Property beats shares - growth to continue

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Property investors are faring better than their share market investor counterparts as property values have continued to rise while stocks faltered.

The latest RP Data - Rismark Property Value Index showed property values climbed by 13.65% in the 12 months to February - a stark contrast to the steep drop of 14.71% on the ASX and 13.94% loss on the All Ordinaries.

"The share market is no longer king," said Craig James, chief economist, equities with CommSec. "At the same time, both rents and house prices are growing at a double-digit annual rate. The appeal of housing as an asset class has clearly improved."

Adelaide and Brisbane continued to post the strongest annual growth of any capital city and the only ones showing solid growth across the board, according to the report.

"Adelaide has been Australia's strongest property market during 2008, with property values growing consistently across all regions," the report said. "Residential property values in suburbs through eastern Adelaide particularly have grown strongly with house price growth around 30% and unit price growth in excess of 30%."

Brisbane surged by 22.45% with the inner suburbs recording a 35% capital growth in the same period. Melbourne has remained resilient, with house values rising by 22.45% and units adding 22.85% in value. However, the outer eastern and southeastern suburbs have stagnated and some fell slightly.

House prices in Sydney have flat-lined over the last three months while unit values fell by 1%. House values in southwest Sydney continued to lose ground and have now been joined by inner west and eastern suburbs which recorded a drop of about 3-4% in value in the same period.

This is the first time the eastern suburbs have recorded a fall in almost two years, according to the report. "This demonstrates the new vulnerability of upper-end markets which up to now have largely avoided any fallout from interest rate rises," the report said.

Dr Matthew Hardman, Rismark International head of research, noted that while the results were surprisingly resilient compared to share market performance, the report indicates that the first half of 2008 will see subdued rates of capital gains with potential for increased volatility from month to month, particularly around RBA rate announcements.

"This monthly volatility may result in some negative month-on-month returns in the very short term," he said.

However, he predicted that high immigration, low unemployment and a long-term housing supply shortage support projections of strong residential price growth annually of 6-8% on average across Australia over the next three to five years.

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