast to continue falling in 2009. The US subprime crisis cemented this downward trend in demand for new properties. Add to that, in recent years we have seen the high profile bankruptcy of some large developers along with massive financial pressure on many smaller developers. The cost of finance has skyrocketed for developers… i.e. if they can find a lender who will back them. Understandably, developers are very nervous… many have simply shelved their new projects until such time as they see clear evidence that investors have returned to the market.

Developers going broke, developers shelving projects and/or developers unable to secure funding means new construction has stalled badly and as a result greatly reduced the supply of new property further adding to pressures on existing housing stocks.

DISSECTING THE EVIDENCE

• FACT: We are experiencing the greatest housing shortage in 200 years
• FACT: Because of the new Federal Government’s immigration policy, we are experiencing the strongest population growth in 200 years
• FACT: Since about mid 2004, broadly speaking investors have fled the market
• FACT: Since about mid 2004, broadly speaking home ownership has remained unattractive and renters have continued renting
• FACT: Since about mid 2004 the construction of new dwellings has stalled badly
• FACT: In mid 2004, national rental vacancy levels were about 3.5%. This level is considered a balanced market. Rental vacancy levels have dropped to below 1.5% now and are expected to continue to drop to historical lows of between 0.5% and 1% in 2009. These levels represent a stressed market
• FACT: When the demand for rental housing grows at a faster pace than supply, increased demand can be offset by diminishing vacancy levels
• FACT: When vacancy levels reach just 1% it is said that we have NO VACANCY, as the 1% represents the few days between tenants moving and carpets being cleaned etc… prior to a new tenant moving in
• FACT: Therefore, once vacancy levels fall to 1%… there is no room left to offset increasing demand by diminishing vacancy levels
• FACT: When demand increases and supply decreases and vacancy levels are already stressed; i.e. no vacancy… market forces mean rents have to go up… and significantly where population growth is significant
• FACT: Interest rates are the lowest they have been in years and are expected to reach (near) record lows by mid 2009

Now you have the FACTS, rather than simply “opinions”; may I suggest you draw your own conclusions as to what might happen with Australian property in mid to late 2009?

• With the cost of renting about to soar and the cost of ownership dropping significantly (i.e. rental incomes up and interest charges down), what do you expect the market will do?
• With stock market volatility and uncertainty and interest earned on cash deposited dropping away, what do you expect the market will do?
• With serious increases to the first home owners grant, what do you expect this group to do?
• Given rental properties vacated by first home owners will not produce a glut… because vacancy levels are at an all time low (stressed market) and the population is growing by the size of Canberra each year, what do you think the market will do?

Can I go out on a limb and tell you what I think; I may be wrong, but I don’t think I am?

1. I expect rents to soar in 2009
2. I expect interest rates to continue to drop next month and in 2009
3. I expect confidence to come back to the market, drawing back owners and renters alike
4. Given there is a lag of a few years from when developers decide to build again and new stock being ready to live in… I see no relief for the poor tenant for at least a few years
5. I also believe that the combination of all that I have just outlined will result in the next property price surge

So, in summary…

Those who have been building a property portfolio as their preferred vehicle for funding their retirements (NB: assuming they bought the right residential property in the right areas) are soon going to experience the property investors trifecta:

1. Rising incomes (rents)
2. Falling costs (interest)
3. Increasing equity (values)

I would love to address the subject “We are not the USA” and compare the FACTS relating to how we are different and why what happened there will not happen here; but I will save that for another day.

May I invite you to register your interest for either our next FREE Web Seminar this Wednesday evening… or if you let us know what other time(s) best work for you, we will run them according to demand CLICK HERE.

Happy Investing,

Nick Lockhart
mrd customer care program… because investing is personal

An RP Data report released in August stated it’s predictions for the top 50 suburbs for capital growth in the unit sector.  Three of these suburbs were in Cairns, and Mooroobool, the location of City Park, was one of these suburbs.

