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Trend Report January 2008

08/01/2008

Investors Cautious But Optimistic About Property Prices For The First Time Since 2004

While investors remain cautious about residential property investment, overwhelming expectations of an upward swing in housing values for the first time in four years could see a turn-around in property prices in 2008, according to mortgage broking franchise Smartline’s latest national Property Sentiment Survey.

Smartline’s annual survey canvasses the opinions of its 23,000 strong database to measure investment sentiment and gauge current issues in the Australian mortgage market. The recent survey represents the fourth to date.

For the first time, the Smartline Property Sentiment Survey revealed investors are largely confident that residential property prices will increase in their states over the next 12 months. 70 per cent believe prices will increase, with 26 per cent expecting prices to remain steady and just 5 per cent anticipating a decline.

This was a dramatic increase on results from the previous three surveys with 46 per cent, 18 per cent and 17 per cent respectively expecting residential property prices to rise.

However despite being optimistic about property prices, the majority of investors remain cautious about investing in residential property in 2008.

Just 34 per cent of respondents plan to purchase a residential investment property in the next 12 months. This was up slightly on results from the 2007 survey, where 30 per cent planned to purchase an investment property.

“While investors are upbeat about the residential property market, there is still an undercurrent of caution brought about by the series of interest rate increases in 2007 as well as the change in Federal leadership. It will be interesting to see if investors’ faith in property prices overrides their sense of caution and translates to increased market activity in 2008,” said Mr Chris Acret, Managing Director of Smartline.

There was a general air of uncertainty amongst respondents when it came to the effect of the November, 2007 election on the property market.

Asked how they thought the election result would impact on their investment, 61 per cent of respondents were unsure. Similarly, 54 per cent were unsure if the new government would have a positive or negative effect on the housing market in general.

This compared with 20 per cent anticipating a positive impact on their investment and 25 per cent expecting the housing market in general to benefit from the government change.

And while there was an overwhelming expectation of an additional interest rate rise in the next 12 months, with 90 per cent of respondents expecting an increase and less than two per cent expecting a decline, just four per cent felt they had been heavily affected by interest rate increases in 2007.

This was followed by 23 per cent considering the effects of the recent interest rate rises to be ‘moderate’, 47 per cent indicating they had been somewhat effected, 25 per cent believing they had not been effected at all and one per cent unsure about the effects.

Of the various investment classes, 58 per cent of respondents preferred Australian residential property as an investment, followed by 22 per cent for Australian shares and 9 per cent for managed funds. This mirrored results tallied from Smartline’s previous surveys, with the majority of respondents choosing residential property in 2007, 2006 and 2005.

“Residential property has been top of respondents’ agendas for the four years we have been conducting this survey. Property is still seen as a relatively safe long-term investment when compared with other more volatile investments such as the share market,” said Mr Acret.

Asked what type of property they considered to be a better investment, 76 per cent of respondents said they preferred houses over apartments.

And when it came to the property’s location, Queensland was the preferred state for investment in the next 12 months with 31 per cent choosing the Sunshine State, closely followed by Victoria with 29 per cent and New South Wales with 25 per cent.

South Australia was the fourth most favoured state (8 per cent) overtaking Western Australia (3%) for the first time in four years.

The majority also preferred the suburbs for residential property investment (45 per cent) over coastal areas (25 per cent), the inner city (22 per cent) and rural areas (8 per cent.)

In general, respondents in the 2008 survey were satisfied with their current mortgage product and lending institution. 53 per cent indicated they were satisfied, with 25 per cent very satisfied, 16 per cent neither satisfied nor dissatisfied, 4 per cent unsatisfied, and just 2 per cent very unsatisfied.

And their satisfaction translated to plans to retain their current mortgages in 2008, with just 26 per cent of respondents planning to refinance their mortgage in the next 12 months and just 22 per cent planning to fix their home loan rate during the same period.

The next Smartline Property Sentiment Report is due in January, 2009.

 

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