Property Article Courtesy of LJ Gilland Real Estate

Hello  Friends, Clients & Associates,

Happy New Year! 

Property beats cash; Manufacturing via C. James….

Home prices consolidate: The RP Data – Rismark Home Value Index reveals that capital city home prices fell 0.3 per cent in December. Over 2012, home prices fell 0.4 per cent. 

Returns on property rise: Total returns on residential property (home prices plus rents) grew by 4.0 per cent in 2012 (range from +0.8 per cent in Melbourne to +15.6 per cent in Darwin). In comparison, returns on cash (90 day bank bills) rose by 3.7 per cent on average in 2012. 

Weak manufacturing sector: The Performance of Manufacturing index was unchanged at 44.3 points in December. It was the 10th month that the index has been below a reading of 50 points, suggesting contraction in the sector. 

What does it all mean?

In the past, buying and selling property was considered an attractive way to make money. The theory was that home prices would rise around 8 per cent a year, almost guaranteeing you would make money. That was in the past. Now Aussie consumers are more cautious on going into debt, restraining demand for existing homes. Home prices were broadly flat in 2012 after falling 3.8 per cent in 2011 and rising 5.4 per cent in 2010. 

But while Aussies are cautious on going into debt, population is still rising while home building has remained weak. So rents are still rising and so are investment returns on property. Property returns grew by around 4 per cent in 2012, just ahead of cash, but well short on the near 19 per cent growth of sharemarket returns. 

CommSec expects that national home prices will rise around 3 per cent in 2012 with total returns up around 7 per cent. Aussies should grow more confident about taking out loans and buying real estate in 2013 although home building is also expected to grow in line with underlying demand. 

There is little change to conditions in the manufacturing sector. The firm Aussie dollar, fluky consumer spending and uncertain global conditions are making life tough for Australian manufacturers. There is also the structural change of increased on-line purchases to contend with, causing business owners to re-assess the best way to run their operations.

What do the figures show? 

House prices

The RP Data-Rismark Hedonic Australian Home Value index of capital city home prices fell by 0.3 per cent in December and was down by 1.2 per cent in the in the December quarter. Over 2012 home prices fell by 0.4 per cent. 
In December, house prices fell by 0.1 per cent with apartment prices down by 1.1 per cent. Over 2012, house prices are down 0.5 per cent while apartment prices were up 0.5 per cent. 

The average Australian capital city house price (median price based on settled sales over quarter) was $510,000 and the average unit price was $432,000. 

Dwelling prices rose in four of the eight capital cities in December: Hobart (up 0.7 per cent), Melbourne (up 0.5 per cent), Perth (up 0.3 per cent) and Adelaide (up 0.1 per cent). Prices fell the most in Darwin (down 2.5 per cent), followed by Canberra and Sydney (both down 1.0 per cent) and Brisbane (down 0.3 per cent). 

Home prices were higher than a year ago in three of the eight capital cities: Darwin (up 8.9 per cent), Sydney (up 1.5 per cent), Perth (up 0.8 per cent). Prices fell most in Melbourne (down 2.9 per cent) followed by Brisbane and Adelaide (both down 0.8 per cent), Canberra (down 0.3 per cent) and Hobart (down 0.1 per cent). 

Total returns on capital city houses were up 3.7 per cent on a year earlier and units were up 5.6 per cent.

Performance of Manufacturing

The Performance of Manufacturing index was unchanged at 44.3 points in December. It was the 10th month the index has been below a reading of 50 points, suggesting contraction in the sector. 

Of the components, new orders rose from 44.1 to 45.7; employment rose from 43.2 to 44.5; export orders fell from 37.6 to 33.2; and production eased from 44.8 to 42.5. Capacity use rose from 72.4 per cent to 73.2 per cent. Selling prices rose from 40.6 to 43.0 in December. 

AI Group reports: “Seasonally adjusted activity decreased in all eight of the revised manufacturing sub-sectors in December (that is, index levels were below 50 points). The contraction of activity in the petroleum, coal, chemical & rubber products; metal products; and machinery & equipment sub-sectors eased while that in the food, beverage & tobacco products; wood & paper products; printing & recorded media; and non-metallic mineral products sub-sectors intensified.” 

“Survey respondents remained cautious about the outlook. They cited a range of inhibitors including: soft demand; higher energy charges; stronger import competition; and the strong Australian dollar.”

What is the importance of the economic data? 

The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database (more than 312,000 sales during 2011). Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties. Home prices are an important driver of wealth and spending. 

The Australian Industry Group and PricewaterhouseCoopers compile the Performance of Manufacturing Index (PMI) each month. The Australian PMI is the Australian equivalent of the US ISM manufacturing gauge. The PMI is one of the timeliest economic indicators released in Australia. The PMI is useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.

What are the implications for interest rates and investors?

With home prices flat, manufacturing contracting, inflation contained and the global economy still creating uncertainties, the Reserve Bank will lean in favour of providing more monetary stimulus. But we are close to an inflexion point. If US policymakers fundamentally deal with budget deficit and government debt issues, the outlook will become clearer and more positive. Australian consumers and businesses largely lack the confidence to embrace the opportunities that exist. 

The outlook for the housing market is improving. Population is lifting but the supply of homes has not kept pace. So rental markets still generally remain tight with rents rising. Budding owner-occupiers of homes have largely sought to utilize existing housing stock (shared rental; young people living at home with parents for a longer period) than buy or build homes. If confidence improves as we expect in 2013, demand for new and existing properties will rise.

Published: Wednesday, January 09, 2013

In conclusion to the above, our reputation lays in high performance property sales, specializing in the sale of investment properties with tenants in place & property management.  We take great pride in our excellence in property and asset management as well as body corporate management.

We find individual solutions to fit our client’s needs.  Being property specific rather than area specific because confining ourselves to one area simply wouldn’t be giving you what you need.

Best regards,

		Linda J. & Carlos Debello, LJ Gilland Real Estate Pty Ltd Tel: (07) 3263 6085 | Mobile: 0409 995 578 & 0400 833 800  http://www.ljgrealestate.com.au/index.php?lan=ch

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L J Gilland Real Estate PTY LTD

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