Demand for Australia's property market "exceptionally high"

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While the property market is currently viewed with a pervasive gloomy outlook, the underlying fundamentals remain sound to support growth in values, according to a leading property analyst.

Tim Lawless, national research director of RP Data, pointed out that just like any other market, the property sector is subjected to the basic law of supply and demand. At the moment, he said demand remains "exceptionally high" for Australia's property market, while new supply is shrinking fast.

"With so much conjecture and speculation about where Australian property values are heading, and with economists and commentators divided right now on this very topic, it's important to note that opinions can often be based on observations rather than an empirical examination of the market fundamentals," said Lawless.

He urged investors to get back to basics such as understanding the key drivers of demand being population growth and changes in household sizes as well as the rate of divorce.
"Australia is currently undergoing a population boom with a population increase of more than 330,000 last year. In raw numbers, Australia's population growth has never been higher. Over the 2007 calendar year, almost 180,000 net migrants arrived in Australia."

He added that migration is further boosted this year by the government's plan to increase the skilled migrant intake by 30% for 2008/09. At the same time, he said that the rate of natural increase is also rising rapidly with over 140,000 more births than deaths last year.

"At a time of record population growth, there are simply too few new dwellings being built to house this growing population," he said. "Add a shortage of land to the equation and this presents as another constraint."

Lawless cited an analysis conducted by the Commonwealth Treasury which estimated that demand for housing will increase to over 200,000 homes per annum by 2010 due to the demands of a growing population. In contrast, new supply is forecast to be only around 150,000 to 160,000 dwellings per annum.

"This demonstrates that the imbalance between supply and demand will be a fundamental driver, placing upwards pressure on Australian property values. When viewed in light of the ongoing shortfall in dwelling supply, Australian property values can only go one way, and that's up," he said.

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