Wednesday, April 29, 2009

This Week's InsideStory

Headlines in property this week again seemed positive for all of us in SA. Access Economics report by Chris Richardson name Hobart and Adelaide as the two best placed for property. A NAB report says “SA’s economy is likely to fare better than the other states...”, BUT a tiny article by Callie Watson in Wednesday’s Advertiser contains some critical clues to the future of Adelaide’s property market.

Firstly though let’s put on the record some thoughts on the First Home Owners Stimulus Grant. It seems likely that established homes will no longer be eligible post 30th June. At the moment the sub $500k property market is overheated thanks to demand intensity from first home buyers. I believe we are seeing 2 years forward buying occurring right now, and this may have serious consequences. The non-extension of grants for established homes past the 30th June will create a buying frenzy in the closing weeks of this Stimulus Grant followed by a collapse in demand. Combine with this the reality of home ownership, job losses and property running expenses hitting home to first home owners (rates, taxes and maintenance etc.), and there is potential for a destabilised market with a mini correction later this year.

The positive scenario of this is after having lived in the property for the obligatory continuous 6 months, first home buyers are free to rent their property and become investor landlords resulting in several positive effects. Any risk of oversupply of properties flooding the market is alleviated, the rental market supply grows balancing out the current shortage, and rental income would provide funds to the first home buyer to assist them service the property commitment, as well as providing potential tax benefits. Home ownership is really a form of compulsory savings providing long term financial benefits.

Now let’s look to that little gem of an article last Wednesday and give our property owners in SA a warm feeling inside. Headline reads “Shortage of land to impact housing” with the opening sentence “South Australia is facing a severe land shortage that will not meet the state’s population needs, a report suggests.”

Here are the important numbers- 8000 new allotments to June 30, 2010; 11% down on previous forecasts; 4000 new allotments now forecast in 2011; Population Growth forecast of 135,000 by 2016.

The Advertiser article reports a direct negative impact on the state’s affordability through increasing property prices as costs escalate and demand exceeds supply. For owners of property, this scenario will be music to your ears.

“Demand exceeding supply”, is the single most important factor in protecting your asset.

Anthony Toop, Managing Director.

© Toop Real Estate Group

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