Market News - July 2011

To our valued customers here is a our snapshot of the Australian economy and
Melbourne property market for July:

*The Board of the Reserve Bank of Australia at its meeting in July have left the cash rate unchanged at 4.75%.

*Financial commentators now are split between those who consider a rate rise in August and those who suggest that the RBA will observe the market perhaps until the end of 2011.

*Overall employment growth in the Australian economy slowed to 2% in June and the jobless rate was 4.9%

*According to the ABS, last financial year the state that recorded the strongest jobs growth was Victoria.

*Residential building approvals fell by 7.9% in May, almost 14% lower than for the same period one year ago.

*Building activity is expected to soften over the next 6 months as builders contend with fewer buyers, rising interest rates and tougher lending conditions. The Master Builders Australia - June national survey suggest that builders are quite gloomy about their prospects as the governments stimulus programs come to completion.

*One in four mortgage broking firms closed shop in the 12 months to March, driven out of business by a slowing housing market, new government regulations and lower commissions from banks.

*Corporate collapses rose by 4.4% in the 11 months ended May 31 as small businesses were hit by the tail end of the global financial crisis.

*Demand for home loans is likely to fall over the next 2 years, putting pressure on Australian banks to cut costs in order to keep bank profits growing.

*Population growth has slowed to its weakest pace in almost five years. An additional 325,000 people were born or arrived in the country in 2010, almost 100,000 fewer than in 2009.

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Our View:

*Interest rates, interest rates, interest rates. Frankly I am sick of hearing about interest rates, surely there must be more to life than the Reserve Bank and the will they or won't they saga.

*Clearly the two speeds of the economy makes for a challenging economic environment for regulators, however despite the hype around the mining industry, the rest of the economy is in a period of limited growth and that is a cause for concern.

*Our view is that really the Australian economy is driven by two major things population growth and the building industry, more particularly the new home sector of the market. Clearly with population growth slowing and with the government stimulus packages ending, it must surely dawn on many of the politicians that more should be spent on large government infrastructure projects in order to underwrite the economy.

*With most of the economic information filtering through this month being negative and perpetuating a somewhat of a gloomy outlook, it is good to see that not everyone is negative. Peter Verwer of the Property Council suggests that; "International financial instability, and a string of natural disasters have drowned out an economic engine which is revving up for a period of prolonged growth, the will drive property fundamentals", it's good to actually hear someone talking positively for a change.

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Property Facts:

*According to a 2005 ASIC survey, 70% of Australian Homes are underinsured.

*Homeowners in Melbourne's outer western suburbs are more likely to sell every 2 years as opposed to those living in the inner north east and south east areas where the average home ownership is 15 years.

*The auction clearance rate in Melbourne continues to hover around the mid 50% range. Overall numbers of properties coming to the market is also down around 25% from last year.

*House prices in the US have dropped a third from the peak in 2006 and the market is still grappling with excess supply.

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Property Investment News:

*With falling dwelling approvals and an acute shortage of rental accommodation, residential rents are tipped to increase by between 5% and 7% over the next two years.

*Melbourne prime office vacancy rate has fallen to around 4%, the short term supply of new accommodation is limited. Effective rents are increasing.

*According to Australian Unity Investments head of property Martin Hession indicated that Melbourne was the best performing office market and that values may improve by around 30% over the next two years.

*Rental yields for Melbourne units/apartments are around 4.1%, whereas they are around 3.6% for detached houses.

*Residential units/apartments in Melbourne on average have increase in value by 9% per annum over the last 5 years, whereas detached houses have increased by 9.2%.

*The cost of a median house and land package in growth areas reached $460,000 in the first three months 2010, an increase of 14%.

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