In 2015 the market will shift but there will not be fundamental changes
GUEST OBSERVATION
I like to listen to ‘what the word on the street is’ because it provides me a decent insight into current consumer sentiment.
At present, it seems most people are confused about the current environment and to be honest, I tend to feel the same way. We’re inundated with a myriad of mixed signals and variables which all contradict one another.
On one hand, we have negatives such as falling commodity prices, a dramatic shift in the resource sector, a slowing economy in China, a perceived oversupply of city apartments and higher vacancy rates. Consumers aren’t sure what to think but they know they certainly don't feel bullish. Every now and then, they realise they still have a job, the wheels are still turning and life goes on. So, they feel good again. Hence, the up and down movement we’re witnessing across some markets.
From our own numbers within the building industry, things are quite buoyant and we really can't complain. Sales volume is up and on the construction front we have a massive trades shortage and thus, a sense of busyness in the industry.
On a positive front, there’s still a shortage of housing, the Aussie dollar is low which encourages overseas investment and trade, and interest rates are predicted to fall even further in 2015. At the same time, prices continue to rise across the country with properties still selling quickly. My personal view is the market will manage itself and adjust accordingly.
The perceived oversupply of apartments will reach equilibrium as many projects fail to achieve their proposed funding. Recently, zoning and R code changes have drawn more developers to apartment and multiple dwelling style developments. However, what many smaller players don't realise is that banks won't just hand out loans to smaller players without resales and that they also need to inject decent capital into projects to get them off the ground.
Furthermore, banks are being selective about specific locations to balance their exposure to areas in oversupply. In turn, those projects will not eventuate and as such, reduce the number of homes on the market.
With the falling Aussie dollar, both Chinese and Asian buyers will be drawn to invest in Australian properties. We've already seen this occurring and some properties archiving prices higher than historical records. This is further accelerated with Asian buyers choosing to send their children to Australian institutions for education.
As for falling commodities prices, the reality is, eventually this will equalise and rise again. All commodities are non-renewable, which means world demand will balance again sooner or later. Do you really think people will not need iron ore or oil? Will alternatives come to play that quickly to have any short term impact on commodities?
I would once again predict that things will balance out in the medium term with the larger established players consolidating their position and taking out some of the smaller players. In saying that, I don’t believe there will be any fundamental change.
As the focus shifts from a resources driven economy, we’re seeing greater focus on the likes of construction and housing.
In regards to vacancy, the figures are higher than what we've been used to for quite some time. It will certainly take some adjustment from landlords and perhaps rental returns will fall $20-30 dollars per week. Generally, this will see values rise so there is some upside to look forward to.
In summary, if you stick to the core fundamentals such as buying in established locations, close to amenities, with lower entry price points in areas of limited supply you can't go wrong in the medium term. We won't see massive growth in 2015 but it will certainly be a good year!
Ronnie Elhaj is director, sales and marketing, acquisitions and co-founder of the Western Australia-based property development company Nicheliving Group.