Mining boom to create opportunities in property, but sector has not yet recovered from GFC: BIS Shrapnel’s Frank Gelber
The real estate sector is set to pick up in the second half of the year driven by opportunities created by the mining boom, but the property industry as a whole has not fully recovered since the GFC, says BIS Shrapnel economist Frank Gelber.
“When I say property has not recovered, I’m talking about property the industry, the people that work and provide services to the sector,” Gelber said at the March 2012 BIS Shrapnel forecasting conference yesterday.
According to Gelber the property industry is still “bumping along at the bottom of the cycle”.
“We’re not providing all the services we did pre-GFC because we don’t have the funds available.
“The great deleveraging of property has not yet finished. The REITs have managed to get their hands on some equity but a lot of the unlisted property trusts are still in the hands of the banks.
“A lot of these single property unlisted trusts have long ago breached their loan covenants,” he says.
The latest economic outlook prepared by BIS Shrapnel point to an improvement in overall conditions for the sector.
New capital expenditure is set to rise in the second half of the year following a small but sharp dip in the last 12 months:
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According to BIS Shrapnel, the real estate, rentals and hiring sector was one of just a few sectors to record an increase in wage inflation compared with average inflation, which drifted lower over 2011 due to zero employment growth.
“[The real estate, rentals and the hiring sector and the professional, scientific and technical services sector] are two sectors that are benefiting from the work generated by the minerals-related investment,” says BIS Shrapnel.
The report also notes that excluding a dip pre-GFC, the real estate, rentals and hiring has “consistently generated profit margins near or above 40% for over a decade”.
“Recently, these margins have edged higher, and with income remaining steady since 2009, profits are on the increase, particularly in the unincorporated sector,” says BIS Shrapnel.