The Government has recently released a report from the National Housing Supply Council titled “State of Supply Report”.

The report makes projections of dwelling demand and supply over the 20 years from 2008 to 2028.  The report is incredibly comprehensive at 193 pages.

On the best projections available, dwelling prices must increase in order to bring forth the product needed to rectify Australia’s chronic residential real estate undersupply.

Pulse Property has done extensive research on the Australian residential property market for more than 15 years and has been accurately forecasting growth opportunities for many investors across Australia and internationally.

Our research is showing that there is incredible value in certain sectors of the Sydney residential property market.  It’s interesting to note that the Sydney property market has shown huge resilience to the Global Financial Crisis, and has had somewhat of a quick recovery due to the RBA cash rate being 3% one of the lowest rates in over 50 years, vacancy rental rates at 1.5%, and stock levels 30% less than this time last year.

With interest rates at record lows, First Home Owners Grants being offered, and rents rising 12% over the last twelve months, both investors and owner occupiers are jumping back into the property market.

The two main drivers for the resurgence in the lower end of the market has been the First Home Owners Grant, incorporated with the lowest interest rates in over 50 Years. After massive rent increases over the past 3 years the proposition to buy is compelling, because the same dollar payment now can either (a) pay for rent, or (b) repay principle and interest on a dwelling over 25 years.

The property market has made a huge U turn from 2008 with auction clearance rates in 2009 hovering around 65% to 70%. Previously they were around 50% and under.

It’s interesting to note that rising unemployment doesn’t necessarily dampen a property market. In the property boom of 2001 to 2003 the unemployment rate averaged around 6.74% to as high as 7%, and the cash rate was fluctuating from 6.75% to 8.25%. Unemployment today is presently at 5.4% and the cash rate is at 3%.

New home sales rose by 4.2 per cent in March – hitting a 13 month high. New home sales have now jumped over 20 per cent since December.

Detached house sales rose by 4.2 per cent in March. All states noted a pick up in home sales over the March quarter – the best result since early 2007.

The worsening dwelling shortage will lead to both rents and dwelling prices rising and it is fair to ask why, in the face of such massive demand with such chronic undersupply we read reports that dwelling prices are falling.  For example, the recent ABS report on house prices received headlines, and showed (for example) a fall of 2.9% in Sydney during the March quarter. However, again a sensible analysis requires more consideration than the headlines suggest. For example, the ABS measure does not include any apartments, semis or terraces, and therefore is biased by the more expensive dwellings, which all analysts agree have fallen in value.

For a more accurate picture, we should rely not just on what the press sensationalise, but look also at the calculations undertaken by the professional dwelling research houses. These provide the opposite picture for Sydney for the March quarter:

• Australian Property Monitors - houses flat at -0.2%; units rising by +0.9%
• Residex - house rising by +0.8%; unit rising by +2.9%
• RPData Rismark – housing rising by +2.4%; units rising by +2.5%

There are two opposing forces at the moment:

• On the one hand, sentiment remains generally weak, and this is made worse when elements of the press continue to focus on negative, sensationalist output
• On the other hand, the underlying cash flows and medium and long term fundamentals for residential dwellings are very positive

When there is a lack of alignment between economic fundamentals and sentiment, there are great opportunities. This is increasingly being recognised and, while not widely reported in the press, most specialist property research houses are identifying price rises in certain segments of the property market.

Pulse has identified a number of excellent projects that provide neutral to positive cashflows offering great income and excellent growth prospect.

If you would like to understand where the research indicates you should be investing now – our Property Research and Investment Group – Pulse Property, will be holding a seminar in Melbourne on Thursday 25 June.

If you would like to attend, please contact Investors Direct for details, or register at www.pulseproperty.com.au/events/event/41

This article was written by Craig Wright,  Distribution Channel Manager of Pulse Property Research Pty Ltd.