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National market update – What’s really happening in our property markets?

Now that we’re a quarter of the way through the year and our property markets have had a chance to show their hand, it’s probably a good time to do a whip around Australia and see how property is performing.

RP Data have reported their March quarter house price index results and the findings were encouraging.

Once again, the latest stats will disappoint the doomsayers who frequent the property forums and for the last four years have been predicting an apocalypse.

What the stats show

Overall Australian dwelling values were unchanged across the eight capital cities over the first three months of this year. In fact, RP Data-Rismark’s hedonic index data suggest that Australian dwelling values have not budged at all since the end of October 2011.

The tide is turning

Of course there is not one property market in Australia, so while the market is flat in general there are markets within markets, each pulled by a multitude of influences and, as a result, sectors within sectors are performing at differing speeds.

City Index results as at March 31 2012
  Median dwelling price Change in dwelling values March 2012 qtr
Sydney $525,000 1.1%
Melbourne $465,000 -0.8%
Brisbane $400,000 -0.4%
Adelaide $370,000 -1.5%
Perth $445,000 -0.7%
Hobart $340,000 7.3%
Darwin $470,000 3.9%
Canberra $529,975 0.0%
Capital city aggregate $445,000 0.0%

Source – RP Data

Clearly our property markets have slumped over the last 12 months, as the following table shows, but the latest results suggest we are now in the consolidation phase of the property cycle.

The tide is turning

Apartments Outperformed

Units outperformed houses in Australia’s major capital cities by a wide margin during March. Capital city apartment prices increased by 0.9% during the month to a median of $400,000, while detached house prices increased by just 0.1% to a median of $464,500.

Let’s now look in a little more detail at some of our major property markets:

Sydney

Sydney has been outperforming the rest of Australia, but the top end of the market is still suffering from an oversupply of property relative to the reduced demand.  However affordable gentrified suburbs within close proximity to the city, transport, amenities and infrastructure are performing well.

In particular, well located apartments in the inner western suburbs and Sydney’s eastern suburbs are being snapped up by investors and owner occupiers at hotly contested auctions according to George Raptis, director of Metropole Property Strategists in Sydney.

“I’d like some of the property doomsayers to come to one of these auctions and see how many genuine bidders are in the market for the small selection of good properties for sale,” says Raptis.

“The market for well-located apartments is likely to remain strong throughout the year. Strong rental demand, a shortage of rental properties, tightening vacancies and rising rents means investors will vie for the same apartments as owner-occupiers, underpinning prices.”

Melbourne

Different segments of the Melbourne housing market are at different stages of the property cycle.

There is still an oversupply of property at the top end relative to the reduced demand for luxury property. While there is more competition for properties in the middle end of the market, there is still an oversupply of properties relative to demand, even though recent auction clearance rates have been encouraging.

Currently there are some good investment opportunities buying established apartments in Melbourne’s southern or eastern suburbs and adding value through renovations.

But there are some segments of the Melbourne property market to avoid…

According to Charles Marvelli, head of the Melbourne buyer’s agency division of Metropole Property Strategists, “Builders and developers have got ahead of themselves, and there is an oversupply of newly built house-and-land packages in Melbourne’s outer western suburbs such as Point Cook and Melton. Currently there is a flood of new properties, but buyers are showing a preference for two to three year old homes which can be bought considerably cheaper than new stock.”

“There is also an oversupply of inner-city CBD apartments, with more being completed in the next few years at a time when there is less demand from the tenant demographic that rents in the CBD,” adds Marvelli.

“This will put downward pressure on prices and rentals. I expect there will be an oversupply of inner-CBD and near- CBD apartments in Melbourne for a few years, causing prices to fall slightly” he says.

Brisbane

House prices in Brisbane have dropped for the last two years and are now 11% below their peak, but there are tentative signs of improvement in this market.

However Brisbane buyers are lacking the necessary confidence to re-enter the market, instead sitting on the sidelines waiting for signs that real estate has bottomed before they make a purchase.

