Trustees warned: property headwinds loom
Economists and analysts are warning SMSF investors to tread carefully with their residential property investments, as one independent research house warns investors to brace for a tightening market and a looming slowdown.
Speaking to SMSF Adviser, AMP Capital head of investment strategy and chief economist Dr Shane Oliver suggested practitioners should be aware that currently, property prices vary greatly across Australia.
Prices have fallen in Darwin, Perth and Canberra, with Darwin experiencing the steepest decline, he noted. At the other extreme, property prices in Sydney are up 17.6 per cent in the 12 months to the end of August this year.
“It’s very uneven across the country which partly reflects the demise of the mining boom which is weighing on the property markets within Darwin and Perth,” Dr Oliver said.
“At the other end, low interest rates and improved economic conditions are pushing up property prices in Sydney and Melbourne.”
With the performance of different regions so diverse, CommSec head of adviser services Eric Blewitt told SMSF Adviser practitioners should be aware of the variation in returns, which is dependent on location.
“Looking at the diametrically opposed growths or reductions around the country, [capital growth] is pretty hard to pick,” says Mr Blewitt.
Speaking at BIS Shrapnel’s Business Forecasting conference in Sydney yesterday, BIS Shrapnel managing director Robert Mellor warned that certain cities are looking likely to be in oversupply in the mid-term.
“One of the dangers is there’s been an understanding out there that, in the residential sector, Australia is massively undersupplied, with a lack of dwellings across the country,” he said.
“The impression is given that this is the same across most markets. That’s not the case. In fact you could argue in terms of the number of states and cities, there are more markets [that will] be in oversupply in the next 18 months to two years than in under supply."
However, he noted that “fundamentally” BIS Shrapnel cannot foresee Sydney being in oversupply territory within the next five years.
There is a “significant risk” that in the next 12 months to two years inner-city apartments in Brisbane will go into oversupply, with building levels two to three times higher than they have been on average in the past 10 to 15 years.
Perth is likely already in oversupply, Mr Mellor said, and the smaller markets of Tasmania, the Northern Territory and ACT are all experiencing “significant oversupply”, he added.
Similarly, BIS Shrapnel’s associate director Dr Kim Hawtrey said he believes the home building boom in Australia is peaking.
“Booms are mesmerisingly, hypnotically, trance-inducingly, spellbindingly seductive. And when you’re in a boom, you think it’s going to keep on going forever. Like Sunday afternoon, it’s a little bit seductive – but Monday morning is coming,” he said.