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Australia Real Estate Report Q4 2011
Business Monitor International, Oct 2011, Pages: 62
Australian property investment dropped by 27% in Q211 quarter-on-quarter (q-o-q), according to real estate experts DTZ. Added to increasing construction activity, this indicates that the commercial real estate sector is going to see less activity during the second half of 2011 but that its structure should hold it firm throughout. The Australian commercial real estate market continues to be fairly balanced because, structurally, the industry operates in a way that restricts over-development.
The industry sits in an economy that, despite weak consumer sentiment and structural changes, is performing reasonably well. Both the economy and sector are underpinned by resources and demand from China, a reducing threat of interest rate rises, low unemployment and a strong infrastructure sector. In terms of residential property, the governor of Australia’s Reserve Bank, Glenn Stevens, announced in September 2011 that the country requires the construction of an additional 1.6mn homes by 2020 to meet demand, according to Financial Standard. Complicated government processes for construction are thought to be at the heart of the problem rather than lack of space. The stock of home loans in Australia rose by just 0.4% month-on-month (m-o-m) during July, according to The Business Times. House prices in Australia fell by 0.6% m-o-m in July 2011, according to the Sydney Morning Herald. The decline, which is thought to be caused by economic uncertainty and consumer reluctance to increase debt, was accompanied by falling home construction approvals and sales.
Some of the key opportunities in the real estate market include:
- There is a resources boom in Australia at present, built significantly but not entirely on exports to China. This is putting money into the economy and bolstering downstream industries.
- Following the GFC most Australian REITs have deleveraged to a large degree and now have capacity, by way of undrawn facilities among other measures, to invest as opportunities arise.
- The Australian commercial real estate market continues to be fairly balanced because, structurally, the industry operates in a way that restricts over-development. Careful bank lending policies meant that when demand for space dropped off in 2008 and 2009 there was not suddenly a glut of vacant property.
- The natural disasters in Queensland at the beginning of 2011 are providing a significant lift in the level of work for the construction industry and businesses that supply the industry. Also, monetary policy will be kept accommodative in order to drive the post-disaster recovery efforts.
- The Australian economy is in essentially sound shape.
One key risk to the current real estate market is a weaker-than-expected growth outturn in China would lead to weaker economic performance for Australia, given that Chinese demand is the largest driver for Australian exports, including coal and iron ore.
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