Property market to fragment by 2015 as returns in mining states blast ahead, BIS report warns

The property market should get used to single digit growth for a while, according to the latest BIS Shrapnel report into the residential property market, which says returns will become even more fragmented and start to emulate the two-speed economy.

On one side, the resource-rich states of the Northern Territory, Western Australia and Queensland will see their property prices boosted, but the rest of the country, including New South Wales, will see lower rates of growth over the next three years.

“We’ve got positive signs in Brisbane, Perth and Sydney, along with Darwin, so we expect to see some price growth there,” senior manager and study author Angie Zigomanis told SmartCompany this morning.

“But after 15 years of solid growth, prices can’t go up at double digit rates forever. We’re starting from a much higher base.”

The new BIS Residential Property Prospects 2012 to 2015 report notes a few different factors influencing the poor growth over the past two years. The downturn in construction and the higher Australian dollar are two main aspects, along with the reduction in government assistance and slower economic growth.

Although interest rate cuts may help, Zigomanis says the property market – like others such as the retail industry – will just need to get used to a lower rate of growth. Especially in markets such as Victoria, where a boom in construction after the financial crisis helped reduce dwelling shortages.

“I think we’re going to see a shift towards a greater focus on yields rather than just capital growth,” Zigomanis says. “Property has always been a selective market…you’ll just have to be a lot more selective with your buying.”

Growth in Sydney is forecast at 17%, or 5.4% per year, while in Melbourne growth is actually set to fall after taking inflation into account – down to 3% per annum over the next few years.

Brisbane’s growth will rise to 6.2% over the three years, while Adelaide will only record about 3% per year.

Perth is set to see some of the strongest growth with 22% by 2015, about 7% every year. Darwin is expected to see some higher gains as well, with an average of 5% every year.

Hobart, however, is forecast to grow at just 5% over the next three years, which is actually a fall of 5% in real terms, while in Canberra there won’t be much growth at all – only up 1% over the next three years, which is actually a decline of 8% in real terms.

It’s a poor picture, but Zigomanis says there is some hope. In areas where prices are rising confidence will return, and he notes that when compared to some other investments over the next few years, property may actually perform quite well.

“When you’re looking at alternate investments…there is a question of how property will perform relative to other investments that’s worth thinking about.”

Meanwhile, the property market still appears weak with auction results heading into their usual winter slump.

According to the Real Estate Institute of Victoria, Melbourne recorded a clearance rate of 56% – the same as last week, and just up from the 55% recorded last year.

For the year to date, REIV chief executive Enzo Raimondo said the clearance rate is 61%, compared to 63% this time last year and 82% in 2010.

In the rest of the country, Sydney recorded a 56% clearance rate, while Adelaide and Brisbane ended the weekend with 37% and 38.5% respectively.