Dwelling values to level
The threat of higher interest rates in 2011 should keep buyers out of the market and property price growth to a minimum.
After several tumultuous years, the Australian property market is expected to settle down in 2011, with property growth projected to sit around 4 per cent.
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While this growth seems moderate, it is a far cry from the 14 to 20 per cent growth enjoyed in 2007.
RP Data’s research director Tim Lawless said interest rates are likely to be the primary deterrent of housing market performance over the coming year.
“The interest rate futures market is not pricing in a full rate hike until March 2012,” Mr Lawless said.
“While that seems optimistic, if borrowers only have to wear one rate hike between now and March 2012, Australian dwellings have a good chance of realising higher than expected capital gains. A long term pause in interest rates would be welcomed by all segments of the housing market.”
If, however, the RBA raises rates several times in 2011, Mr Lawless said dwelling values would struggle to obtain much forward momentum and, as such, mirror the property price growth achieved in 2010.
According to RP Data’s hedonic Home Value Index, dwelling values rose by 4.7 per cent over the 2010 calendar year across Australia’s combined capital cities.
Almost all of this growth happened in the first quarter of 2010, when dwelling values grew by 3.6 per cent, compared with just 0.4 per cent growth in the December quarter.
While capital growth was largely uninspiring, certain investors managed to benefit.
The rising interest rate environment stopped first home buyers entering the market, in turn creating a tighter rental market and sending rental rates up.
Nationally, gross yields for apartments and houses were 4.7 per cent and 4.0 per cent respectively in 2010.
The most attractive apartment yields are found in Darwin, Brisbane and Sydney, which boast capital gains of 5.7, 5.3 and 5.0 per cent respectively.
Melbourne and Perth currently have the lowest apartment yields, with returns of just 4.1 per cent and 4.3 per cent.