The east coast residential market is stabilising, and in some market sectors conditions are the strongest in almost 20 years, according to Macquarie's annual Real Estate Market Outlook which was released this week.
Head of Research for Macquarie Bank's real estate business, Rod Cornish, said that this year's Outlook, entitled "Real Estate Carnival - Game of Skill," looks at the state of the property market and in particular, the impact that the strongest global economy in 30 years has had on real estate markets around the world.
The Outlook notes that the strength of the global economy continues to drive stronger real estate fundamentals, partly due to high levels of liquidity.
"The cycle is expected to run for at least the forecast period of 12 months. If the US economic outcome is stronger than anticipated, the real estate fundamentals could run even longer," Mr Cornish said.
"If the current exceptional performance was simply due to the weight of money, it would be merely a bubble. But the global economy is in the midst of its strongest cycle in 30 years supporting those fundamentals."
"Savvy investors need to remain alert to signs like tight yields, over aggressive pricing of rental expectations, and diminished accountability for risk that will signal the change in the cycle. They will also need to continue to apply the fundamentals and be rigorous in assessment," said Mr Cornish.
Global Head of Macquarie Bank's Real Estate business, Stephen Girdis said that local knowledge is always critical in property, and it is increasingly important for investors to be discerning.
The report shows that, in Australia, the divergence between east and west in the residential real estate sector/market is steadily narrowing.
"Sydney residential real estate is entering a stabilisation phase," said Rod Cornish.
"We expect to see the east coast moving to the next phase of a long cycle with the upper end of the market still outperforming as is the case in London and parts of the US.
"Factors pointing to a stabilisation phase in Sydney are mounting with the strongest migration in 5 years, and the east/west divide narrowing, although subdued confidence threatens a slower recovery particularly in outer ring areas. The forecast is for slower conditions in Perth with affordability a key factor. Moderate price rises are expected in Melbourne and Brisbane."
The Macquarie Real Estate Market Outlook report has been produced annually for the last eight years. In that time, it has predicted trends in the property market including the influence of the baby boomers, the move to community lifestyle property, the move to apartment living, the out-performance of industrial property located around new and emerging infrastructure, the surge in residential property in south-east Queensland and Perth, the softening of residential markets and the resurgence of office markets, and over the last three years the huge weight of money targeting domestic assets resulting in investors shifting their focus to global real estate.
The Outlook is available at www.macquarie.com.au/remo
