Australia was top performing real estate market in 2010

The Australian property market was the clear front runner in 2010 with demand supported by low unemployment and tight supply adding to the upward, according to a global property market report.

But there is likely to be a slowing sales and downward pressure on prices in 2011, according to the Global Real Estate Trends reports from Scotiabank that looked at the performance of the 12 most developed markets.

Australia was heading for a property bubble but consecutive interest rate increases by the Reserve Bank of Australia (RBA), totalling 175 basis points since October 2009, alongside the expiry of the enhanced First Home Owners Grant in January 2010, succeeded in cooling its red hot property market to some degree, the report says.

The market slowed towards the end of the year. Average inflation adjusted home prices in the third quarter of 2010 were up 9.4% year over year compared with a 15.9% year on year increase in the first three months of the year.

‘We anticipate a further slowing in sales and price appreciation in 2011. While Australia’s close trade ties with Asia and resource wealth will continue to underpin a solid pace of domestic activity, higher interest rates will worsen already strained affordability. The RBA has recently taken pause, but we expect the resumption of a gradual policy tightening path in 2011, with short-term rates rising an additional 75 basis points by the end of 2011,’ the report adds.

The latest national figures from Rismark RP Data house price index seem to back up this analysis. They show that nationally prices fell 0.3%. But some areas, such as Melbourne are still seeing rising prices, up 0.4%. Also apartments are performing better, up 0.6% in Melbourne compared with a national drop of 0.1%.

The market is weakest in Perth, where average prices have fallen by 4.9%, or almost $25,000, since May. Average apartment prices in Perth are down $44,000. Home buyers in Perth have seen no capital appreciation since August 2007. Prices are also very weak in Brisbane, having dropped 2.3%, or $11,000, since their peak in May, with a 0.5% fall in November. While prices in Sydney fell 0.24% and are now 0.76% below the peak.

Rismark managing director Christopher Joye said the likelihood of further rate rises in 2011 meant it was unlikely that home owners would see any capital appreciation, with small nominal price falls a chance. Financial markets expect three more 0.25 percentage point rate hikes this year.

While ANZ Bank economics spokesman Paul Braddick said the decision to raise interest rates again has led to weaker property prices. ‘While the November interest rate hike further deteriorated home purchase affordability, general household financial stability and underlying tightness in market fundamentals are continuing to support, albeit weak, annual growth in house prices,’ he said.

‘We believe these market foundations combined with a strong domestic economic outlook, falling unemployment and limited forced selling will effectively place a floor under house prices in 2011,’ he added.