Hi Property Lover's
I came across this article on Australian Property Investor which i thought was a good read:
Property investment opportunities are exceptional right now because many values are still priced at reactionary downturn levels, according to Australian Unity Investments head of property Martin Hession.
He said unlike in the downturn of the late '80s and early '90s when property, particularly commercial, was oversupplied, the recent property downturn was due to the banking industry.
"In fact, because banks have not been financing property development for almost two years, supply is set to become tight very quickly," he said.
"Combined with an economic recovery in Australia and solid growth in white-collar employment, you get the ideal conditions for substantial growth in the property market."
He said the combination of Australia's strong economy with a slowdown in development only meant "lots of money chasing too few properties because local and overseas property funds now only want to buy in Australia".
The wholesale deposit guarantee likely to end on March 31 was also a factor for high capital growth, said Hession, because at some stage investors will start to switch back from bank deposits to property investment.
But cash availability was still constrained which meant the developer's borrowing cost was still high, he said.
"Property funds and developers generally did not get any of the benefit of the sharp decline in cash rates last year as it was offset by an increase in the risk margins that banks add on top of the basic cost of money," said Hession.
He said that with official rates back on the way up the cost of debt will be a major issue for some funds, and those with significant amounts of debt are still going to struggle.
Hession said, "Property investors should make sure they fully understand the debt arrangements of any fund or development they are considering investing in."
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