Australian property proceeds with caution

It seems the Australian economy, which dipped into recession during 2009, bounded back in the final quarter of last year. According to the International Monetary Fund’s latest World Economic Outlook, Australia’s economy was the last major economy to enter recession, and the first to recover.
 
Strong vindication perhaps of the government’s expansionary fiscal policy, which saw more than AUD10 billion in stimulus packages. This, coupled with increasing demand for Australian raw materials, has led the IMF to predict a robust 2% growth in the Australian economy in 2010, considerably higher than most other G20 economies.

All of which is good (but not excellent, let’s not get carried away) news for Australian property. When prices fell from their peak in March 2008, many pessimists predicted 2004 style 30% falls. But the market is being buoyed by a continuing shortage of new housing stock, particularly in urban areas and the fall seems to have petered out at just 5.5%.

Evidence for the optimists to believe the bottom of the cycle has passed and that the only way is up. The question being of course, how high and how quickly? The Australian government is certainly promoting cautious growth and has already tweaked up interest rates from their previous 50-year low of 3%.

There remains a vocal body here who point to the ‘affordability’ statistics and warn of ‘ipso facto’ plunges of 30% or more, at some time in the future, surely? But they are less vocal now that the economy is moving and sensible money is backing sustained growth of the single digit variety.

There are three main sectors of the market to watch. Prime inner-city developments where tight planning controls maintain buoyant land prices and up-selling to the recovering urban population. The beach resort and holiday home market will also benefit from returning investment from Asia, China and Japan whose own economies are picking up fast. And finally from the country’s fast-improving status as a centre of academic excellence, and a consequently high demand for small but well located units within cycling distance of the universities.

A better-regulated market, which proceeds with a caution learnt from recent events, has every chance of succeeding. As Coleridge’s Ancient Mariner concluded from his own enlightenment, “A sadder and a wiser man, he rose the morrow morn”.