Property foundations remain firm

Investors looking at property in the next few months need not be concerned about interest rate and inflation rises according to Australian Property Institute (API) NSW State President Michael Collins.

Despite the upheavals in tax, inflation, interest rate rises and the shake up in some sectors of the share market, property seems to be holding a steady course. Jason Spits examined market sentiment to find some good news.

Investors looking at property in the next few months need not be concerned about interest rate and inflation rises according to Australian Property Institute (API) NSW State President Michael Collins.

Rather Collins says the potential for these events has been flagged and factored in for quite some time.

"It would be fair to say the great majority of people involved in property invest-ment have seen these rises over the next twelve months and have factored these into the dynamics of their decisions," Collins says.

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"These are not unexpected and not unmanageable events. If these rises were to have a large impact we would already be seeing an effect on activity and base val-ues and that is not happening."

Collins statement comes after the API conducted its half-yearly Property Direc-tions Survey of property analysts, valuers and fund managers.

The survey asked the question, "Which property sectors within each of the major capital cities will perform best at the end of one, two and three years?"

The survey also found positive sentiment towards the GST. Collins says institu-tional investors are ready to face the new tax.

"We discovered that industry participants haven't changed their views since our last survey in October and believe the market will adjust and has made provisions al-ready," he says.

"Professional property owners see the GST built into prices with a continuation of business at current levels of activity."

However there were concerns that unresolved questions at the lower end of the market would create a flat spot in investment.

"The API are concerned that the community in general may not understand the im-pact of the GST on property. We feel that institutional owners with access to ad-vice and so on are well aware of how this will work," Collins says.

"However the investors market up to around $5 million may well hold off on prop-erty until they are comfortable with the GST and what it means as a smaller holder of property."

According to the survey, there is a limited understanding on the implication of the tax when purchasing a property and even less when holding property.

"It may hold people back and create a short term hiatus which we are already see-ing at the retail housing end of the spectrum in regards to construction during and after the GST introduction," he says.

"These are not permanent withdrawals but it is still an interesting response from the community as people don't want to be the first to take the plunge."

However Collins says that the recent gyrations in the stock market will have little impact on property investments since the nature of these investments made rapid transactions difficult.

Back at the higher end of the market there was a loose consensus over the best per-forming sectors in the state capitals over the next three years.

Most respondents felt commercial property held the best potential over three years in all capitals except Hobart and Adelaide which were tipped for a good run in re-tail.

Of the capital cities, Melbourne and Brisbane are expected to lead the Australian commercial investment property scene over the next 12 months while Sydney had almost approached its peak.

"The commercial property dynamic is based on supply and demand which is driven by tertiary growth in other industries. As such, most respondents felt there was more rental and capital growth in Melbourne and Brisbane."

This confidence will also extend to foreign investment with respondents believing this will rise in the next 12 months and be steady over a three to five year period.

"There is a combination of factors for this with Australia emerging unscathed from the Asian meltdown. Investors are also attracted to a stable political environment and the ability to do business with government assistance at state and federal lev-els," Collins says.

"And while many people see rent and the cost of property increasing for overseas investors Australian property is still seen as cheap in many sectors."

Property markets over the next three years.

Sydney

Commercial - strong for the next three years with slight decline in year three far ahead of other sectors

Industrial - slight rise after 12 months from low base

Retail - steady for three years

Melbourne

Commercial - strong for three years with slight decline in year three far ahead of other two sectors

Industrial - slight rise from low base

Retail - decline, followed by significant rise in year three

Brisbane

Commercial - strong over three years

Industrial - decline over three years

Retail - steady growth to overtake commercial sector by year three

Canberra

Commercial - steady growth over three years

Industrial - virtually nil

Retail - steady over three years

Perth

Commercial - rising from strong base, clearly leading sector by year three

Industrial - increase to year two followed by fall

Retail - slight decline from strong position

Adelaide

Commercial - slight fall followed by recovery in year three

Industrial - low but steady

Retail - strongest sector with slight increase

Hobart

Commercial - steady on low base

Industrial - virtually nil

Retail - strongest sector high over three years.

Source: API research.