Our property markets are down but not out!
I know it sounds obvious but we’re well into October and while Spring is often the best time to buy and sell property – but maybe this year will be a little different with many segments of our property markets losing steam as we venture towards the end of 2017.
So to get an idea of what’s going on in property, let’s look at the latest results from around the country as reported by Corelogic
Dwelling values rose by 0.2% nationally in September 2017
- National dwelling values increased by 0.2% in September 2017 with capital city values rising by 0.3% and combined regional areas seeing values rise 0.1%.
- Across the individual capital cities, values fell in Sydney and Darwin, were unchanged in Adelaide and rose elsewhere.
- Dwelling values were 0.5% higher nationally over the September 2017 quarter with capital city values 0.7% higher and regional market values unchanged. Perth and Darwin were the only cities in which values fell over the quarter
- Dwelling values are 8.0% higher over the past year, 8.5% higher across the combined capital cities and 5.6% higher across the combined regional markets.
LOOKING BACK OVER THE LAST 12 MONTHS:
Dwelling values are 8.9% higher over the past year, 9.7% higher across the combined capital cities and 5.8% higher across the combined regional markets.
Over the year, Sydney, Melbourne and Hobart have recorded value growth in excess of 10% while values are lower in Perth and Darwin.
The combined capital city trend growth rate is clearly losing steam with dwelling values rising by 0.7% over the September quarter and well down from the recent peak rate of quarter-on-quarter growth which was recorded at 3.5% over the December 2016 quarter.
This slowing in the combined capitals growth trend is heavily influenced by conditions across the Sydney market where capital gains have stalled.Just putting things into perspective:
There are close to 10 million dwellings in Australia and each year around 500,000 properties change hands.
While any property can be an investment property- just move the owner out and put a tenant in, that doesn’t make it an “investment grade” property.
Probably 2% – 3 % of the properties currently on the market are what I’d consider investment grade.
Having said that… if we are generous and say that 5% of properties transacted each year are investment grade, this means only around 25,000 properties each year fit the bill.
That’s not a lot is it?
WHAT’S HAPPENING AROUND THE STATES?
The charts above shows how fragmented our property markets are with Melbourne, Sydney and Hobart having decoupled from the other capital city markets last year.
The Melbourne property market, which has been the top performing market over the last decade is taking a breather, after a whopping 12.1% growth over the last year.
Strong population growth (around 2.4% per annum) and a booming economy creating more jobs than anywhere else in the country have underpinned the Melbourne property market.
The Melbourne apartment market has not performed as well as the house market, but is starting to pick up as the First Home Buyers Grant as a raft of new home buyers enter the market buying up established apartments.
Melbourne is the only capital city where auction clearance rates remain above 70%, but there seems to be less depth to the market with fewer people at open for inspections and fewer bidders at auctions
Sydney, property values grew 10.5% in the last 12 months.
Having said that, the Sydney has had virtually no overall growth for a few months now, and the continual headlines warning of the end of the Sydney property boom is concerning many investors and potential home buyers who are standing in the sidelines waiting to see what happens.
Of course there is not one “Sydney property market.”
There are multiple markets defined by geography, price and type of property.
It’s a bit like me putting my hand left hand in a bucket of cold water and my right hand in a bucket of warm water and saying on average the temperature is mild.
Some parts of the Sydney property market are cold, and others are quite warm with more buyers looking for great properties than there are properties available.
And by the way… there is no evidence of a bubble bursting or a hard landing.
There are still a number of growth drivers including a strong economy, population growth and overseas investment (albiet at lower levels)
However prices are stabilising after more than five years of strong growth where values have risen by 75% during that time.
The lower auction clearance rates (below 70% for the last 11 weeks) in Sydney are getting lots of media attention, and sure this is a sign of a slowing market, but it’s only time to become concerned when auction clearance rates drop below 60%. and that’s not happening – not even on the long weekend.
A clearance rate in the 60% range is a sign of normal market conditions and this doesn’t concern me, particularly with respect to Sydney which has had a long sustained boom period and now we need the market to catch its breath and consolidate its price growth.
