australian homes market is strong as demand outstrips supply
News Posted On: 06 January 2010
An industry survey from the Housing Industry Association (HIA) released on Tuesday showed that while sales of detached houses in Australia rose by 0.8 per cent in November, the numbers for multi-unit projects dropped by 4.9 per cent. The report from the HIA recorded an overall rise of 0.3% in home sales following a drop of 6 percent in October.
Since the global financial crisis struck in 2008 lenders have been reluctant to invest in apartment building projects leading to a reduction in supply.
HIA chief economist Harley Dale said "The multi-unit sector continues to look extremely weak as the medium/high density end of the sector faces an on-going lack of available credit. This situation does not augur well for an easing in very tight rental market conditions over 2010."
The situation is expected to ease somewhat this year as the number of new projects gaining approval has risen sharply in recent months and leading indicators are suggesting some sort of recovery in construction in 2010.
However there are reasons to believe the supply of new homes will continue to be restricted this year also, supporting prices and rents. Dale cautioned that the number of new apartments being built is likely to be held back by factors like planning delays, a shortage of building land and construction workers, and higher interest rates.
In the past three months the Reserve Bank of Australia (RBA) has hiked rates three times. Australia's base lending rate is now among the highest in the developed world at 3.75 percent .
While the squeeze on apartment building may hit the bottom line for construction firms, the prospects for landlords look brighter. Basic economic theory says that tighter property supply leads to firmer rental yields. Certainly the real estate market in general seems to be strong, with Australian home values already above pre-crash levels. And only last month a report from Australian Property Monitors said that house prices should continue to rise well into 2010.
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