Latest NewsProperty Still the Best Long-term InvestmentSaturday, 19 November 2016

Despite the rate rises, land remains a good long-term investment.

Usually it's three strikes and you're out - and the Reserve Bank has just taken the unprecedented step of raising interest rates in a third consecutive month.

But is that game over for the property market? Certainly, property prices are a big part of the reason the RBA acted so decisively.

It has for months been making noises about the possibility of an asset bubble forming.

The trouble is that the drastic steps taken over the past 16 months to safeguard Australia from the global financial crisis have worked too well.

The two-pronged defence, of the RBA cutting rates 4.25 percentage points in eight months and the Government temporarily doubling and even tripling (for new dwellings) the first home-buyers' grant, has yielded a tremendous result.

Nationally, prices did take a short-lived dip as valuations in some countries were diving more than 50 per cent (the epicentre of the crisis, the US, predictably fared worst).

However, latest figures from RP Data show that in the 10 months to October, prices in our nation's capitals surged 10 per cent.

At the top of the pack are Melbourne, Darwin, Canberra and Sydney with 14.9 per cent, 12.7 per cent, 11.0 per cent and 9.9 per cent growth, respectively.

But all other capitals posted positive returns, from Brisbane on 6.9 per cent to Adelaide on 4.6 per cent.

The median house price in Sydney is still highest at $553,583, followed by Canberra at $503,666 and Perth at $498,541. Melbourne is fourth with $481,247.

But with rates again on the increase and the first-home buyer's boost about ended, can prices stay there?

Growth may slow - as the RBA wants - but the answer is probably yes. In the midst of the crisis, I wrote that a number of unique factors in our market would protect us.

Several of these still prevail. The first was that the Reserve had prudently and gently deflated our housing bubble before the GFC - which, don't forget, all started in the US mortgage market.

The interest rate rises may have hurt at the time but they did much to insulate Australia from the slump experienced globally.

And their comparatively high level subsequently gave the RBA a very effective lever to pull when things got hairy.

It's now on a clear campaign to unwind the 49-year-low emergency settings - as is appropriate for an economy that is in the throes of at least a tentative recovery.

However, in terms of property investment, the consequence of our previously high rates lingers.

The 12 rises from 2002 prompted a mass exodus of investors from the market and activity remains relatively low today.

This has created a shortage of rental properties and rapid growth in what landlords can charge.

Which, now the bidding frenzy created in some areas by the first home-buyer's boost has ended, could entice new ones into the market.

What's more, the conditions could also force more tenants to become owners. But the third and most important factor underpinning property prices is our ongoing housing shortage and strong population growth.

It's estimated we are now building 30,000 too few dwellings each year.

The RBA could well be successful in, once again, slowly applying the brakes to the property market. But - long term - it's still a good investment.

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