Houses prices dip, commercial property yields to follow

It’s shaping as a year of pain for many investors in residential and commercial property, with new data pointing to a significant softening in both sectors.

House prices in Australia’s biggest housing market, Sydney, dropped by 0.4% in the first quarter of 2008, according to property analysts Australian Property Monitors.

Median house prices also went backwards over the three months to March 2008 in Hobart, down 3.4%, with Canberra down 0.4% and Perth down 0.3%.

By far the strongest residential property market was Adelaide, where prices jumped 3.1%, while Brisbane home owners also enjoyed a median 2% rise.

Australian Property Monitors recorded a more modest 0.3% rise in median house prices in Melbourne, but other data, such as that published recently by the Real Estate Institute of Victoria, suggests residential property values actually went backwards there in the first quarter of 2008.

On the commercial property front, a new report by the ANZ bank has warned investors to expect declining yields over 2008.

Income yields on commercial property are set to drop by up to 25 basis points for prime assets and 100 basis points for secondary grade assets over the rest of this year.

It is not all bad news for commercial property investors, however. According to ANZ senior economist Ange Montalti, yields are likely to pick up by 2009.

“Softening in yields over 2008 will be largely countered by continued healthy growth in rentals, supported by good affordability and a fairly measured addition to supply capacity,” Montalti says.