The Australian housing market has been dubbed a ‘safe harbour’, which will protect investors from a softening mining sector and other economic concerns, by YBR funds manager, Christopher Joyce.
In an opinion piece published by the Australian Financial Review, Joyce says he’s ‘argued for years’ that the housing market could be a hedge against a slowdown in the resources boom, falling commodity prices and cheaper interest rates.
“We have certainly seen a steady recovery in key housing activity variables since mid-last year. New home loan approvals have been lifting. Clearance rates in the two largest auction markets, Sydney and Melbourne, are back to boom-time conditions. And house price index providers report that home values are higher than they were 12 months ago.”
Joyce calls RP Data’s index, which implies capital growth since May 2012 has been modest, ‘hedonic’ and notes that rental yields over 5% ‘are the best in years’.
“That means you can ‘positively gear’ – with discounted home loan rates under 4.9%, gross rents should comfortably exceed repayments (especially if your loan is less than the property’s value).”
He says APM’s stratified index, which is closely watched by the RBA, further backs up his confidence in the housing sector.
“Since the mid-2012 trough, APM’s index indicates house price growth across Australian cities has been 8.4% (annualised) or 10.3% (annualised) over the first five months of 2013. Combined with gross rents, these imply attractive total returns before transaction costs.”
“A key benefit of housing investment is that banks will lend at much higher levels (up to 95%) for vastly longer terms (30 years) at far lower rates than business or personal borrowers. The key risk is about one in 10 people lose money when they trade their property.”