Boy how things have changed in our property markets during the year.
After a heady start to the year, the latest Corelogic figures show property values are levelling out.
In fact dwelling values were virtually unchanged across the nation in the month of August with capital city values rising by 0.1% and combined regional areas seeing values fall -0.2%.
As always the markets were fragmented:
- Perth and Darwin recorded falls over the last month
- Sydney values recorded no change.
- The other capital cities recorded slight gains.
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.
WHAT’S HAPPENING AROUND THE STATES?
The chart 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, but still grew a respectable 1.9% over the last three months and a whopping 12.7% over the last year.
Strong population growth (around 2.2% per annum) and a booming economy creating more jobs than anywhere else in the country (72,786 new jobs last year– most of them full time) have underpinned the Melbourne property market.
The Melbourne apartment market has not performed as well as the house market, but is likely to pick up over the rest of this year as the First Home Buyers Grant works its way through, creating an established home owner’s boost as the raft of new home buyers enter the market buying up established apartments.
Sydney, property values grew 13% in the last 12 months.
Having said that, the Sydney has had virtually no growth for a few months now, but 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.
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.
While the overall Brisbane’s property market only rose 3.0% 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.
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.
Canberra’s property market is a “quiet achiever” having performed well with home values increasing by 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 Darwin property market is still suffering from the effects of the end of our mining boom and while some are suggesting that it’s near the bottom of the market cycle, I believe that house prices are likely to keep falling for much of this year.
Values across the city are 18.6% 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.
The Hobart property market was the best performing market over the last year increasing in value by 13.6%
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 26.7% over the last 10 years.
While some have called the bottom for the Perth property market, 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:
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 5.8 % over the last 12 months while unit values only increased by 1.1%.
There are few growth drivers in Adelaide with fewer than 8,000 new jobs created there last year.
Rental growth has accelerated however, gross rental yields have continued to soften
- Rents are 2.8% higher over the year with capital city rents increasing 2.7% and regional market rents 3.0% higher
- Rents have increased in all capital cities except for Brisbane, Perth and Darwin
- Gross rental yields were recorded at 3.6% nationally in August 2017; 3.3% across the combined capital cities and 5.0% across the combined regional markets.
- Gross rental yields are lower than they were a year ago across all capital cities.
- Yields are unchanged over the year in Adelaide, and Canberra and lower elsewhere.
The recent declining trend in settled house and unit sales has starting to level in most capital cities
- It is estimated that there were 301,740 settled sales of capital city dwellings over the 12 months to August 2017 with the number of settled sales -4.5% lower over the year.
- Both house and unit sales have fallen over the past year.
- Transaction volumes have fallen over the past year in Sydney, Melbourne and Brisbane but are higher across the remaining capital cities.
Discounting levels are falling while days on the market is creeping slightly higher
- The typical capital city dwelling which sells for less than its initial list price is being discounted by 5.9% compared to 6.2% 12 months ago.
- Perth and Darwin are the only two capital cities in which discounting levels have increased over the year.
- The typical capital city dwelling is taking 43 days to sell which is lower than the 48 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 Brisbane and Perth and unchanged in Sydney, both Sydney and Melbourne have recently seen the days on market figure rising from their lows.
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 -1.0% lower than a year ago nationally and -0.5% lower across the combined capital cities.
- Brisbane, Adelaide, Perth and Hobart are the only capital cities to currently have fewer new listings than they had a year ago.
- Over the past 28 days, total advertised properties were -4.8% lower than a year ago nationally but 0.3% higher across the combined capital cities.
- Perth and Hobart 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 14 weeks.
- Sydney’s final auction clearance rate has been above 70% just once in the last 12 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
Th economic data suggests that demand from the investor segment of the housing market may be slowing
Population growth remains at high levels however, most of the growth is occurring in NSW and Victoria substantially stronger than all other states and territories adding to housing demand.
The number of dwellings approved for construction have eased from record-high levels
Mortgage rates remain at low levels however, investors are typically paying 60 basis points more on their mortgage than owner occupiers.
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
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.”
I recognise that each peak is accompanied by a chorus of voices who deny the top is anywhere in sight, and it’s while impossible to predict with any accuracy the moment when the cycle turns, I think it’s a little early to call yet.
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.
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