Jan 10, 2010 08:15am

There are a number of factors which will have an impact on the markets this year. In no particular order they include:

1. Increasing demand from overseas - In a recently published report, HomesOverseas Online placed Australia as the 6th best place to invest in property in 2010. They claimed that the revival in the country’s property market and economy is as much as 12 months ahead of the other developed countries in the economic cycle.

More importantly, they claim that Australia could be set for a residential property price boom over the next few years, as the country’s economy continues to show genuine signs of recovery.

According to Jon Giaan (knowledgesource.com.au), “China will grow at incredible break-neck pace next year, pushing 10-12% growth. They've got a $580 BILLION spending plan that is not being funded by borrowed money (like the Americans), they've already got it in cash.” This will continue to buoy up our resources sector and help consumer confidence. Jon also notes that “the well-cashed-up Chinese are already making an impact in the Australian property market in a lot of areas. They are single-handedly pushing up prices by 5-10%.”

2. End of the First Home Owners Grant – The effect of the grant on the lower end of the market has been claimed by many observers to be significant.

As Peter Boehm (Oct 2009) states “There's no doubt that the boost had a dramatic effect on the housing market. According to the Bureau of Statistics, more than 154,000 first time buyers bought a home in the ten months to July 2009 - a whopping 50,000 (or 46 per cent) more than for the same period the previous year. First home buyers also accounted for around one in four owner-occupier loans: well up on their historic average of around one in six. With so much demand (and a restricted supply), it's no surprise that house prices moved up - particularly in the first time buyer's range.”

BIS Shrapnel’s Residential Property Prospects report - based on data from the Real Estate Institute – predicts that average house prices in most capital cities will grow by between 11 and 19 per cent over the next three years. Angie Zigomanis said activity in the lower end of the market - buoyed by the boost to the first home owners grant and low interest rates - were generating “green shoots” of recovery. “We’re expecting that increased first home buyers activity to lead through to stronger upgrading demand for people upgrading to their next property,” he said.

3. The worsening shortage of houses - According to the Australian Bureau of Statistics over the last half decade, Australia's population grew by 340,000 people a year, yet over the past twelve months the number of new homes being built dropped 3 per cent from 155,000 to just 150,000.

In an update to its Residential Property Prospects 2009 to 2012 report, BIS Shrapnel said construction of new medium- and high-density housing had fallen to the lowest level since 1991, with starts of only about 30,700 medium- and high-density housing units for this year. The number represents an annual decline of 30 per cent.

The Australian Residential Property Planners (Nov 2009) report sums it up “The suggestion is that higher interest rates will slow down the rate of building construction - when the population is steadily rising. This in turn means that we are building up an even greater housing shortage.”

4. Rents will continue to rise - BIS Shrapnel's latest Residential Property Prospects (September 2009) report found rents are expected to rise by an average of 5.8 per cent a year over the next three years. Strong demand for housing, growing population and record low levels of property construction will push rents higher in 2010 and beyond, a report says. This follows a 5.7 per cent increase in rental returns in 2009 and an average annual rate of 4.4 per cent between 2002 and 2008.

Sydney was expected to experience the highest average annual increase in rents at 7.1 per cent from 2010 to 2012. Melbourne (5.6 per cent) and Brisbane (5.0 per cent) were forecast to be above the 4.4 per cent average annual increase experienced between 2002 and 2008.

5. Less funds going in to Super – According to the Australian Residential Property Planners (Nov 2009 Report), “now that there is a cap on the amount that people can invest tax effectively in superannuation the residential property market will have stronger appeal for those looking for an investment alternative. Those aged under 50 can now only put $25,000 into superannuation each year and higher interest rates are more likely to put long term residential property prices up rather than down.”

6. The return of the ‘Investor’ – The competition from first home buyers has kept investors quiet, but as Peter Boehm states “most investors have backed off while first home buyers have fought it out in the $300,000 to $500,000 price bracket, but - on a level playing field - investors will make a come back.”

82 per cent of investors are ready to invest in the next 12 months, according to a Loan Market Group online survey of more than 800 investors. The survey revealed that 34 per cent were looking for a suitable investment property now while interest rates reach 50-year lows; 27 per cent would wait until the First Home Owner Boost phased out; and 21 per cent were more cautious, wanting job security before taking the next leap.

Investors are waiting to pounce, according to Loan Market Group executive director John Kolenda.