SIGNS OF IMPROVEMENT IN 2012

FIVE MONTHS OF STRONGER PROPERTY MARKET ACTIVITY IN 2012 SUGGESTS THAT THE TOUGH PROPERTY MARKET CONDITIONS IN 2010 AND 2011 ARE BEHIND US.

Data released this month by the Australian Bureau of Statistics indicate that the rate cuts in May and June are starting to have a positive effect which is a good thing for the property industry.

In May, loan commitments in Western Australia for the purchase and/or construction of new dwellings for owner occupation increased a seasonally adjusted 2.4 per cent to 1,333, its highest level since February 2010. In the first five months of 2012, there have been an extra 560 or 9.5 per cent more loan commitments than the same period in 2011.

This is supported by the Institute’s weekly Land Snapshot which tracks residential land sale trends in the state. It is showing increased sales activity in the first six months of 2012.

Western Australian business conditions in June rose to their highest level since April 2008. According to NAB, the strength appears to largely reflect sharp rises in finance/ business/property and construction conditions, which together make up over half of the state’s gross value added.

Consumer confidence increased in July. According to Westpac, the May and June rate cuts are starting to gain more positive traction with households. According to Westpac’s Chief Economist, Bill Evans, “Over the month, households were probably buoyed considerably by the result from the Greek elections and the positive reception to the latest European leaders’ summit, averting, at least for the time being, a new crisis in Europe.”

First home buyers are doing most of the heavy lifting in 2012. First home buyer activity in the Western Australian property market increased for the fifth consecutive quarter in June. The leading indicator of potential first home buyers, the number of First Home Owner Grant (FHOG) applications, increased 8.9 per cent on the March quarter, and a 31.4 per cent year-on-year.

Increasing rents and decreasing mortgage servicing costs are making the switch to owner occupation more attractive. In the six months to March this year the median rent in Perth has increased 6.3 per cent to $425 per week and since November we have had four interest rate cuts.

Strong population growth is also driving an increase in property transactions. The state’s population is increasing by more than 150 people a day, with the majority of this increase coming from interstate and overseas.

According to the Institute’s research, increased activity from first home buyers is flowing through to the property development sector.

Firstly, first home buyer purchases of new dwellings are strengthening. The number of FHOG applications for new dwellings and vacant land increased 20 per cent in the June quarter, 28.2 per cent year-on-year.

Secondly, while activity in the land development market is still relatively weak, a sign that first home buyers are active in the market indicates that we will begin to see the recovery of the middle market where people seek to upgrade their homes. Eventually, if not already, this should also coincide with a return of investors.

With the market being depressed for five years there is a lot of latent demand. Many people have wanted to move but have been uncertain whether it is the right time. If the Reserve Bank cuts interest rates again before Christmas we will see many of the people who have been sitting on their hands flocking back into the market.

So where are first home buyers purchasing?

The following table illustrates the top 10 suburbs, in descending order, for First Home Owner Grants paid in 2011/12 and the median property price for 2011.