City apartments set to remain popular buys in Australia in 2015
Investor appetite for city apartments in Sydney and Melbourne will remain strong in 2015, as low interest rates attract first home buyers and investors, according to a new analysis.
The outlook for interest rates is mixed but headline indicators such as unemployment, construction activity and GDP point to a period of weaker overall economic growth which will result in interest rates remaining steady in the short to medium term, says the latest property outlook report from Colliers International.
‘This is good news for the residential sector and points to continuing demand side momentum. The low interest rate environment is a key driver of residential activity in the current market, and we anticipate it will provide supportive conditions for strong investment activity in 2015,’ it explains.
It predicts that Sydney, Melbourne and Brisbane residential markets will have the strongest residential growth, as weaker economic conditions in Western Australia will lead to a slowdown in development and investment activity in 2015.
It also points out that developments in central locations with close proximity to public transport, work and retail amenities will be in higher demand. Consequently, this demand will see the number of apartment developments grow in Melbourne, Sydney and Brisbane throughout 2015.
The Melbourne and Sydney CBDs have been the strongest performing markets, with the volume of apartments under construction in the next five years to reach and 18,000 and 6,000 respectively, buoyed by strong offshore demand, and a rapidly rising inner city population, a trend we anticipate will continue in 2015.
Next year is set to see Australian property experience a continued increase in investment volumes, improved tenant demand and structural change across various sectors.
The analysis also suggests there are two key themes for the year ahead that will see technology continue to change the property industry and investors continue to diversify from core assets to other markets and sectors.
According to John Kenny, chief executive of Colliers International Australia and New Zealand, 2014 was the year that investment in property continued to accelerate, New South Wales returned as a growth economy and the market saw signs that leasing demand was on the return.
‘Ownership of Australian property continued to become concentrated amongst fewer owners. Strong flows of capital continued to enter the Australian property market both from offshore and overseas,’ he said.
He pointed out that by the middle of November transaction volumes were well up on 2013 levels and although total volumes are still some way off the 2007 peak, some sectors such as the national industrial market and the Melbourne CBD office market have now exceeded volumes in that year.
‘The majority of sales are now to Australian investors. This is not surprising given that Australian investors are now recognised as the most confident in the world, according to our most recent Global Investor Sentiment Survey,’ he added.
Offshore investors also continued to enter the market with new groups emerging, particularly from China. Chinese investment continues to dominate headlines and is emerging as a major source of outbound capital, targeting all regions across Asia Pacific. Singapore however continues to remain the dominant player, a place it has held for a prolonged period.
‘There is pent-up underlying demand from investors, primarily due to the lack of stock, and that will gradually be satisfied. However, there are increasing challenges for investors looking overseas, not least the narrowing of the gap between yields in Asia and in overseas markets,’ said Dennis Yeo, chief executive officer for Asia at Colliers International.