The media is having a field day with gloomy house price forecasts, aren’t they?
But what are our property markets really up to?
That’s one of the most common questions I’m asked now a days.
And my answer is: “It depends.”
Of course it depends on which market you’re talking about – some are performing much better than others.
Corelogic reports that combined capital city dwelling values fell -1.6% over the last year, while combined regional dwelling values are 2.7% higher over the year.
As you can see, some locations are still hot, and others are not:
While in the weakly performing Sydney and Melbourne housing markets, units have been more resilient to the downturn, with apartments outperforming houses in the last year with an overall growth of 0.4% around Australia, yet in every other capital city, where housing affordability is not as big a problem, houses outperformed apartment with regards to capital growth.
The upper end of the market is suffering most
As is normally the case at this stage of the cycle more expensive properties, which are more subject to discretionary spending, are the weakest segment of the market.
And not surprisingly this is more evident in Sydney and Melbourne, where the most expensive quarter of the market has seen dwelling values fall by 7.4% and 2.5% respectively over the last 12 moths.
Most other cities have seen relatively little difference in the performance of properties across the broad valuation spectrums.
As always, there are substantial differences in the housing markets performance across each of the capital cities.
The Sydney property market is experiencing a soft landing with dwelling values falling by -4.5% over the last year.
While the top end of the market is suffering from lack of buyers for prestige home and the lower end markets like Sydney’s South West or the Central Coast are being held back by affordability issues, some of the inner and middle ring suburbs are strongly outperforming the averages.
While Sydney is the most expensive city in Australia, it is also clearly the most valuable and will continue to experience a chronic shortage of homes.
Strong economic growth and jobs creation is leading to population growth and ongoing demand for property in Sydney with underlying demand is well ahead of supply and the rental market is tightening.
At the same time international interest from tourists, migrants and investors continues.
However now more than ever, critical property selection will be more important to find an investment grade property that will outperform the property markets.
Sydney is currently offering investors an opportunity to buy established apartments in the eastern suburbs, lower north shore and inner west in a “buyer’s market” with little further downside and the prospect of the market moving forward again in 2019.
Some of the positive long term influences for the Sydney property include:-
- Underlying demand is well ahead of supply;
- The rental market is tightening;
- International interest from migrants, investors and tourists is still strong;
- It is one of Australia’s 2 super star cities;
- Strong economic growth and jobs creation is leading to population growth and strong demand for property.
Over the last year Melbourne dwelling values increased by 1%, which was the slowest rate of growth in six years and well down on the 13.0% Increase over the previous year.
Currently the more affordable housing segments are showing much stronger conditions; likely the result of more first home buyer activity.
The most affordable quarter of the Melbourne market has seen dwelling values rise by 9.3% over the past twelve months while the most expensive quarter of the market has recorded a fall of 2.5%.
BUT he Melbourne property market is down but not out.
Even though it is taking a breather after 5 years of exceptional growth, there is no sign of a collapse in sight.
While Melbourne’s property prices are likely to fall by around 3% this year, they will be underpinned by a robust economy, jobs growth (around 72,000 jobs were created last year), Australia’s strongest population growth and the influx of 35% of all overseas migrants.
While the national population grew by 1.6% in the year ended 30 June 2017, the highest growth was in Victoria, with a 2.3% increase in population and experts have predicted it is likely to surpass Sydney as the largest city of Australia by as early as 2031.
Melbourne now rates as one of the 10 fastest growing large cities in the developed world, with its population likely to increase by around 10% in the next 4 years.
The ripple effect of house price growth caused significant house price growth in Melbourne’s outer suburbs over the last few years.
Today one in three Melbourne suburbs have a median house price of at least $1 million, with 90 per cent of suburbs within 10km of the CBD have a million-dollar median house price and almost 50 per cent of suburbs in the middle ring also in the million-dollar club.
Similarly, some regional centres including Geelong have performed well, but moving forward it is likely that the more affluent middle rings suburbs which are going through gentrification are likely to exhibit the best property price growth.
As Melbourne residents trade their backyards for balconies and courtyards, villa units with renovation potential and townhouses in Melbourne’s middle ring suburbs will make excellent investments
Growth in Brisbane dwelling values has slowed over each of the past two financial years with an increase of 1.1% over the past twelve months.
Core Logic has released their newest housing market update for July 2018.
