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Rates rise no threat for now

PROPERTY developers are remaining up-beat about the future residential market despite forecasts of a slow down in the sector.

The buzz in the industry is that, in light of Australia’s comparatively low interest rates and stable employment, strong population growth and constraints on supply, the residential market will continue to perform well in the short to medium term.

And with a recovery in the resources sector in the wings, Western Australia is well placed to continue to prosper in the property stakes.

Perth based land developer Peet & Company has reported the doubling of its pre-tax profit to $26.7 million and expects more of the same next year. And listed property developer Cedar Woods has forecast a $10 million net profit, anticipating continued growth in revenue and profitability.

National property group Stockland recorded a net profit of $94.7 million in its development division, up 52 per cent on the previous year.

Stockland WA general manager Nick Perrignon said he expected the market to start to level out but, due to the recovery in the resources sector, WA was well placed to have continued strong growth going into the next two to three years.

Mr Perrignon said the recovery in the resources sector would lead to the negative interstate migration from WA returning to a neutral or slightly positive figure, which would benefit the property industry.

Mr Perrignon said the recent interest rate rise was a timely reminder for investors and property purchasers.

“The market has become increasingly sophisticated in the last two to three years and I think many investors have factored in two adjustments of 25 points,” he said.

If there was a 10 to 15 per cent decrease in sales volumes, Mr Perrignon said he expected property values to hold firm.

Australand Holdings Ltd WA general manager Chris Lewis told a recent Property Council lunch that the underlying strength of the property market would counter any increase in interest rates or other obstacles. The market would continue to grow, he said, albeit less spectacularly than it had in the past two years.

While most industry experts are forecasting a 10-15 per cent decrease in sales volumes over the next 12 months, Mr Lewis said a fall in property values was unlikely. He said there would be a modest downturn in activity, but expects no significant reduction in prices because well located and well-priced property would continue to sell.

“Most people within the industry recognise that there will be a decrease in sales, but it won’t have a major impact on the market as the previous levels of activity were unsustainable,” Mr Lewis said.

“Over the next 12 months we will get back to a more moderate market where there is still steady growth in values.”

While he expected the land market to “cool off” in the short term, the outlook for the apartment market was still very positive.

“There is almost an insatiable appetite for apartments in the mainstream market up to $350,000, plus strong support for top-end apartments above that price range,” Mr Lewis said.

“And while the inner-city market has made up around 50 per cent of all apartments built in recent years, it will drop significantly this year with a broader spread throughout the near city and broader metropolitan area.”

The forecast for 2004 and beyond is around 800 inner-city apartments a year.

Mr Lewis said the only major threat to the apartment market was from increasing land values in the inner-city area, which were starting to affect the viability of residential development compared with other types of development.

 

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