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Richard Wakelin's 2013 outlook: a year of modest recovery

December 18, 2012

2013 is shaping up to be a year of modest but sustainable recovery, according to Richard Wakelin, director of Wakelin Property Advisory.

“2012 was the year when the residential property market oil tanker executed a slow motion change of course. Losses decelerated in the early months of the year, we drifted sideways in the middle months, and we’re now seeing prices creeping forward.

“It’s effectively taken all year for the loosening of monetary policy by the Reserve Bank over the last 13 months to have a positive impact on prices.

“I expect this trend to continue and accelerate in 2013, spurred by the December cash rate cut. We may be entering a virtuous cycle where the perception that capital growth is possible may see more buyers enter the market which in turn will lead to price appreciation.

“Buyers will be attracted by the diminishing gap between the cost of funding a mortgage and the rental cost/returns of property.  With mortgages available today at an interest rate as low as 5.5% and gross rental yields typically sitting at 4%, first home buyers are discovering that the cost of a mortgage isn’t much greater than renting. Similarly, the falling after-tax net cost of investing in a property is likely to encourage more investors into the market.

“Saying that, I’m not expecting a boom. Overall I anticipate that capital growth in our capital cities will be around 3% over 2013, and slightly higher if the cash rate is cut again in the early part of 2013.”

“My outlook for our major capital cities are:

City

% change
over 2013

Comment from Richard Wakelin

Sydney

4-5%

“Sydney’s low vacancy rate and high rental costs are a signal for renters and investors to buy property. However, Sydney’s high price-to-income ratio means affordability remains an issue.”

Melbourne

2-3%

“Melbourne has weathered the downturn of the last two years better than most commentators predicted. The prevailing view was that after a 35% hike in prices over 2009 and early 2010, Melbourne was likely to decline significantly. In fact, Melbourne only fell back 10%, which wasn’t much out of line with other capital cities.

“However, there is a glut of new property in the fringe suburbs. I therefore expect no growth on the fringe of Melbourne, but modest price growth in the inner and middle ring suburbs where supply is constrained.”

Brisbane

3-4%

“Brisbane has demonstrated its resilience in the face of economic and environmental storms of the last two years. The market is due for a recovery, though it may be tempered by the impact on confidence from the State Government’s aggressive cost cutting program.”

Perth

5-6%

“Perth property has not out-performed other cities in recent times despite Western Australia’s booming economy.  It demonstrates that much of the boom has by-passed Perth due to fly-in, fly-out workers travelling direct to the mines from other parts of Australia rather than seeking accommodation in WA’s capital.  Nevertheless, extreme tightness in the rental market appears to be overflowing into greater demand from first home buyers. If this continues, Perth may see reasonably strong growth in 2013.”

Adelaide

1-2%

“The Adelaide market remains sluggish, with low auction clearance rates indicating that vendors are failing to adjust price expectations downward sufficiently.  I therefore expect Adelaide to remain weak in the coming months, with a possible recovery later in 2013.”