Personally, I am really bullish on the investment property market for 2012. Please note my reference to ‘investment’ market as I do see a split between the owner occupier markets and think these may remain subdued or perhaps grow slowly. Its property investors that will dive into action and stimulate the market into a steady capital growth wave.
Whilst some of the points I base my predictions on relate to the national market, most relate to the Hunter Region of NSW where Property Bloom develops property. It’s where we focus our research efforts. The Hunter Region has one of Australia’s largest regional populations. It is also within about a two hour drive from Sydney, so we are not talking boondocks here. It’s made up of 5 major cities or centres; Newcastle, Cessnock, Lake Macquarie, Maitland and Port Stephens. However smaller towns like Singleton and Muswellbrook have become major contributors to the region’s economy primarily due to their large coal mining projects.
Here are some of the facts that I have built my 2012 forecast for the investment property market:
- Major Banks decide to pass on the full .25% cut last week. According to Westpac’s chief economist, we will see another .50% cut by June 2012.
- Tight labour markets in the Hunter Region
- Federal government funding just announced in training to increase skilled labour
- Major regional capital expenditure, particularly resource sector related or transport related initiatives will be a driving force in the Hunter economy over the next few years. Planned expenditure of over $3 billion in the Upper Hunter alone in the areas of mine expansions, rail and wharf investment, on top of a $1.7 billion Hunter Expressway roads project in the Lower Hunter. These major projects are expected to also flow on to small-medium businesses in the area.
- Low vacancy rates and still falling, in November we saw a drop of .3% to 1.4% in the Hunter Region and the Sydney Metropolitan area vacancy rate is also just 1.4%.
- High yields. In most towns we develop in the projects finish with a 7-9% gross yield.
- Shortage of housing. We have seen four declines in five quarters with the Sept ‘11 quarter seeing an 11.5% decline in total new dwelling commencements.
To me these conditions are ripe for investors to take advantage of lower holding costs as interest rates drop. There is one massive factor that will impact what happens in 2012 and that is consumer sentiment. With the continued doom and gloom messages coming at us from Europe and other international markets and the dissatisfaction with our political leaders right now, I think this will also impact on consumer and investor confidence.
I see a fantastic opportunity for savvy property investors over the next 12 months to take advantage of the current environment and get in early before the mainstream investors hit the market, because when this happens it will increase demand which will result in higher prices and translate into capital growth.
Let’s take it one step further….by developing property in this environment; you can fast track your portfolio by creating up to three properties from one. You can create more, but keeping to three or less minimises risk and works within the current lending criteria. Banks will lend on building up to three new dwellings on one title right now.
Developing property is exciting, but if you can develop at the right time when the market is moving into a growth phase, then you will see the real benefits of creating equity through the development process whilst also completing your development in time to catch the next capital growth wave. Happy surfing in 2012.