As you can see from the numbers below, the various subregions of Sydney are performing very differently with high auction clearance rates ( in other words strong markets persisting) in Sydney’s eastern suburbs, the northern beaches and North Sydney.
Price growth is now likely to moderate over the balance of this year, but the markets are fragmented with secondary properties being harder to sell.
However, we’re finding a number of great properties off market for our clients.
While the overall Brisbane’s property market only rose 2.9% over the last year, there is great potential upside for Brisbane houses which are considerably cheaper than Sydney or Melbourne.
Brisbane’s market is very fragmented and there are still some areas that are performing respectably with good investment prospects and great places for young families to live cheaply.
On the other hand, there is a significant oversupply of new high rise off the plan apartments overshadowing the inner city area and nearby suburbs with owners now giving significant incentives to attract tenants at a time of rising vacancy rates.
If you’d like to know a bit more about how to find investment grade properties in the Sunshine State please give the Metropole Brisbane team a call on 1300 20 30 30 or click here and leave your details.
Like the rest of Australia, the Adelaide property market is very fragmented with some suburbs showing three times the capital growth of others.
Overall home values are up 5.5 % over the last 12 months while unit values only increased by 1.3%.
I know some investors are looking for opportunities in Adelaide hoping (“speculating”) prices will increase but there are few growth drivers in Adelaide with fewer than 8,000 new jobs created there last year.
House values in Perth have fallen by 2.9% in the last year, while unit prices fell by 2.7%, bringing the median property price in Perth to $462,927 and while the prices falling is declining our research suggests it is still in its slump with a significant oversupply of properties for sale.
And the latest stats seem to confirm this:
The Hobart property market was the best performing market over the last year increasing in value by 14.36%
But keep in mind it is a very small market.
Last year, some 5,200 dwellings sold in Hobart, which is just 1% of the Australian market.
It also accomodates a 1% share of Australia’s annual population growth.
It is a small place and it doesn’t take much to influence it.
The local economy is picking up helped by the redevelopment of the Royal Hobart Hospital and upgrades to universities, hotels and retail precincts.
Even though some commentators are suggesting it’s a good place to invest, I don’t agree as there are few long term growth drivers and despite the current fast rate of growth, dwelling values only increased 27.3% over the last 10 years.
The Darwin property market is still suffering from the effects of the end of our mining boom and our research suggests that house prices are likely to keep falling for much of this year.
Values across the city are 19.1% lower than their peak in August 2010
As opposed to the east coast capital cities where many jobs are being created, Darwin had a net increase of only 153 jobs last year, showing how its economy is languishing.
Darwin does not have significant growth drivers on the horizon and would be best avoided by investors.
Canberra’s property market is a “quiet achiever” having performed well with home values increasing by 7.8% over the last year.
Other than Melbourne and Sydney, Canberra is the only market to have achieved levels of capital growth above inflation over the last decade.
The recent declining trend in settled house and unit sales has starting to level in the smaller capital cities with sales continuing to decline in the larger cities
- It is estimated that there were 299,452 settled sales of capital city dwellings over the 12 months to September 2017 with the number of settled sales -5.0% lower over the year.
- Both house (-3.9%) and unit (-7.2%) sales have fallen over the past year.
- Transaction volumes have fallen over the past year in Sydney, Melbourne, Brisbane and Canberra but are higher across the remaining capital cities.
Rental growth has accelerated while the slide in gross rental yields has slowed
- Rents are 29% higher over the year with capital city rents increasing 2.8% and regional market rents 3.0% higher
- Combined capital city rents are increasing at their fastest annual pace since April 2013 and combined regional market rents are rising at their fastest annual pace since June 2012
- Rents have increased over the past year in all capital cities except for Brisbane, Perth and Darwin however, the rate of change in rents over the past 12 months has been greater than the 12 month change a year ago in all capital cities
- Gross rental yields were recorded at 3.6% nationally in September 2017; 3.3% across the combined capital cities and 4.9% across the combined regional markets.
