Median house prices in certain areas of Canberra have been moving strongly for the past 12 months after three years of consolidation. But the middle of the market has been flat as the extremes move ahead at a cracking pace. Is suburban Canberra about to go through a growth spurt?
Australia’s capital is also our largest inland city, with a population of about 323,000. Bureau of Statistics figures show that median prices in Canberra have risen 9% over the past 12 months after a significant period of inactivity.
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Price growth began to kick off in the ACT about 10 years ago when falling interest rates fuelled a generation of speculative and first-home buying. But by the time the market softened along the eastern seaboard during 2003, Canberra experienced an unusually soft landing.
One reason for this was the bushfire of January 2003, which tempered the oversupply of homes on the market. Andrew Chamberlain, a director of Peter Blackshaw Real Estate, says: “About 500 houses were just destroyed and the vacancy rate went from 2% to zero overnight.”
Government assistance and about $400 million in insurance payments kicked off another cycle of construction that supported the market for another 10 months, but by October the bottom fell out. Ian Gamble, the principal of Elders Kingston, says: “By October 2003 it just stopped overnight, the market dropped around 15% and had a rest for about 18 months.”
Much like prestige property in Sydney and Melbourne, the top end of the Canberra market has moved swiftly in the past 18 months, after an initial sluggishness that had the prices of top-end properties out of kilter with the rest of the city’s market. Ian Gamble says: “We are having real trouble getting more than a $1 million for top-quality property five or six years ago but now there is no shortage of buyers in the $3 million range.”
Most of these in the area surrounding the ‘Parliamentary Triangle’ south of Lake Burley Griffin. This includes the well known café strip of Manuka, which offers a lifestyle that could be favourably compared to Double Bay or South Yarra. Manuka is not actually a suburb, but a part of Griffith which, along with Deakin, Forrest and Kingston, are the suburbs of choice among Canberra’s politerati.
To the west of Parliament House is Yarralumla. This is home to the Governor-General’s residence Government House and is also where the majority of the embassies are concentrated. Living next door to an embassy can have a certain status, the most exclusive enclave is known as Old Red Hill. This is a small pocket of Red Hill with big blocks bordered by Torres Street, Vancouver Street and Wickham Street.
At the same time, entry level properties are also showing the kinds of growth that investors can expect once every 20 years. Ian Gamble elaborates: “Five years ago you could buy a one-bedroom unit in Queanbeyan for $20,000. Today you could sell that for $150,000.”
While Queanbeyan is technically outside the ACT, it is an excellent example of just what’s happened to entry level property in the region. John Runko, the chief executive of Independent Property, says: “First-home buyers are just struggling to find anything within a reasonable price range. These prices have just skyrocketed of late.”
Statistics from Canberra’s popular online property portal www.allhomes.com.au support this (the website is the preferred destination for all things ACT and even manages to keep the ever-present www.realestate.com.au portal at bay). Median prices in areas such as Chifley and the once down-at-heel suburb of Lyons have risen by about 70% over the past five years.
With all this growth occurring in the top and bottom ends, it is interesting to take a look at properties in between. In Canberra’s inner-north, prices have virtually remained flat over the same period. Suburbs such as Lyneham and Ainsley have remained virtually flat by comparison. The same is true for the suburbs of Macquarie and Aranda in nearby Belconnen.
In Canberra, the upcoming federal election is never far from the centre of conversation. With a change of Government becoming a distinct possibility it pays to canvass a few options on the subject. Andrew Chamberlain says: “Typically a Labor Federal Government has been very good for Canberra but the current Government is talking about a significant increase in the number of public servants too. Either way, it’s likely to be a good result for Canberra.” Family homes in the inner-north and Belconnen are likely to be among the first to go.
Another quirk of the property market is the leasehold system of land ownership. You cannot actually purchase property in Canberra outright but rather you obtain a leasehold over the land for 99 years. This is effectively as good as owning a freehold in the other states, but a lease can be renewed for a fee of $200 once it is within 20 years of expiry.
There is, however, significant upside to this: the lease means acquisition costs are tax-deductible, Andrew Chamberlain says, “Your solicitor, your building inspections are all deductible but most significantly the stamp duty is as well. If you’ve got a tax problem then an ACT investment property leaves every other state for dead.”
In the case of a change in government, leases on units in the café districts are also likely to be turned over very quickly but, overall, units aren’t an attractive proposition for investors. Although vacancy rates are among the lowest in the country, yields generally hover around 4% and the price growth isn’t strong enough to compensate.
The problem with units in Canberra is that once the vacancy rate gets critical, the ACT Government’s Land Development Agency is able to release new land for development. There is so much vacant land available throughout the ACT that it is no problem to open up land for developers – not just on the outskirts but even in the area right on the fringe of the Parliamentary triangle.
John Runko concurs: “I would suggest that an investor who buys a house as an investment is likely to do better over the long term because the land component is going to escalate more rapidly over time and there is also the potential for redevelopment.”
Although its reputation as a government town is well-deserved, the size of the private sector has eclipsed the public sector in the past few years. Apart from the enormous numbers of public servants, government staffers and defence personnel a burgeoning software industry has developed. Ian Gamble elaborates: “About five years ago the private sector got bigger than the public sector and now it just grows of its own accord.”
With migration levels into Canberra improving after several years of negative growth and the second lowest unemployment rate in the country it appears that Canberra is beginning to generate the momentum desired to sustain a healthy property market. If median wages levels remain higher than average, and there is nothing to suggest that it will not, Canberra’s middle class could be set to enjoy a property boom all of its own.
This story first appeared in Eureka Report.