Residential property is expected to soften
After a period of low interest rates, the residential housing market will soften.
Our position has been that the large, dominant shopping centres will be best equipped to combat retail headwinds and the changes announced in this year’s budget add further conviction to this view. After a period of low interest rates, we believe that the residential housing market will soften, leading to more sustainable levels of growth. We welcome further commitments to major infrastructure spending as this will benefit all real estate sectors – residential, office, retail and industrial.
While we expect better momentum in Sydney and Melbourne, we expect Australian businesses to remain focused on cost containment and restructuring until strong economic growth returns. Our research suggests it is important to focus on population growth areas/cities, dominant assets and core locations and to deepen the ‘destination’ and experiential feel of assets to attract customers and staff. This will help offset flatter or declining accommodation demand over the long term.
From a macro perspective, the weight of money into real estate is understandable. Global bond yields remain near all-time lows and are well below the levels of potential economic growth. Part of this is due to monetary policy, part is due to risk perceptions, and part of it is due to the sluggish nature of the global recovery so far.
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