Vacancy rates have fallen to 2.2% in December 2011 from 3.7% fifteen months earlier, suggesting that the market is working through an overhang in supply, and there is evidence that investors as well as owner-occupiers are slowly returning to the market.

The prestige end of the Brisbane housing market is suffering, but more affordable homes within 5- 10 km of the CBD are likely to perform well when the upswing eventually takes place.

One area of opportunity is the established apartment market around Auchenflower and Toowong, where you can find 1970’s and 1980’s apartments with good size rooms, close to amenities and within a brisk stroll to the CBD.

Increasing confidence with a new state government and an upswing in economic conditions, along with improved affordability, suggest that prices should stabilize over the next six months before starting to edge upwards.

However there are a large number of off-the-plan apartments available in the Brisbane CBD and surrounding suburbs. Many of these remain unsold, and this oversupply of properties will put downward pressure on prices and rentals in these suburbs.

Many of the apartments that have been sold off the plan are coming on stream in the next few years and have been purchased by investors. Some will have difficulty getting finance and settling their purchase. Others will be disappointed to see the end value of their properties is less than the original purchase price.

Adelaide

The Adelaide property market has been flat for some time now. Prices fell a further 1.5% over the last 3 months and are likely to correct a little more before the market bottoms.

The ANZ Bank reports that, “While the SA housing market should remain subdued through the first half of 2012, the economic benefits from a number of large non-residential building redevelopments in Adelaide (Royal Adelaide Hospital, Adelaide Convention Centre and Adelaide Oval) and a positive outlook for regions benefitting from major mining and energy projects (including the proposed Clinton and Arckaringa Basin coal-to-liquid gas project and Olympic Dam) should drive an improved outlook into 2013. We expect rental vacancies will grind lower through 2012 & 2013, while house prices should trough around mid-2012.”

Perth

While the WA economy continues to benefit from our resources boom, the Perth property market is still suffering a hangover from its pre-GFC boom.

In the three years leading up to the 2008 peak in house prices, WA house prices increased 20% per annum on average, compared to a national average of 6% per annum. Since then, investors and homeowners have deserted the Perth residential property market, prices have fallen and are currently 8.2% below their March 2008 peak.

However, there are signs of optimism creeping back and some areas of the Perth market are likely to turn around later this year or in 2013.

What next?

We’re entering the stabilization phase of the property cycle, where buyers are returning and slowly taking up available stock, but not really pushing up prices yet.

This means our property markets are likely to remain soft this year, but should keep consolidating.

One encouraging sign is that first time buyers are back, applying for loans at levels not seen for two years. Remember, first time buyers are typically a good barometer for changes in affordability.

How soon things turn around will depend a lot on buyer confidence, and this will depend upon what’s happening overseas, how our local government performs and what happens with interest rates.

Does this mean you should put your money under the mattress or buy gold bullion rather than invest in property?

You already know what I’m going to say don’t you?

Property is more than just an investment – it is a fundamental human requirement. Everyone needs a roof over their head, whether they rent or own their own home. As a basic necessity, housing will always be in demand – it will always have value because we simply can’t live without it.

The long-term future is assured for those who invest in property.

At some stages in the economic cycle property values will rise strongly and at other times they will languish. When people can’t afford to buy property (when price growth slows because of decreased demand), people end up renting; so investors win by getting better returns. And that is currently happening as rents rise strongly.

Of course…this also means that buying any property and hoping it will make a good investment just won’t work at this stage of the cycle.

You need to buy the right type of property…

One that has a level of scarcity, meaning it will be in continuous strong demand by owner occupiers (to keep pushing up its value) and tenants (to help subsidise your mortgage); in the right location (one that has outperformed the long term averages), at the right time in the property cycle (that would be now in many states) and for the right price.

To become a successful investor you will need to surround yourself with a team of independent and unbiased professionals – a team of people who are known, proven and trusted, so it is probably appropriate to remind you that in changing times like we are experiencing, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team at Metropole have no properties to sell, so their advice is independent and unbiased.

