Australian property is an attractive long-term investment option, but it may not remain so for long. According to Malcolm Reid, a property developer and a former economist for the Reserve Bank of Australia, the market is set for a recovery. 'As an economist who follows many economic sources in the United States, Britain and Australia and property issues in Australia, I am convinced that the second half of this year will see an enormous rise in most residential rents and prices after a mild low in the first half.' Michael Yardney, chief executive of Metropole Property Investment Strategists, said: 'An increasing shortage of supply of well-located properties in Australia's capital cities, coupled with strong and growing demand, means there is only one way for rents and eventually property values on the east coast of Australia to go. 'Despite all the bad news, the fundamentals for Australia's property markets are still sound,' he said. The 'bad news' is falling building approvals and property prices. Building approvals in November last year were 34.7 per cent lower than 12 months earlier. The average price of a house in the popular northern beaches residential area of Sydney fell from A$955,000 (HK$4.71 million) in the first half of 2008 to A$915,000 in the second half. Average apartment prices for the same region fell from A$480,000 to A$467,000. However, the fall in building approvals, a consequence of tighter credit, is positive for long-term property investors because it restricts new supply. And the falling prices are also positive for potential investors. Tim Lawless, national research director of property strategy group RP Data, said: 'The fundamentals underlying the Australian property market are robust. Investors need to take into account current supply constraints, infrastructure delivery, immigration, vacancy rates, rising rents and expectations that interest rates will continue to fall. These are the basics that should fuel capital gains for investors.' Frank Allen, director of property market research for Westpac Banking Corporation, said Australia was a sound long-term investment option because of the economy's solid fundamentals and the property sector's income security. The soundness of the fundamentals is an underlying theme of much analysis of the Australian property market sector. There is damage - credit is tight, values are down, and no one is predicting anything other than economic gloom for most of this year - but there is no shortage of positive outlooks for Australian property investment. Part of the reason is the range and scale of government economic stimulus initiatives, including stimulus packages aimed directly at the property market. Another stimulus package, involving a big increase in government subsidies to first home buyers in Australia, is already having an effect on market activity. Figures for November, released on January 14, show an 18 per cent surge in first home buyer applications, a jump described by Commonwealth Bank economist James McIntyre as, 'an extremely positive indication that government stimulatory moves are having an impact'. In the short term, Australia faces tough economic conditions and with it slower property investment activity, for at least the next six months, even though it may be one of the few developed economies to escape, technically at least, going into recession. According to a Westpac economic forecast paper, 'the fall in consumer confidence [in the second half of 2008] to 18-year lows was driven by a combination of bad news on oil, stock markets and mortgage repayments, and this drove ... slowing sales rate. 'While confidence is expected to improve over the second half of 2008, as a revised view on interest rates results in falls rather than stability, the recovery in sales turnover is expected to be gradual over the remainder of the year'. However, such conditions, of course, spell investment opportunities. So where are the best property opportunities in Australia in the medium term? Mr Allen said Sydney looked to be the most attractive Australian property investment market this year on fundamentals. 'Sydney has the least planned supply [Brisbane has the most],' Mr Allen said. 'So the positive for Sydney is that oversupply will not be an issue. The negative is that Sydney is Australia's financial centre, and the global crisis is a financial industry crisis.' Westpac bank expects an improvement in confidence from the second half of the year as interest rate cuts and stimulus spending start to take effect. Recovery, however, is not expected to be quick with next year being a period of consolidation rather than rebound. 'It takes six to nine months for monetary policy impact to be felt,' Mr Allen said. 'We think economic data will start to pick up from the second half of this year.' Mr Allen agreed that all these factors add up to a buy opportunity argument for Australian property, especially in Sydney and particularly in the office sector. 'Weak economic fundamentals in the first half could provide buying opportunities,' he said. 'We expect confidence to overshoot on the downside in the first half, but underlying fundamentals, such as no significant oversupply, are sound. 'Property investment is about income flow. We are already seeing a correction in yields - they are rising from the lows of late 2007. Income is reasonably secure over the next 10 years.' For non-Australians, investing in property in Australia is about to get easier. Changes to the administration of real estate purchases have been announced by the federal government and will come into effect early this year. The changes will reduce costs for non-Australian individuals and businesses, and will simplify the process of buying real estate.