2014 has certainly has been an interesting year for those interested in real estate.
While many started the year with confidence, the last few months gave us a few reminders not to get too cocky.
Our property markets have stalled and while some pessimists are predicting this is the beginning of the bubble bursting, how I see it is that our property markets are taking a well earned breather.
Sure the markets have slowed a little, but that doesn’t mean price growth is going to stop.
We’ve now entered a period of stabilisation before the next growth phase. It’s a time for buyers and vendors to take stock and get used to new values before growth begins again. That’s how every other property cycle I’ve been involved in worked.
While at a macro level property price growth has slowed, there are still some segments of the property market that are pretty hot.
Of course each state is at a different stage of the property cycle, so as you dig deeper into the data you’ll find that there are multiple property cycles within each state – some defined by geography and others by price.
So let’s take a look at how our property markets are performing around Australia…
What the latest stats show:
We’ve had 2 good years in property since the current property cycle bottomed in May 2014 year. RP Data reported overall capital city dwelling values rose 10.1% in the last financial year, with Sydney and Melbourne being the primary drivers of capital growth.
However the June quarter saw dwelling values fall for the first time since May last year and Sydney is really the only capital city with property prices significantly higher than the peak of the previous cycle.
In other words, we’re really not in ‘bubble about to burst’ territory.
Let’s now look at some of our major property markets in a little more detail:
Median house price: $800,000; 16.2% increase in last 12 months.
Median unit price: $586,000; 12.2% increase in last 12 months.
Vacancy Rate: 1.7%
The Sydney market continues to perform strongly with house prices now at record levels and it’s likely they will continue climbing.
The Harbour City market is strong because jobs are being created there and its population continues to grow strongly.
“Many buyers are asking is it too late in this property cycle to buy in Sydney, they’re clearly concerned about paying too much” says George Raptis, director of Metropole Property Strategists in Sydney.
“But there’s still plenty of momentum in the market with pent-up demand from home buyers and investors and little good stock. Buyers are however selecting more carefully now and their decisions are being driven by lifestyle with many trading backyards for balconies in well located apartments in Sydney’s gentrifying suburbs,” says Raptis.
Median house price: $620,000; 9.9% increase in last 12 months.
Median unit price: $468,000; 5.7% increase in last 12 months.
Vacancy Rate: 2.4%
Melbourne has again been the surprise performer over the last year considering the current oversupply of apartments in the CBD and some inner suburbs.
“Melbourne is really a tale of two cities in the one big capital,” said Kosta Mesaritis, of Metropole Property Strategists in Melbourne,
“There is still a significant oversupply of new apartments in the CBD and in many of our inner suburbs plus a record number of new apartments are still coming out of the ground or on the drawing board. This will undermine capital gains and rental growth.”
“At the same time there is also an oversupply of newly built house-and-land packages in Melbourne’s outer northern and western suburbs where buyers are showing a preference for two to three year old homes which can be bought considerably cheaper than new stock”
“Yet there is a shortage of well located established homes and apartments in Melbourne’s middle ring suburbs with demand outpacing supply, keeping auction clearances high and prices strong.”
“Currently there are some good investment opportunities buying established apartments in Melbourne’s southern or eastern suburbs and adding value through renovations,” he says.
Median house price: $490,000; 7.3% increase in last 12 months.
Median unit price: $370,000; 1.3% decrease in last 12 months.
Vacancy Rate: 2.3%
Brisbane was tipped by many as the property market to be in this year and it has not disappointed with home values showing the third highest gain over the last year.
Brisbane house sales were 16% higher over the past three months than over the same period last year and this should translate into higher property prices as they year moves on.
“There has been a resurgence of property investor activity over the last six months, with interest being particularly strong in the mid price range, inner and middle ring suburbs of Brisbane.”
“Melbourne and Sydney investors are beginning to consider Brisbane where price growth has lagged the southern states. With property prices around 50% cheaper than Sydney and higher rental yields, there is still a lot of upside for Brisbane properties” said Shannon Davis, director of Metropole Property Strategists in Brisbane.
Median house price: $532,000; 5.0% increase in last 12 months.
Median unit price: $440,000; 8.9% increase in last 12 months.
Vacancy Rate: 2.3%
After a long period of strong capital growth the Perth housing market came off the boil after the mining boom reached it’s peak and this year the market has softened.
“While it’s reasonable to expect an increase in demand for apartment living as Perth grows larger, the sheer number of apartments coming into some sectors of the market means that there will be very little upward pressure on prices in these areas,” says Damian Collins, managing director of Momentum Wealth.
“The rental market has softened as vacancy rates lift with many tenants moving into home ownership. However, with low interest rates good properties can still be purchased without significant out-of-pocket expenses.”
“There has been some significant changes to the residential planning codes in Perth with changes to the residential planning codes having further increased development opportunities for apartments. We expect market growth to be at a slower rate, but still strong opportunities in some areas. Investors need to be selective in their property choices and consider opportunities to create their own growth through renovations and development.”
Median house price: $420,000; 3.1% increase in last 12 months.
Median unit price: $345,000; 0.7% increase in last 12 months.
Vacancy Rate: 1.6%
Adelaide’s housing market has essentially remained flat (in fact, it has fallen behind after taking inflation into account), in line with its underperforming economy and high unemployment rate. Demand for property remains subdued with activity driven more by necessity than desire to upgrade or invest.
Median house price: $570,000; 5.4% increase in last 12 months.
Median unit price: $445,500; 6.7% increase in last 12 months.
Vacancy Rate: 1.4%
The Darwin property market performed strongly a few years ago driven by solid investor sentiment, but their love affair with the Northern Territory seems to be over (at least in the short term.) I’ve always found investor driven markets more volatile than our big capital cities and that’s why I avoid them.
Median house price: $343,000; 2.1% increase in last 12 months.
Median unit price: $267,000; 6.8% increase in last 12 months.
Vacancy Rate: 1.8%
Hobart was the worst performing capital city property market last year, and without a big economic shift to boost employment and sentiment there is little to suggest things will change.
Median house price: $561,000; 2.8% increase in last 12 months.
Median unit price: $419,925; 3.7% increase in last 12 months.
Vacancy Rate: 2.3%
The Canberra housing market has always been affected by the political cycle. The uncertainty before last year’s election and the threat of cuts to the public service has dampened confidence of home buyers and investors.
Notwithstanding the slight and likely temporary slowing in the pace of house price growth, I still see many reasons for growth over the next year or two. Of course the economy will keep putting stumbling blocks in front of us and it won’t be all smooth sailing – but it never is.
Yet the overall fundamentals for property are sound driven by low interest rates, strong demand, rising household wealth and slowly increasing consumer confidence.
At the same time our population will keep growing strongly and people are still getting married, having babies, moving interstate or getting divorced – and they all need accommodation.
Sure growth will be lower this year than it was last year, but the type of double digit capital growth we had last year at a time of low inflation is unsustainable.
It’s important to remember both the Reserve Bank of Australia and our government are counting on consumer spending and the construction sector to grow our economy.
However, at some time in the future, probably a year or two away, house prices will have risen significantly and our economy will have picked up to the point where the RBA will raise interest rates. This is likely to stall this property cycle like it has all others.
This means you can’t just buy any property
Home buyers and investors will have to undertake careful due diligence – they won’t have booming property prices to cover up mistakes.
This means they will 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 (in many states, that would be now) and for the right price.
Then hold it as a long-term investment and reap the rewards.
Michael Yardney is a director of Metropole Property Strategists, a company which creates wealth for its clients through independent, unbiased property advice and advocacy.