Property puts on the brakes

Real Estate

 
All is very quiet in the property sector with many real estate agents and commercial property companies enjoying an extended break into the New Year. Economic news is starting to trickle in however and it is painting a different picture to the one we saw in 2014. Signs are pointing to an easing of the froth in the Sydney and Melbourne property markets and a flattening of growth in new home construction across the country. 
 
Economic news
 
The latest Core Logic RP Data Pain & Gain Report has shown the areas which posted the biggest gains or losses in purchase price during the September 2014 quarter. No surprises with Sydney as the strongest market for capital growth followed by Perth, Melbourne then Victoria and Adelaide. The areas that had the highest proportion of loss making re-sales was regional Western Australia at 22.5 per cent of sales and regional Queensland followed at 22.0 per cent. 
 
There was a surprise drop in November home approvals, analysts were touting a rise in the figures but the ABS says new home loans for November dipped by 0.7 per cent with investor loans retreating by 2.2 per cent for the month. New loan commitments for owner occupiers fell by 0.2 per cent. The news signals a welcome slowdown in the housing market after concerns of an investor driven property ‘bubble’ particularly in the frothy Sydney and Melbourne markets. Loans for new home construction also fell by 2.6 per cent hinting at a slowdown in the residential construction sector. 
 
The Housing Industry Association says the picture for new dwelling construction remains bright into 2015. HIA says that the owner occupier loans for new dwellings in November fell by 1.4 per cent however lending was up 4.6 per cent that November 2013. Figures for the three months to November showed a 0.7 per cent increase in new home construction loans. However HIA Senior Economist, Shane Garrett admits there is little sign of further growth. Mr. Garrett says the total volume of loans for home purchase has been falling consistently in the past few months and excessive taxation is hampering the efficient operation of the housing market with the issue requiring immediate attention.  
 
Commentary
 
Turning to commentary and FNN spoke to Bill Evans, Chief Economist from Westpac Banking Corporation (ASX:WBC) about his views on where house prices are headed in 2015. 
 
“I’m still optimistic; I feel that interest rates will come down, that will provide a further confidence boost to the housing industry. I think investors are the value propositions. For investors, housing is very, very strong at the moment, with them being able to lock away their long term funding costs in that sort of 4-5 per cent range when rental yields are roundabout 3 per cent. That’s a very small margin for them to be paying away and of course negative gearing assists in that regard. With interest rates not rising until the middle of next year that’s really a time when housing starts to take a step back. So I would expect that the housing market would be an important contributor to growth once again this year.”
 
Commercial property sector
 
There is little news out of the commercial property sector at the moment as most deals were finalised ahead of the holiday period. 
 
However, property developer Lend Lease Group (ASX:LLC) was the best performing blue chip stock of 2014. The share price gained 47.5 per cent with further stronger performance expected this year on the back of strong apartment development and emerging infrastructure construction.