Masters of their domain
smh.com.au, 2006-12-13
It's boom time for some and bust for others as the property market fractures.
They couldn't occupy more different worlds. In the hot spots around the harbour properties are fetching eye-popping amounts and still rising but on the city's fringes prices are falling or flat and mortgagee repossessions are running at more than twice the normal rate.
The one is being driven by a new moneyed class - the cashed-up fund managers, investment bankers and captains of industry whose earning capacity has shot through the stratosphere and, at the other end, the battlers who didn't realise that getting a home loan and servicing it are two different things.
Australia's egalitarian society is being stretched as the two poles move further apart. But the new reality is not reflected in the median house price that is so often quoted as barometer of the market.
Strong corporate profits and the perceived war for talent are driving up the salaries of those working in the resources, financial services and commercial property sectors, says Bob Cunneen, AMP Capital Investors's senior Australian economist. On the other side of the tracks the less skilled have struggled as a result of globalisation and the loss of manufacturing jobs.
Buying a house in Sydney or Melbourne in the late 1990s was a one-way bet to riches until prices peaked in 2003. But a raft of interest rate hikes have triggered something new in the market - a mixed bag of price rises and falls in Sydney and Melbourne.
Sydney suburbs near the harbour are doing well, as are the elite suburbs of Melbourne. But further afield where high petrol prices hurt most, house prices are falling or flat.
There are still opportunities for capital growth for those thinking of entering the market, so long as they are selective. If you are an owner-occupier with a long-term horizon, the current gyrations are irrelevant providing you don't have to sell up and go. For investors, the issues are somewhat different.
Either way, the old maxim "position, position, position" still holds true, with the wealthier areas doing best.
Steve McKnight, a chartered accountant, professional property investor and the author of best-selling property investment books says investors have to be particularly careful. It is now time to consider selling underperforming properties and pare back debt.
Property that has not performed during the boom is not going to perform during a downturn.
He says he is no Chicken Little and downturns do not last forever but investors may be better off selling underperformers and looking for better opportunities elsewhere. Researchers, however, believe higher rents are just around the corner and point to the high transaction costs of buying and selling property.
McKnight says interest rates could be much higher next year - though most economists believe we are at the top, or near to the top, of this interest rate cycle. Some are even expecting rates to be lower by the end of next year.
Either way, it is time to take stock.
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