THE federal and state governments needs to maintain incentives for home buyers to prop up the residential property market, according to the respondents to the 30th API Australian Property Directions Survey.
The survey found that 83% of respondents rated government incentives as moderately important, while 17% rated them as extremely important.
API Vic president Justine Jacono said incentives were important for market growth, particularly in difficult or emerging economic times.
“While some respondents warned about the potential for state and commonwealth government incentives to increase housing values and create a two-tier system, which is an unintended consequence, they also believed that these incentives are essential for propping up the residential market.
“Some suggested that the way to combat the consequences was to target incentives around supply, not demand, such as the current grants for newly constructed homes which are positive for both for affordability and housing construction,” she added.
Jacono said whilst incentives are a declining feature of the residential market, this has fortunately happened at a time of declining interest rates, and stable or increasing house prices, meaning that there has not been a negative impact on demand so far.
“However as prices rise we will again see first home buyers getting priced out of some markets, which needs to be addressed,” she continued.
The 30th API Australian Property Directions Survey also found that the residential property market in Sydney is the furthest along the upswing of the property cycle.
Brisbane has commenced the upswing, but Melbourne is currently at the bottom of the cycle. Over the next two years, residential property in all three cities is expected to move further along the upswing, with Sydney the most advanced.
Industrial, commercial and retail property was also expected to advance along the property cycle over the next two years.
“Industrial property is currently on the upswing of the property cycle and is the strongest performing property market across Sydney, Melbourne and Brisbane.
“Currently, commercial property in Sydney and Melbourne is seen as being on the upswing of the property cycle, with Brisbane commencing the upswing,”
“Meanwhile, retail property is at the bottom of the cycle in Sydney and Melbourne, but Brisbane has commenced the upswing.
“In two years’ time, all property classes in Sydney, Melbourne and Brisbane are expected to be more advanced along the upswing. Industrial property should be the strongest performer across the board,” Jacono said.
In the commercial property market, the majority of respondents saw lease incentives as a feature in all Australian capital city markets.
Across the Sydney, Melbourne, Brisbane and Hobart CBDs, there is a trend towards increasing incentives, with the majority of respondents reporting leasing incentives between 20 – 29% across prime, A grade and lower grade properties. Leasing incentives were also increasing for A grade and lower grade properties in the Perth CBD, but from a lower base, with incentives reported to be between 10 – 19%. The majority believe that leasing incentives are not a feature of prime property in the Perth CBD.
In the suburban CBDs of Sydney and Melbourne, responses are similar to those in API’s previous survey six months ago, with the majority of respondents predicting leasing incentives of 20 – 29% across prime, A grade and lower grade properties.
Across prime and A grade properties in the Adelaide and Canberra CBDs, and lower grade properties in Canberra, respondents believe that leasing incentives of 10 – 19% are a feature. For lower grade properties in Adelaide, respondents are more evenly spread between reported leasing incentives of 10 – 19% and 20 – 29%.
“To arrive at these figures, respondents made estimates as an annual percentage over a five-year lease. For example, leasing incentives of 10% equal a six month rent-free period or equivalent value of incentives for a 5 year lease,” Jacono added.
The survey also found that a small majority of respondents believe the non-residential property sector is likely to outperform the equity market in the next three years. In five years’ time however, the small majority of respondents believe that the equity and non-residential property markets are likely to achieve similar performance.
“Respondents who thought a similar long-term performance was likely said that while the equities market was currently performing strongly, it had already risen to high levels and it would be difficult to sustain that growth with current business fundamentals and the economic climate,”
Respondents also provided their predictions for movements in interest rates, inflation, foreign investment and business confidence over the next three years.
“A small majority of respondents thought interest rates will fall in the next six months, and be similar in one years’ time. However more than three-quarters of respondents believe interest rates will be higher in three years’ time,” Jacono said.
The API found that a large majority believe the inflation rate will remain similar for the next year, while a majority believe inflation will be higher in three years time
“A small majority of respondents believe foreign investment will be higher in six months, in one year and again in three years’ time.
“With regards to business confidence, most respondents believe there will be similar levels of confidence for the next three months, and higher levels in the next year. A large majority of respondents believe business confidence will be higher in three years’ time,” Jacono concluded.
Property Review