We recently finished an updated Area Research Report on the Cairns region with the latest information on its industries, infrastructure, development and property market.  Click here if you would like to take a look at this.

In January, Wendy from our office will be visiting Cairns and attending the open day for City Park, date to be confirmed.  She is hoping to get some great video footage of the development to place on DVD for you.

Now is the time to speak with your broker/financier regarding your finances.  We will keep you updated on progress and if you have any  queries or concerns don’t hesitate to contact your property strategist  or Wendy in our office on 07 5580 8888.

Building 1

• Carpet install 50%
• Wardrobe shelving & door install complete
• Shower screen install complete
• Cleaner to start on windows from Monday 3/11/08

Building 2

• Internal plasterboard wall linings 70%
• Internal painting 50%
• Kitchen install to start Monday 3/11/08
• Internal tiling to start Tuesday 4/11/08

Building 3

• Security & fly screen install complete
• Awaiting electricity supply to start defects

External Works

• Pool pebble Crete complete and ready to fill
• All concrete pathways are complete
• Gymnasium plasterboard walls complete
• Irrigation installation 80%
• Landscaping 75%
• Pool fence in progress
• Estate fences 95%
• Ergot started on pad mount transformer & overhead lines transfer

Estimated Completion – 30th November 2008

Those in stage 1 will have talked to Wendy and will be aware that you need to be speaking with your broker/financier to organise your finances now.

Glencorp Property Management are very efficient when it comes to finding a tenant for your property and will begin the process as soon as the certificate of occupation has been issued.  This will be issued before the certificate of completion and will allow the property manager to begin advertising and set a date for the lease to begin.

We recently finished an updated Area Research Report on the Cairns region with the latest information on its industries, infrastructure, development and property market.  Click here if you would like to take a look at this.

Again, keep in touch with your property strategist and/or Wendy as you move towards settlement and don’t hesitate to call if you have any queries or concerns.

Stage 1

Building 25

• Internal cleaning in progress
• Carpet install in progress

Building 24

• Internal painting complete

Building 23

• Plasterer complete
• Painters to start internal gloss work on Friday 14/11/2008

Stage 2

Building 22

• Internal painting ready to start
• Granite bench tops on site

Building 21

• Building ready for defecting by supervisor
• Plumbing, electrical and air conditioning fit offs complete

Building 20

• Plumbing & electrical fit off 80% complete

Building 19

• Building ready for defecting by supervisor
• Plumbing, electrical & airconditioning fit offs complete

Building 18

• Carpentry second fix (skirting, doors, door frames) 50%
• Ceiling fan and air condition head unit install complete

Building 17

• Kitchen install complete
• Main floor tiles laid
• Waterproofing complete in wet areas and ready for tiles

Building 16

• Ground & first floor ready for painter to start
• Second floor kitchens installed

Stage 3

Building 15

• First floor block work complete
• Scaffold raised and ready to start second floor formwork

Building 14

• First floor block work 80% complete

Building 13

• Second floor suspended slab reinforcement in progress
• Second floor suspended slab pour booked for Monday 17/11/08

Stage 4

Building 12

• Ground & first floor ready for painter to start

Building 11

• Internal plasterboard wall linings 85%

Building 10

• Internal plasterboard wall linings 40%

Building 9

• Fire check ceilings to top floor completed

Building 8

• Roof tiling 85%
• Ground floor internal wall frames completed

Building 7

• Ground & first floor internal wall framing completed

Building 6

• External textured render 70%
• Ground & first floor internal wall framing completed

Building 5

• Ground floor slab formwork complete
• Slab pour booked for Wednesday 19/11/08

Building 4

• Ground pad completed

Estimated completion –

Stage One – 30/11/2008
Stage Two – Jan/Feb 2009

Cairns is the major city for Far North Queensland region situated on a natural harbor with a backdrop of rugged mountains and tropical rainforests. The state capital Brisbane is approximately 1800 kilometers by road and 2 hours flying time away. Cairns International Airport (link) is 7.5 hours from Tokyo and 6.5 hours from Singapore.