- Gross rental yields are lower than they were a year ago across all capital cities.
Discounting levels are falling while days on the market has risen from its recent lows
- The typical capital city dwelling which sells for less than its initial list price is being discounted by 5.8% compared to 6.2% 12 months ago.
- The level of discounting is currently lower than it was a year ago across all capital cities except Perth and Darwin
- The typical capital city dwelling is taking 43 days to sell which is lower than the 50 days it took a year ago but up from a recent low of 36 days.
- The days on market figure is higher over the year in Sydney, Brisbane and Perth but lower elsewhere
The number of properties advertised for sale is lower than a year ago nationally but slightly higher across the capital cities
- The number of new properties advertised for sale is -7.7% lower than a year ago nationally and -4.5% lower across the combined capital cities.
- Sydney, Adelaide and Canberra are the only capital cities to currently have a greater number of new listings than they had a year ago.
- Over the past 28 days, total advertised properties were -5.7% lower than a year ago nationally but 0.2% higher across the combined capital cities.
- Melbourne, Perth, Hobart and Darwin were the only capital cities to have fewer total homes advertised for sale currently relative to last year.
Auction clearance rates have eased from levels earlier this year
- Combined capital city auction clearance rates have remained below 70% for each of the past 18 weeks.
- Sydney’s final auction clearance rate has been above 70% just twice in the last 18 weeks
- Melbourne’s clearance rate has remained above 70% all year except for one week in August
- Earlier in the year Sydney and Melbourne have had clearance rates above 80%, although the clearance rates still point to market growth they aren’t quite as strong as they have been.
ECONOMIC DATA REMAINS MIXED
Broader economic data also has a significant impact on housing market conditions.
Population growth remains at high levels however most of the growth is occurring in NSW and Vic
The number of dwellings approved for construction have eased from record-high levels but has seemed to of stabilised recently at levels which are well above the long-term average
Upgraders and investors remain the key drivers of housing demand however, investor demand is slowing and it is expected that over the coming months there will be a moderate increase in first home buyer demand
Mortgage rates remain at low levels however, investors are typically paying 60 basis points more on their mortgage than owner occupiers.
THE BOTTOM LINE…
Despite our low interest rate environment, Australia’s property markets are very fragmented, driven by local factors including jobs growth, population growth, consumer confidence and supply and demand.
We seem to be moving into the next stage of the property cycle, one of moderate growth in some regions and virtually no growth in others.
The market needed to calm down – its 5 year run in Melbourne and Sydney was unsustainable and continued growth would have been dangerous possibly leading to that “bubble” that the property pessimists have been worried about.
Although house price growth has lost momentum, we are yet to see any signs of a material downturn. On the other hand the rental growth turnaround will be welcomed by property investors.
I’ve now been investing for over 40 years and every property cycle I’ve experienced has come to a halt because of finance or difficulty getting it.
In general, booms are stopped when the Reserve Bank (RBA) increases interest rates to slow down the economy, and in the past it’s been quite effective at doing this.
Over recent years, the Australian Prudential Regulation Authority (APRA) has also attempted to put the brakes on investment lending in particular by putting investor limits on lenders creating a “Credit Squeeze.”
Affordability is another a factor that comes to the fore near the end of the cycle.
And I’m not talking about first home buyers who always seem to have difficulty with affordability, but established home buyers who are looking to trade up (or down) but who find high prices and stamp duty too much of a disincentive.
Instead they choose to stay put and renovate instead of trading up.
Having said that, there’s likely to be some life left in this cycle and there is more likely to be moderate price growth in some areas and stabilisation in others than a significant fall in property prices.
It’s not too late to buy an investment property, but at this mature stage of the cycle careful property selection will be critical for investors as our markets are very fragmented and not all properties are will grow in value and some will make very poor long term investment choices.
WHAT CAN YOU DO TO STAY AHEAD?
As signs point to softer growth conditions for Australian property over the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions.
If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.
Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat. Or call us on 1300 20 30 30.
When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.