Residential property set to outperform shares – CommSec

Residential property prices will grow by 10 to 15 per cent in most capital cities this year while share market investment returns will grow by only 3 per cent, according to Craig James, chief equities economist at CommSec.

James said poor share market returns and rising property values and yields would encourage investors to return to the residential property market this year.

Australia’s residential market is well positioned for stronger activity as well as above-average growth in prices over 2008, he said.

“The rental market is the tightest it’s been in around 20 years and Australia’s rapidly expanding population is expected to put extra pressure on housing.

“Over the 12 months to September, total population grew by 1.5 per cent to 21.097 million people according to the Australian Bureau of Statistics — the fastest growth rate in 18 years.”

At the same time, James said the strength in rental yields and a more uncertain outlook for the share market could see more investment in housing over the coming months.

Increased investor interest in property together with solid fundamentals for the owner-occupier market point to stronger construction activity over the next 12 to 18 months, he said.

The housing sector is responding by slowly starting to build more homes, although the supply of housing remains far short of demand, he added.

The NSW housing market is fundamentally best positioned for recovery, but the outlook also remains favourable for Victoria in 2008 and 2009, and Queensland in 2009.