Here’s an end of year review of how our property markets performed in 2014 and some predictions for 5 and 8 year capital growth ahead.
It has generally been a better year for our housing markets with Australia wide house price growth being some 2.64 per cent better than last year and unit, or medium density, prices having increased by 2.37 per cent more than achieved in the prior 12 months.
In Table 1, we provide the growth rates for our markets as at the end of November 2014.
This table shows Sydney was the major growth winner in 2014. Melbourne produced a lower, but very acceptable, level of growth.
Table 1: Monthly Summary
Data evidences our markets have passed their peak period of growth for this cycle, as is shown in the Australia wide trend in Graph 1.
Graph 1: Australia-wide Growth Trend
Auction clearance rates across the nation have now dropped back a little and are hovering around the low 70 per cent mark.
All of this points to a slower market in the next 12 months.
So what will be the outcome when we look at the market position this time next year?
Capital Growth Predictions
In the table below we provide our predictions at a capital city level.
These predictions are statistically derived based on the past and present, and show the average expected annual return over the next five years and eight years.
Our models are indicating that the market will slow, and produce moderate growth for the next two and three years, and then again move forward in mid to late 2017.
Please note that these average predictions are developed for the median house and unit, and there will be areas of a city which do significantly better than our predictions indicate.
The models are indicating that Brisbane is likely to be the standout performer in growth terms when compared to other cities.
Equally, the models are indicating that the rates of growth are likely to be quite moderate when compared to past growth cycles.
Why Brisbane will outperform
It is not particularly difficult to find justification as to why Brisbane will do better than most cities in the next period of growth. The following is provided in support the hypothesis:
- It is one of the most affordable cities for housing when compared to the other major cities (as is shown in Table 3);
- The median cost of a property is now lower than all cities, other than Adelaide and Hobart. On a historical basis this is not typical. In the past, cities like Darwin and Perth have been less expensive than Brisbane;
- Rental yields in Brisbane are now more attractive than in other major capital cities on the east coast, and there will be situations where rental yields of better than 6 per cent can be found;
- The Government has been taking decisive action to correct budget deficits. With the significant expansion in the Liquefied Natural Gas (LNG) projects in the state, it is likely that, notwithstanding the recent significant falls in carbon based energy resource prices, the economic growth in the state will move to being potentially the highest in the nation1;
- The reduction in the value of the Australian dollar will be of significant benefit to the tourist industry and positively impact on the Queensland economy.
Table 3: Affordability