Positive market vibe despite slowdown

DESPITE tightening global credit markets, property analysts remain optimistic that the residential sector in Western Australia is headed for a growth phase in the near future.

Speaking at a Master Builders Association function last week, Hegney Property Group head of research Simon Moore said the downturn in the WA property market was showing signs of plateauing.

"When you've got a high number of properties for sale, a low number of transfers and large price falls in a short period of time, those three points characterise the bottom of the market," he said.

"I suggest...the September quarter of 2008, looking back at this property cycle, will turn out to be the low point in terms of activity."

Mr Moore said indicators such as the return of first homebuyers to the market and falling land prices, along with interest rate cuts, meant sales activity was likely to rise - the first step to a market recovery.

He said the established market was about two to three months away from an upturn, while building commencements were six to nine months away from a similar rebound, depending on interest rates.

If the recovery does eventuate, it's possible that underlying demand may bring about a return to the conditions of 2006.

"We're potentially at real risk of a breakout in our residential market if we can't get supply on board. By late 2009-10, if we keep bringing the people in we're bringing, and we're not creating the dwellings, because we can't get the finance, rents are either going to skyrocket through the roof, or we'll get a breakout in real estate prices within 12 to 24 months," Mr Moore said.

"The supply of land is cascading downwards [11,500 lots were created in Perth last financial year]. Developers have stopped their works programs on future releases and there isn't a lot of land in the pipeline to immediately come on stream."

Another market segment - construction of triplexes and units - has stalled, and is unlikely to recover in the near term due to the decline in the availability of credit and the disappearance of non-bank lenders.

"That [market] won't recover until people can get finance for their developments," Mr Moore told WA Business News.

Outside the residential sector, funding for commercial developments will remain difficult to source, according to HBOS Australia chief economist Alan Langford.

He said banks would look more critically at projects and seek better margins to compensate for risk.

However, the Reserve Bank was likely to cut interest rates further in the coming months, Mr Langford said, if the fallout from the credit crunch was reduced.

"I'm looking for 25 points in October and another 25 points in November, if the CPI...at least shows another [drop in underlying inflation]," he said.