Where are the best property investment opportunities for 2013?

With 2012 coming to an end many property investors are asking where are the best property investment opportunities for 2013.

Residex released their dwelling statistics for September which showed prices to have risen in the month. Theirs reports are useful because they also show how each city has performed over the past decade, and they provide some useful statistics on housing affordability.
The picture below is sourced from the Reserve Bank’s chart packs and shows dwelling price movements excluding apartments by capital city from 2004 to the middle of 2012.
So where are the best prospects for 2013 and beyond?
Sydney
Residex has shown that Sydney has comfortably been the worst performing capital city over the past 10 years (showing just 3.5% average annual capital growth), and the chart above illustrates that despite a boost in prices through the financial crisis, overall performance has been relatively weak since the last major boom in prices through to early 2004.
Counter-cyclical investors therefore should look to Sydney for some of the best capital growth opportunities over the next 10 years.
The Residex numbers do, however, show that there is an affordability issue for houses in Sydney and therefore apartments in the inner- and middle-ring suburbs may offer the best potential for growth over the next decade.
Melbourne
Many have been surprised by the resilience shown by the Melbourne property market over recent months.
The city undoubtedly has great fundamentals for the long term with a diverse range of industries and strong projected population growth.
But even the biggest optimist would have to say that if you bought now you have probably missed the best of the boom following the tremendous appreciation in prices of around 35% through 2009 and 2010.
Melbourne showed incredible capital growth from 2007 to 2011 and it seems extremely unlikely to me that such strong growth will be seen again over the coming decade.
Brisbane
Brisbane has been a notable underperformer over the past half-decade since 2007, especially with confidence having been dented by a little by the flooding in the city, but the property markets will turn the corner at some point and offer some opportunities for counter-cyclical investors.
Being the cheapest mainland capital city in which to buy a house some of the best opportunities lie in this sector of the market, particularly in some of the established, supply-constrained suburbs.
Perth
Western Australia has not only shown the strongest population growth in Australian states of late, it has also contributed very strongly to the nation’s GDP growth due to its resources focus.
With low unemployment and low vacancy rates in certain suburbs, although Perth has not shown any dwelling price growth since the phenomenal boom in prices up to 2007, the fundamentals do seem to be aligning for the years ahead.Perth represents a good bet for those intent on riding the boom in mining capital investment.
Adelaide
Adelaide has been a slow but steady performer in the past, but has not shown much growth since 2007. As population growth is not forecast to be as strong as in some other cities, the cities prospects may be likely to continue in a similarly steady vein.
Houses are relatively cheap as compared to other capital cities, which offers some immediate potential for growth, and the larger blocks in some areas of the city offer great subdivision opportunities.
Canberra
Supply appears to be meeting demand in the housing market so the immediate potential for growth does not look great from my perspective. There may be some opportunities in the apartment market but overall very strong growth in the city does not look likely in the immediate future.
Darwin
It is undeniable that Darwin is showing oustanding growth at the moment, and there is every potential that this may continue with vacancy rates being so critically low.
Despite what anyone may tell you, the prevailing high prices do mean that the potential for fast gains come with a risk premium attached.
Sure, while the economy and GDP continue to grow so solidly dwelling prices may continue to forge ahead strongly, but if the economy takes a turn for the worse, so might dwelling prices in Darwin.
Hobart
Tasmania has shown weak population growth over recent years and therefore is not on my watch list.
Hobart is the cheapest capital city in Australia in which to buy a house and it offers decent rental yields in some areas – and therefore this attracts some mainland investors. Not one for me.
Summary
Since 2008 I have been mainly buying in Sydney.
My opinion hasn’t changed in that I think Sydney will be the best performer on a risk-adjusted basis over the next decade, particularly now that Melbourne seems to have done its dash. I would certainly consider buying a house in Brisbane in the coming years too.
Obviously, property investors don’t ‘buy the market’; investors buy individual properties, so it is important to find the outperforming sub-markets and property types.
Undoubtedly Darwin, Perth or any number of regional markets might show stronger capital growth than Sydney, but investment returns should always be measured on a risk-adjusted basis.
It is important to consider what might happen if Australia slips into recession and particularly if there is a commodity price meltdown.
Remember that an awful lot can happen in a decade.

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Pete Wargent

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Pete Wargent is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. He’s achieved financial freedom at the age of 33 - as detailed in his book ‘Get a Financial Grip – A Simple Plan for Financial Freedom’. Pete now manages his investment portfolio, travels and works as a consultant in the finance industry from time to time. Visit his blog


'Where are the best property investment opportunities for 2013?' have 7 comments

  1. Pete Wargent

    November 19, 2012 @ 6:01 pm Pete Wargent

    Thanks for the comments guys.

    Marcus – you’re absolutely right, nobody can say exactly what the future holds, which is why I didn’t. Investors can only look at the most likely outcomes, which charts might help with to some extent. This is only a city-wide chart, though, so somewhat limited in value – investors would want to be seeking suburbs with very low vacancy rates.

    Josephine – nothing to stop you taking a punt on Tassie. Investors normally look for areas where the population is growing, but that doesn’t mean they always get it right! As for Sydney versus Melbourne…Sydney has been historically been significantly more expensive than Melbourne. As for the future, only time will tell I guess!

    Crime is unfortunately a problem in some parts of Sydney as in all major cities. I wouldn’t recommend that investors look at those areas. Some people do in order to get higher rents, but personally I’d look towards quality suburbs where crime rates are very low.

    Cheers and good luck!
    Pete

    Reply

  2. November 19, 2012 @ 6:09 pm Michael Yardney

    Marcus
    It’s clear form the track record of even the best commentators that we have no idea what the future holds. I’ve learned to prepare for the worst and then look forward to the best. That way I’ve covered my downside and maximised my upside

    Reply

  3. November 20, 2012 @ 9:21 am Marriane

    Yes the city areas are getting worse in Sydney especially in the city, darling harbour and others

    Beggars, shootings plus hells knows what police may not report

    Went to Melbourne It’s got Wow! Wonderful place to live with great market upsides

    Marriane
    Ex-sydney investor

    Reply

    • November 20, 2012 @ 8:06 pm Michael Yardney

      Thanks Marriane
      You’re right Melbourne is a great place to live – but I’m biased :)

      Reply

  4. December 11, 2012 @ 1:11 pm Michael Yardney

    Thanks for the comments Hews
    You probably know I’m a fan of Melbourne property and I agree it has had strong population growth, but it is also plagued with substantial oversupply in certain segments of the market so the old supply and demand ration will hold things back for a while.
    On the other hand there is an oversupply of properties in most parts of Sydney.

    Reply

  5. Pete Wargent

    December 12, 2012 @ 1:38 pm Pete Wargent

    Always happy to have a sensible debate, but not if you continue to set up new email accounts to entertain it (your IP address is visible to site moderators).

    Thanks.

    Reply

  6. December 12, 2012 @ 7:05 pm Michael Yardney

    Harold
    We love comments to this site and appreciate our readers feedback.
    Pete Wargent, the author of this post, and now the most regular contributor to this site after me, chose to moderate some of the comments when he found that someone was using the same IP address but pretending to be different people with different names. That’s NOT open honest debate
    Let’s stick to healthy open debate – I know not everyone will agree with my views – that’s OK. You won’t always agree with Pete – I do mostly, but not always.
    So we welcome reader feedbackand won’t moderate comments just because they disagree with our thoughts. The trouble is we gets lots of spam and some – let’s call them “interesting” comments, so a human will look at them – usually the author of the post, and accept it, reject it or reply as appropriate

    Reply


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