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Property winner as investors flee equities

August 18, 2007 

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CONVENTIAL wisdom has it that unless their is an utter bloodbath on the share market, then volatile equities mean profit taking, and more money flowing into the safe haven of bricks and mortar.

For prestige housing, that means the seemingly impossible: a hotter market.

But there will also be a flow-on effect for apartments.

Investors have already returned, with finance for investment housing jumping 15 per cent in June, more than double that of owner occupiers.

Rents are rising at a faster pace than last year and apartment prices have come off their lows.

Michael McNamara, general manager of researcher Australian Property Monitors, notes that in Sydney, apartment prices rebounded 2.2 per cent in the June quarter and the growth was stronger in other capitals.

Traditionally, he says, a wobbly stockmarket means more money goes into upgrading the tax-free family home, or into super.

But, he says, it will also mark the return of residential property investors.

Interest rates are biggest factor in the housing cycle, and the key concern for most people. There have been nine rate rises since 2002 - four since the start of last year.

Interest rates have little impact on the top end, where homes are often bought with cash, and for investors, well, they have negative gearing to help out.

The middle market has also shugged off the string of rate rises, with June-quarter house prices -- while falling for the overblown markets of Perth and Darwin -- bouncing up in most other cities. Brisbane, Melbourne and Adelaide turned in price growth of more than 5 per cent for the quarter.

It's the first-home-buyer territory on city outskirts where the situation goes from bad to worse.

Every interest rate rise is drawing more of a line in the sand between the market segments; the top end gathers pace while the low end struggles.

McNamara points out that there is a lag effect, with the impact of a rate rise felt six to nine months down the track.

The repercussions of the two rises in late 2006 are only just being felt, he argues.

"There is a fair lag between the first (mortgage) default to when the home owner raises the white flag and hands in the keys," he says.

So the impact of the August rate hike won't really show in the depressed housing sectors until next year.

For some time economists have been arguing there will be a top-down recovery in the housing market, but for some, that still looks a long way away.


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