Capital growth for our property markets has been slow over the last 5 years

Capital city home values have increased at an average annual rate of just 1.9% over the past five years, which is significantly lower than over the previous two five year periods and reflective of changing consumer attitudes towards debt post GFC.

Capital city home value growth has been much lower over the most recent five years than it was throughout the preceding period.

Over the five years to December 2012, capital city home values have increased at an average annual rate of just 1.9%.

Across the individual capital cities, Darwin has had the strongest growth in home values over the past five years while Hobart, Brisbane and Perth have each recorded value falls on an annual average basis.

Darwin values increased at an average annual rate of 4.1% over the period while values fell at an average annual rate of -1.9%, -0.8% and -0.4% in Hobart, Brisbane and Perth respectively.

View larger image

If you look further back, specifically over the period between December 2002 and December 2007, the performance of the housing market was comparatively much stronger across the nation.

Between December 2002 and December 2007, capital city home values increased at an average annual rate of 8.4%, almost 4.5 times greater than growth throughout the most recent five years.

Between 2002 and 2007, each capital city housing market except for Sydney, recorded superior levels of average annual value growth than they have over the most recent five years.

In fact, every city other than Sydney recorded average annual value growth which was more than 2.5 times greater than the most recent five year period. Sydney’s housing market performance has actually been stronger over the most recent five years than it was between 2002 and 2007.

The standout housing markets between 2002 and 2007 were Perth (19.4%pa) and Hobart (17.2%pa). Both of these cities have recorded value falls on an average annual basis over the past five years.

View larger image

Moving further back, growth in capital city home values over the five year period from 1997 to 2002 was greater than the two following five year periods. However, this was largely the result of higher levels of value growth over this time in the nation’s two largest markets, Sydney and the Melbourne property market.

Over this five year period, capital city home values increased at an average annual rate of 12.0%.

Each capital city recorded average annual capital growth in excess of 8% per annum over the period, highlighting the comparatively stronger market conditions at that time.

View larger image

How houses performed.

Looking more specifically at the average annual growth in values of detached houses as opposed to units, you can see that houses have historically experienced stronger value growth than unit. Over the 15 years to December 2012, capital city house values have increased at an average annual rate of 7.6% compared to 6.0% for units.

View larger image

What about apartments?

Although the unit market has underperformed the detached house market over the longer term, unit values have appreciated at a faster pace over the most recent five years. The reasons for the recent superior performance are likely due to a range of factors but most notably:

  • The relative affordability of units compared to detached houses;
  • Changing lifestyle preferences, with owner occupiers more accepting of units, particularly in inner city areas;
  • The fact that units are typically located closer to the city centre and within suburbs that owner occupiers aspire to own houses but can’t realistically afford to do so; and
  • The fact that units are typically more attractive to investors than detached houses because they enjoy higher rental yields.

Summary:

This data highlights that the rate of capital growth in the Australian housing market has been slowing over time.

Of course the global financial crisis, and the subsequent changes in consumer attitudes that it has led to, has largely impacted the results of the most recent five years. However, it remains difficult to argue that value growth would have been as strong over the past five years as the previous five years even without the financial crisis.

As the cost of buying and selling continues to increase, albeit at a much slower pace, it seems unlikely that capital gains in the housing market will return to those levels enjoyed between 1997 and 2002 and will be more reflective of conditions over the most recent five years.

[post_ender]



Want more of this type of information?


Tim Lawless

About

Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au


'Capital growth for our property markets has been slow over the last 5 years' have 4 comments

  1. April 4, 2013 @ 7:08 am Stu mcdonald

    A bit suprised at tim lawless making such a statement. Of course if you compate 5 year growth rates between a boom period and a slump period there will be significant differences. Thats just comparing phases of the economic cycle. It doesnt mean that future growth rates will now all reflect the slump rates.

    Reply

    • April 4, 2013 @ 7:52 am Michael Yardney

      Stu
      You are right. The property market always cycles and usually different states are at different stages of the cycle, so overall growth is less volatile than the last decade.
      Since the CFG all states property markets slumped, but the goo news is the cycle is moving on and growth is returning.
      However with inflation of 2 – 3%. we don’t need double digit capital growth to get good returns from property

      Reply

  2. April 4, 2013 @ 10:34 am Cyrus Hansen

    Hi Micheal,

    What do you mean when you close out with “will be more reflective of the last 5 yr period”

    ?

    Reply

    • April 4, 2013 @ 11:37 am Michael Yardney

      Cyrus
      What Tim is suggesting is that capital growth in the future is more likely to be at the lower end – in line with wages growth – maybe 4-5% per annmum
      Remember 3 things:
      1. This is average capital growth and some properties will always outperform this (that’s how averages work) and they are the type of properties I recommend you invest in.
      2. You can always “manufacture” capital growth through renovations or development
      3 . with inflation of 2 – 3%. we don’t need double digit capital growth to get good returns from property

      Reply


Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*

0
0

Michael's Daily Insights

Join Michael Yardney's inner circle of daily subscribers.

NOTE: this daily service is a different subscription to our weekly newsletter so...

REGISTER NOW

Subscribe!