Wednesday, 5 November 2008 |
|
Real Estate auctioneers, particularly those of us that regularly handle all facets of the market, are the first to experience changing trends to the property market. Standing in front of large groups of potential property buyers, we get the first sense of their sentiments – the optimism during upward trends, the doubts at the first signs of external pressures and the absolute lack of urgency or interest when those pressures impact adversely upon the Australian economy.
Property cycles are just that – a constant revolution of changing values. When we are experiencing strong economic growth, demand for commercial property improves. Businesses are more inclined to buy premises rather than renting and investors enter the market because they factor in the expected growth in property values as an integral part of their overall investment yield. During this stage of the cycle, property buyers feel they are immune to interest rate increases as they believe the future growth of their property values will far outstrip these rises. Their decisions are not helped by irresponsible lending policies of some second tier mortgage originators or property analysts that continued to forecast growth in the property market more than 12 months into the future. How can analysts predict continued growth when State Government cannot deliver on infrastructure promises and Local Government still takes an eternity to approve significant development applications?
Improving property cycles generally end abruptly. This one has been savaged by international circumstances beyond Australia’s control. After significant growth from 2002 to late 2007 our commercial market is in decline. In many areas, five years of growth has been eroded in the last six months but The Federal Government and Reserve Bank have acted upon these international crises promptly and decisively. Their actions in the last month have gone a long way to ignite confidence in the commercial property market. Thankfully there are still pockets of strength. Retail investments and commercial office space remains buoyant with low vacancy factors and relatively stable growth prospects. Property owners are finally coming to terms with current values and are more prepared to accept cash offers than they were in the recent past and transactions are becoming more common.
With interest rates declining and owners reducing their expectations our auction clearance rates have improved considerably in the last two weeks. This auctioneer now senses optimism in the buying ranks and there should be optimism when you consider investors are now achieving returns of around 1.5 – 2% better than this time last year on quality retail investments, yet they are able to source funds for nearly 2% less.
auctionworks have achieved sales in excess of $50 mil in two weeks in Sydney and Melbourne for a diverse range of real estate including Bunnings Warehouses, banking chambers, fast food outlets, cafes, distribution centres, residential development sites and vacant office buildings. Vacant industrial buildings are receiving limited enquiry with very few sales recorded recently.
We have a long road ahead before we can expect much improvement in property values but it is obvious there are commercial property transactions occurring and the wheels are rolling.
David Scholes is the principal of auctionworks.
|