Values Down, Rents Up?

This is an extract from an article from a News Corp paper, written by a researcher at RP Data:

"QUEENSLAND'S residential property market is in the doldrums and faces a grim 2011, with house prices likely to grow so little this year they won't keep up with inflation. Despite this fall in real terms, interest-rate rises will force many first-home buyers out of the market.

From the end of 2007 to October last year, Brisbane home values increased according to the RP Data-Rismark Home Value Index by a total of 3.8 per cent. In the period December 2007 to September 2010, the Australian Bureau of Statistics' consumer price index showed that prices (or inflation) had increased by a total of 8 per cent.

As a result of home values growing at a slower rate than inflation, in real terms, property values have fallen by 4.2 per cent since the end of the city's last strong value growth period in 2007. In the next 12 months, I expect that property values will be pretty much flat suggesting that once again in real terms Brisbane homes will record a fall.

Although this might seem like great news for those looking to enter into home ownership, in reality interest rates are at much higher levels than they have been in recent times. The result will be that the cost of servicing the debt on a mortgage is now much higher, and for first-time buyers it will be more difficult to enter the market.

The bad news is two-fold for those unable to buy their first home. We are expecting rental growth to return to the Brisbane market this year. While property values have not grown in real terms since 2007, the low-interest-rate environment during 2008 and the First Home Owner Grant boost lured many out of the rental market and into home ownership. As a result of these conditions rents have been falling since the start of 2008. With property value growth likely to be flat, interest rates at above average levels and possibly increasing further, and Queensland's building approval numbers still disappointing, we expect that competition within Brisbane's rental market will intensify.

With limited new stock coming on line, demand for existing stock is likely to increase, particularly in inner city suburbs. As a result, landlords are likely to have increased scope to lift rents. At RPData we expect property values to fall in real terms, but it is likely that during the year rents will increase in actual and real terms.

This may be the case in Brisbane, but don't expect the same conditions outside the capital. Limited demand, a rental oversupply in some areas and the lacklustre performance of the tourism sector are likely to result in falls for rents and values in real terms."

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