Low interest rates — and forecasts of more cuts in the coming months — look likely to make real estate an attractive investment in 2015.
Housing has been grabbing the headlines — particularly in the sizzling Sydney market — but other types of property investments have also been putting money in people’s pockets this year. Figures this week from CoreLogic RP Data’s daily home value index show the average growth in home values across the major capital cities was 8.4 per cent year-on-year, led by Sydney’s 12.7 per cent growth and Melbourne’s 7.8 per cent rise.
Growth in Brisbane and the Gold Coast (5.3 per cent), Adelaide (4.7 per cent) and Perth (1.4 per cent) has been more subdued, but no residential markets matched the 20 per cent-plus growth in sharemarket-listed property trusts.
Here’s what economists and real estate experts are expecting in the year ahead from residential and commercial property and property trusts.
SQM Research managing director Louis Christopher said he expected 2015 to be another positive year for residential property owners.
“Basically the money markets think it’s a dead certainty rates are going to be cut by April 2015, with the chances increasing of another rate cut in June,” he said. “If such rates cuts happen, housing markets will be boosted throughout the course of the calendar year.”
Real Estate Institute of Australia CEO Amanda Lynch said continuing low interest rates and the possibility of a cut should stimulate activity in the housing market. CommSec chief economist Craig James said the supply of new housing was starting to rise, which would lead to softer price growth, but a major slump was unlikely.
“Sydney home prices have just been playing catch-up. Over the last decade Sydney home prices have risen by just 3.6 per cent on average per year, the second lowest of the capital cities,” he said. CoreLogic RP Data head of research Tim Lawless said he expected Sydney and Melbourne’s strong growth to soften in 2015, Brisbane property prices to outperform the other capitals, modest growth in Adelaide and Hobart, and a potential fall in Perth home values.
A report this month by Colliers International said commercial property investment accelerated in 2014, and 2015 would be more of the same with improving demand from tenants.
“The majority of sales are now to Australian investors. This is not surprising given that Australian investors are now recognised as the most confident in the world,” said John Kenny, Colliers International’s chief executive for Australia & New Zealand.
AMP Capital head of real estate capital Tim Nation was also positive. “The fundamentals for office and retail markets in Australia are looking more positive than 12 months ago, with the Sydney and Melbourne office markets having seemingly bottomed and green shoots now evident, and retail sales improving nationally,” he said. “For both offices and shopping centres, creating places that people want to visit will be increasingly important for the real estate market in 2015 and beyond.”
Property trusts, now widely known as real estate investment trusts, have delivered investment growth of 23 per cent in the past 12 months, but several of the main players are still way below their value before they got smashed in the global financial crisis.
These stocks own everything from hotels to shopping centres to Bunnings warehouses, but their strong gains in the past year have prompted a few experts to warn of potential weakness ahead, although perhaps not next year. AMP Capital forecasts investment returns in 2015 of about 9 per cent for Australian property trusts, the same as its forecast for Aussie shares but better than estimates for residential property (6 per cent) and cash (2.3 per cent).
Research group Morningstar says low interest rates mean downside risk to property prices in 2015 is unlikely. “Listed property stocks with reliable income streams and a solid growth outlook are increasingly expensive,” it said its outlook report released on Monday. “Westfield Group is high quality but trades at a 10 per cent premium to valuation. Our top pick is Goodman Group, trading at an 11 per cent discount to valuation.”