If you want to find out a bit more about what is happening in your local market and what our research suggests is in store for us, join us at a free property briefing in Melbourne, Sydney and Brisbane or with our associates in Perth. Just click on this link to find out more and reserve your place.

Also if you are a serious investor, business person or entrepreneur, I suggest you join us at Wealth Retreat 2012 on the Gold Coast on May 26th to 30th 2nd.

Click here to find out about this special annual event, where we limit numbers to a small group of already highly successful investors, business people and entrepreneurs.

This is your chance to immerse yourself in a 5 day get together to learn from a leading faculty of experts and network with like minded people. Please register your interest now so we can send you more details – just click here.

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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'National market update – What’s really happening in our property markets?' have 12 comments

  1. Avatar for Property Update

    April 13, 2012 @ 9:54 am Ross RAMSAY

    Thank you Michael for your comments. Go back so 8 yeras, not 4, and have a look at the headlines in the Australian papers about properties about to crash. There was talk from ‘serious’ commentators about crashes of 30% across the nation back in the early 2000’s.
    Here in NZ we get the same comments about house properties way over valued but here in NZ the immigration pressure is not as great as in ‘the Land of Lower Taxes’.
    Keep up the good work.

    Ross Ramsay (NZ)

    Reply

  2. Avatar for Property Update

    April 13, 2012 @ 10:56 am Daniel Warwick

    Thanks for the article and honest opinions. Interesting to hear about Melbourne which looks like it will remain flat for a few years to come particularly in the inner 10km radius from the city. Or at least the good buys will be harder to find.

    Reply

  3. Avatar for Property Update

    April 13, 2012 @ 3:20 pm Jarrod W

    Thanks – great summary. I always enjoy these round Australia market updates. PLease write more of them

    Reply

    • Avatar for Property Update

      April 13, 2012 @ 3:22 pm Michael Yardney

      Thanks for the words of encouragement Jarrod and Daniel.
      I’ll do more of this type of article

      Reply

  4. Avatar for Property Update

    April 13, 2012 @ 8:06 pm francis fong

    thanks Michael for informative stuff!,, every morning when I turn on my computer before work..there it is: Michael’s Blog…. Can I call it “Michaels’ Morning Glory” from now on?

    Reply

  5. Avatar for Property Update

    April 14, 2012 @ 12:05 am Sherif Ghobrial

    Thanks Michael for that, your market update seems to correspond with what others are saying as well wise words, and you are looking good, keep up the great work,

    Blessings
    Sherif

    Reply

  6. Avatar for Property Update

    April 14, 2012 @ 9:53 pm Lucy

    Thanks for the update Michael. Do you have any opinion on the Canberra market?

    Reply

    • Avatar for Property Update

      April 14, 2012 @ 10:08 pm Michael Yardney

      Lucy
      Sorry I didn’t comment on every market – I only commented on those in which my team operate or where I have associates who’s opinons I trust

      Reply

  7. Avatar for Property Update

    April 15, 2012 @ 3:30 pm Ross dean

    People talk about hero”s like Michael Jordan, Garry Ablett etc.. You are my hero michael. You are on a mission to help people succeed on life and that is amazing. You are a Australian ledgend. I will invest in metropolis services because like kiyosaki states ‘we live in a information age’

    Reply

  8. Avatar for Property Update

    April 20, 2012 @ 6:34 am james cartledge

    Hi Michael, thanks for your information on Brisbane. Any thoughts on bayside , like wynumm or manly

    Reply

    • Avatar for Property Update

      April 20, 2012 @ 8:43 am Michael Yardney

      Thanks for the question James.
      Like in every capital city, some suburbs are preforming better than others.
      Due to their amenity and scarcity (bayside location) suburbs like Manly and Wynumm are likely to outperform the Brisbane averages

      Reply

  9. May 2, 2012 @ 4:48 pm USA Foreclosures- 20 Percent Yields and 50 Percent Capital Gains within a Year Have Become the Norm | Adsinstyle.Com

    […] this week’s Australian Investment property update from industry expert Michael Yardney pointed out, “property markets are likely to remain soft this year,” yet Brisbane based […]

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