November 19, 2012

Property pulse

As far as property performance goes, it’s been a mixed bag in 2012 with residential outperforming the commercial sector. James Connell, who heads up Melbourne real estate agency Marshall White, discusses property performance in 2012.

As far as property performance goes, it’s been a mixed bag in 2012 with residential outperforming the commercial sector, according to Marshall White Director James Connell. “In general, the residential market nationally seems to have found a realistic level in 2012, with supply and demand working more in sync with each other, particularly in the residential housing market,” he explains.

What’s clear is that in general we are experiencing more of a buyer’s market, with softer residential prices attracting more buyers, and Connell notes affordability is far better today than 18 months ago because prices went through an adjustment in 2011. Commercial property, on the other hand, is still settling to new levels as a result of what Connell describes as perceived uncertainty in certain parts of the business / retail sector.

Think long term for growth

Long term growth is often a reflection of a good land offering supporting an appropriate dwelling. This means well positioned properties serviced by good infrastructure (transport, schools, hospitals, shopping centres and so on) are likely to experience solid growth “not necessarily in the short term – but certainly over a prolonged period of time”, says Connell. Real estate, he warns, should always be viewed as a solid, long term investment and not the speculative ‘road to riches’ that recent markets might have afforded.

When weighing up investment property opportunities in this market, investors need to “think like a tenant”, as Connell puts it. In other words, they need to make sure their property has continuing rental appeal, great amenities and represents fair and reasonable value in relation to the price offering. Do that and you’ll be positioning for success, he says, adding, “With the right approach, landlords should be confident in the market’s ability to attract good long term tenants.”

Reserve Bank focus

What’s the best way for potential buyers and sellers to approach interest rates? While the adage of living within your means has always been sound advice, Connell notes it’s equally important to realise that an opportunity exists in the current low interest rate environment. So, providing that an individual has a certainty of income and a reasonable loan-to-value ratio, he believes the current interest rate climate represents a great buying opportunity – particularly for people looking to upgrade their homes.

“Interest rate cuts in May have certainly added to the current market’s stability, and I’m confident that with responsible governance from the Reserve Bank, interim rate adjustments will continue to underpin real estate asset values, despite relative uncertainty on the world economic stage,” he says.

Don’t become preoccupied with the property cycle

As to the short term and longer term forecast for residential and commercial property, there’s plenty of opportunity to acquire quality assets at the right price, but patience and diligence will be key to property selection and capital gains expectations, according to Connell. “People attempting to acquire the right property in today’s market shouldn’t get too focused on picking the bottom of the property cycle, as history tells us that it’s far more important to select quality property in the right location to ensure good gains over the longer term.”

Read NAB’s latest property forecasts for residential and commercial.