Economic Viability

• A vibrant centre of commerce with a diverse range of industries including tourism, agriculture, mining, fishing and manufacturing
• Cairns is the agricultural gateway for the Atherton Tablelands and the entire Cape York region – two of the main production areas in Australia.
• Cairns is the central hub in an extensive transport infrastructure including rail, road, air and sea. This is critical for any region to grow and develop.
• Almost $1.0Billion worth of new investment is planned or already under construction in Cairns
• According to Colliers Research, Cairns has the highest growth in individual income between six of the Qld and NSW regional capitals from Wollongong to Townsville
• The prospects for medium to long term growth in Cairns, based on on-going economic strength and solid population growth remain sound. The expectation is that even though growth in the tourism sector has slowed, business and economic conditions will continue to show slow to steady growth patterns in 2008-2009 and these conditions will continue to underpin the local property market. (HTW –The Month in Review, Oct 2008)

Population

• Population in Cairns Statistical District is estimated in August 2008 at 152,000 and at a future growth rate of 2.5% p.a. the population will reach 165,000 in 2012
• Outside of South-East Queensland, the Far North Queensland Statistical Division is predicted to experience the second-largest population growth in Queensland over the next two decades
• About 60,000 more residents are expected to move to the region by 2036

Property Market

• Critically finite land supply
• Median house price for June quarter 2008 $370,000
• 17% median growth rate for the year to September 2007

Renting in Cairns

• Vacancy rates have been “tight” at 2.2% – an increase in recent months of properties has brought the vacancy rate to a “balanced market”
• Rental yields currently between 4.5% and 5.5% and strengthening
• The median house rent in June quarter 2008 is $330/week

Overview of its strength as a place to invest

• Cairns is strikingly beautiful on many levels. It has a typically inviting tropical climate; it is one of the greenest and aesthetically appealing cities in the world.
• Cairns has all the Government services and larger corporate infrastructure that is expected in a modern and progressive city.
• And last but by no means least, investing in Cairns is simply good value. Cairns is still affordable to buy land and there is strong demand for rental properties.
• No problem with water shortages

Mr Mcleod said “The boom delivered first-round benefits in economic, employment and population growth, as well as second-round benefits as a result of the Government investing in infrastructure such as hospitals, airports, dams and ports, which benefit local communities”.

“Many of our regional centres are quite robust”, Mr McLeod told a recent series of Colliers seminars, titled Beyond the CBDs. “Most have a fairly diverse economic base and represent safe, solid, secure and attractive investment opportunities.”

Reportedly Townsville was showing the fastest growth in taxpayers, and Cairns had the highest growth in individual income with both cities showing the highest population growth in the areas surveyed. Mr McLeod was quoted as saying that house price growth had been flat in NSW since 2004, but prices in Queensland had continued to grow, particularly in the far north centres of Cairns and Townsville. “In Townsville, major projects are occurring in the defence, education, marine and healthcare markets.”

In all likelihood we will see higher levels of confidence return to the property market on the back of rate falls and demonstrated domestic stability. The most recent consumer sentiment figures released by Westpac and the Melbourne Institute have risen considerably during August and September, providing further evidence that market conditions are likely to improve.

With fewer buyers in the market, ABS statistics are highlighting a reluctance by developers to initiate the building of new housing projects. This may be good news for sellers, as the lack of new stock helps to underpin existing market listings with a floor price. Investors should also benefit as population growth and a general housing shortage will likely drive up rents in coming years.

Dwelling commencement figures recently released by the Australian Bureau of Statistics (ABS) show dwellings commencements have declined for the second quarter running. Construction on just 38,348 homes commenced in the three months to June, a seasonally-adjusted drop of 3.7% on the March quarter.

Source: My RPData