The NAB Residential Property Survey Report, Q3 2015

Every three months, the National Australia Bank (NAB) releases an update on residential property in Australia.  

They base their findings on a survey of approximately 300 respondents consisting of real estate agents, property managers, developers, asset and fund managers, valuers and property owners. The most recent report, which you can download here, contains their latest statistics on the Australian residential property market.

I wrote about NAB’s first quarter 2015 survey here, as well as the second quarter survey here. Little has changed from the previous six months, and much of what NAB shares is a confirmation of what we already know.

Nonetheless, here are my top three takeaways from NAB’s most recent Residential Property Survey:

1. The Future Seems Brightest in The Sunshine State

If higher interest rates and threats of a correction have not frightened you away from property investing, perhaps Queensland is the place to look.

According to NAB’s findings, the Sunshine State has replaced New South Wales as the most optimistic state for residential property. The bank expects it will lead the country for price and rental growth over the next one to two years.

Don’t get too excited, though. They’ve projected capital growth in Queensland to be a meager 2.6 and 3.4 percent per annum over the next few years.

Growth expectations for New South Wales and Victoria were cut back to around two percent per annum. South Australia, the Northern Territory and Western Australia are each expected to move backwards slightly over the next 12 months.

2. Your Savings Account May Offer a Better Yield Than Real Estate

The picture isn’t exactly rosy, even for Brisbane. The NAB survey reports that it expects yield compression to persist as capital growth outpaces rents in all states.

We measure yield by dividing your annual rental income by the value of your underlying property. Yield compression refers to the squeeze on your investment return when the top figure, or rental income, levels off, while the bottom figure, or property value, continues to increase.

This phenomenon has persisted in Australia for the better part of the last three decades. Yields in Melbourne and Sydney are now the softest on record at around 3.3 percent. As a result, many investors are sitting on a lot of lazy equity.

Regardless of whether yields continue dropping, after factoring in both the risks and the costs of holding real estate, a 2.25 percent risk-return in a savings account isn’t looking all that bad.

But the vast majority of investors still have no intention of cashing out of property. According to a recent poll of 1,000 investors by Property Investment Professionals of Australia (PIPA), nearly two-thirds of investors are planning to buy a property in the next six to 12 months. One in five claim they have put their real estate investment plans on hold in fear of a market correction.

3. Foreign Buyers Continue to Line The Pockets Of Developers

The NAB report claims the third quarter was the most active of the year for overseas investors, accounting for approximately 16 percent of the total demand in new housing markets, and nine percent in the established housing market. Keep in mind that is a nationwide statistic. In Victoria, foreign buyers purchased a whopping 25.2 percent of all new dwellings. How many Melbourne builders do you think will go bust if the Chinese stop buying?

The jury’s still out on what the future holds. Some suggest demand could slow by as much as 30 percent by the end of December, but judging by the fundamentals, unless something cataclysmic happens, off shore investment into Australian real estate may be here to stay.

What Do You Think?

We’d love to hear your answers to the following questions:

• Is Queensland poised for stronger growth in the coming years?
• Are you planning to buy a property in the next six to 12 months, or have you put your real estate plans on hold?
• Will foreign demand for Australian real estate slow down, or is it here to stay?

Please answer them in the comments section below.

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.