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Sydney tops in growth prospects

26 September 2007

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Big investment institutions and property companies believe residential property in Sydney has more growth potential than any other class of property on Australia's east coast, a survey says.

Residential property markets in Melbourne and Brisbane are also poised to generate positive returns for investors despite a possible tightening of credit related to the US sub-prime mortgage crisis.

A survey of 31 firms, including the major banks, by the Australian Property Institute (API) asked respondents to gauge where they believed each asset class of property - residential, commercial, retail and industrial - was positioned in terms of the market cycle.

A clock was used to represent the market cycle, with noon representing the peak of a boom and six o'clock representing the bottom of a bust.

At seven o'clock, residential property in Sydney was placed as having the most outstanding potential for growth, followed by Melbourne residential at nine o'clock.

Brisbane residential is sitting at 10 o'clock, respondents said.

"The survey found that respondents see a tightening of credit in Australia, especially from non-bank lenders," API New South Wales president Tom Webster said.

Sharemarket volatility was also seen by respondents as likely to dent investor confidence.

But while sub-prime mortgages represent 20 per cent of the total US market, they only account for two per cent of Australian mortgages.

"The survey revealed that people are less certain about any major long term negative impact in Australia ... but generally it was felt it wouldn't have any major impact."

A rise in interest rates related to higher funding costs for lenders could effect different parts of cities in different ways.

Mr Webster warned that the Sydney market is "very segmented".

"There are large chunks of the Sydney property market that won't go up, but there are other parts, more at the higher end, that will," he said.

Fast forwarding to September 2008, respondents said the Sydney, Melbourne and Brisbane residential property would still have the best growth prospects than any other class, and would continue to do so through 2009.

Retail property, meanwhile, is currently at 11 o'clock, and will hit noon in all three state capitals in 12 months time before going into retreat in 2009.

Commercial and industrial property are both sitting at 10 o'clock in most of the three capital cities today, and will continue to grow through 2008.

But commercial and industrial property markets are likely to hit noon in September 2009.

Compared to investments other than property, over the next 12 months, 65 per cent of respondents said domestic non-residential property was likely to outperform equity markets.

But domestic listed and unlisted property trusts are only expected to post "moderate growth" as demand for quality properties fuelled by compulsory superannuation outstrips supply.

"The scarcity of quality Australian properties is having a major impact on the prices people pay, and of course yields," Mr Webster said.

Global property was seen as presenting investors with far more opportunities, with 68 per cent of respondents saying it offered significant prospects for strong returns.

Over 50 per cent of respondents said local property was already priced at a premium, and 81 per cent said their was a scarcity of Australian properties in which to invest.



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