The past year has been the weakest financial year performance since values fell by -3.6% over the 2011-12 financial year.
Although the rate of growth slowed, Brisbane housing values have increased over each of the past six financial years.
In a sign the Brisbane unit market is emerging from a period of sustained weakness, unit values were up 1.7% over the June quarter while house values rose by only 0.1% over the past.
PERTH HOUSING MARKET
Perth dwelling values fell by -2.1% over the last year and although values have now fallen for four consecutive financial years, declines over the most recent year were the most moderate of those four years.
The first half of 2018 has seen Perth house values hold reasonably firm slipping by just 0.1%, however unit values haven`t been quite as resilient, down 4.4% over the first half of the year.
The Perth property market peaked in June 2014 and now, more than four years later, has yet to bottom, with dwelling values 10.9% below their June 2014.
While the market may level out in the next six months, it’s much too early for a countercyclical investment in the west – I can’t see prices rising significantly for a number of years.
Due to the significant oversupply of new apartments there is little to no prospect of capital growth or rental growth in the Perth apartment market for many years.
Like the other states, Western Australia’s population trend has a significant impact on the overall performance of its property market.
To get people back into the State more jobs will need to be created, but even though Western Australia created around 50,000 jobs in 2017 consumer confidence is low with buyers still waiting for signs that the market has hit “rock bottom.”
The predominant dependence on the one industry is something that WA is trying to move away from by diversifying economic reliance into other industries.
Today health care, construction, retail and education are the industries responsible for the majority of Western Australia’s employment.
ADELAIDE HOUSING MARKET
Adelaide dwelling values increased by 1.1% over the last year, marking the 5th consecutive year in which values have increased.
Like the rest of Australia, the Adelaide property market is very fragmented with some suburbs showing three times the capital growth of others.
I know some investors are looking for opportunities in Adelaide hoping (“speculating”) prices will increase but there are few growth drivers in Adelaide which is experiencing above average unemployment rates and poor employment growth.
There are better places to invest than Adelaide.
HOBART MARKET UPDATE
Hobart has been the strongest performing capital city over the last year returning overall capital growth of 12.7% and is likely to be the top performer this year, driven by investors chasing the “next hot spot.”
The Hobart has almost 30% fewer homes currently on the market compared with a year ago and the median time a home in Hobart remains on the market has fallen, selling 20 days quicker than they were a year ago, showing supply isn’t keeping up with demand.
But keep in mind it is a very small market, so learn for the past…this year’s hot spot can easily become next year’s “not spot.”
Last year, some 5,200 dwellings sold in Hobart, which is just 1% of the Australian market.
It also accommodates a 1% share of Australia’s annual population growth. Hobart is a small place and it doesn’t take much to influence its property market – in both directions.
Despite the current fast rate of growth, dwelling values in the Apple Isle have barley kept up with inflation over the last decade and with few long-term growth drivers, I would avoid investing in Hobart.
CANBERRA MARKET UPDATE
Canberra’s property market is a “quiet achiever” having grown 2.3% over the last year, and is likely to continue to perform well underpinned by a stable economy which has led to steady employment and to above average population growth (=1.8% per annum.)
Houses price growth has outpaced its flatter apartment market.
The ACT Government predicts ongoing strong population growth of 6% in Canberra by 2020. Around 60% of this growth will be due to natural increase and about 40% through net overseas and interstate migration.
Having said that, I don’t consider Canberra a good place to invest as their horrendous land tax rates chew into your cash flow more than anywhere else in Australia.
DARWIN HOUSING MARKET
The Darwin property market peaked in August 2010 is still suffering from the effects of the end of our mining boom today 8 years later fallinga another 7.7% over the last year, and our research suggests that house prices are likely to keep falling for some time yet.
As opposed to the east coast capital cities where many jobs are being created, Darwin had a net loss of 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 BOTTOM LINE…
We’re clearly in the next stage of the property cycle, one of moderate growth in some regions and virtually no growth in others.
Australia’s property markets are very fragmented, driven by local factors including jobs growth, population growth, consumer confidence and supply and demand.
This makes it an opportune time for both home buyers and investors to buy property at a time when they’ll face less competition.
However correct asset selection will be more important now than ever, so only buy in areas where there are multiple growth drivers such as employment growth, population growth or major infrastructure changes.
Similarly suburbs undergoing gentrification are likely to outperform.
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.
Source of graphs and data: CoreLogic
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