Australia remains gloomy

The residential property market in Sydney, Australia, is expected to remain in the doldrums for another two years, according to a survey of industry professionals.

The Australian Property Institute survey says that rising interest rates have delayed the recovery of Sydney's residential markets, possibly until 2010.

The gloomy sentiment carries into the listed and unlisted property trust sectors, which are expected to decline in value over the next 12 months as the rising cost of credit diminishes returns.

More than 60 per cent of survey respondents say volatility on the stock market will have an adverse effect on property trusts, with 81 per cent saying listed trusts will be negatively affected.

Residential markets are likely to drop further before improving, according to API research committee chairman Phil Bennett.

The survey, conducted every six months among a key group of property industry professionals, including fund managers, valuers and financiers, says mortgage rates above 9 per cent will further slam the lower end of the market, particularly western Sydney.

'There is a strong sentiment that, if the variable rate was to rise well above 9 per cent, it would have a devastating impact on some areas of the residential market,' said Mr Bennett. 'If a family had 15 per cent equity in their home and the market dropped by 15 per cent, they would end up with negative equity in their home.' Lenders would be forced to decide what action to take in such a situation.

Mr Bennett added that factors such as the stock market and problems with margin calls would affect the middle and upper ends of the residential market. The biggest concern in the industry is the cost of finance and the availability of credit.

The institute's NSW president, Chris Egan, said a developer told him that six months ago he was quoted a margin of 0.6 per cent over the bank bill for a development loan. The margin has risen to 2 per cent. So the viability of new projects had fallen sharply.

Sentiment in the whole property sector has turned more bearish in the six months since the last API survey.

Nineteen per cent of the respondents (against zero in the last survey) say it is 'very unlikely' that the non-residential property sector will outperform the share market.

Sydney's office market is the bright spot for the next two years, but by 2010 non-residential property in Sydney, Melbourne and Brisbane will be on a down swing.

Industrial and retail property markets have peaked in Sydney, Melbourne and Brisbane, the survey says.

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