State of the nation report
THE VARYING CONDITIONS IN DIFFERENT LOCATIONS CONFIRM THAT THERE IS NO ONE MARKET IN AUSTRALIA, BUT MULTIPLE SCENARIOS DRIVEN BY LOCAL ECONOMIC CONDITIONS. MELBOURNE IS NOW THE CAPITAL CITY LEADER ON PRICE GROWTH ACCORDING TO MOST RESEARCH SOURCES, BUT HOBART, CANBERRA, BRISBANE, ADELAIDE AND SOME MAJOR REGIONAL CITIES ARE POTENTIAL CHALLENGERS IN 2017. PERTH, DARWIN AND REGIONAL CENTRES ADVERSELY IMPACTED BY THE RESOURCES SECTOR ARE THE MARKETS THAT CONTINUE TO STRUGGLE, BUT THERE ARE SIGNS THAT THE WORST HAS PASSED.
Melbourne has overtaken Sydney as the leader on price growth, according to most research sources. The Melbourne market–in terms of sales volumes–has passed its peak but remains resilient, and prices are still rising in many market sectors. But the greatest impetus is now being found in the outlying areas where affordability, jobs nodes and good infrastructure are the key factors. Locations where this is occurring include the Epping precinct, the Sunshine precinct and the Casey LGA.
The strongest market with the greatest impetus now is the City of Greater Geelong. It’s a busy market, driven by its affordability relative to Melbourne, a strong local economy and a water-based lifestyle. Geelong currently ranks as one of the top five markets in the nation in terms of sales volumes and potential for price growth.
New South Wales
The vast majority of research data depicts a Sydney market that has passed its peak. Sales activity has dropped significantly in the past year and the growth in the city’s median house price has evaporated, according to all research sources except one (which has
been discredited by the Reserve Bank).
The Sydney market remains resilient though, and I don’t expect any major price decline. Some parts of metropolitan Sydney remain buoyant, led by Penrith.
Meanwhile, there are plenty of solid markets in regional NSW, including Dubbo, Orange, Wagga Wagga, Wollongong, Newcastle, Coffs Harbour and Tweed Heads.
Adelaide has more suburbs with growing sales activity than any other city. While Sydney and Melbourne’s sales activity has dropped markedly in 2016, Adelaide’s sales volumes continue to rise.
Adelaide is also showing the strongest investment value among the five biggest Australian cities, according to a report by Performance Property Advisory. It says Adelaide has under performed in recent years but a range of indicators suggest the city is moving into a strong growth phase. These indicators include housing affordability, favourable demand and supply factors, a major rise in infrastructure spending, strong investment value including attractive rental yields, a rise in overseas migration, and a significant lift in foreign investment in residential property.
Darwin is not the weakest market among the capital cities, but it is close to it. Perth outscores it in terms of high vacancies and decline in rents and prices. But there’s no doubt Darwin is in the depths of the downturn.
Like Perth, Darwin rose, thanks to the resources sector and had standout growth in rents and prices in 2011-2012 and the early part of 2013.
It got particular impetus from the $30 billion Ichthys gas development, but once the considerable impacts of this massive enterprise had worked its way through the economy and property markets, there wasn’t much following behind.
Sales levels across Darwin are now at their lowest in five years and, without major investment projects on the horizon, it’s difficult to see what will inspire recovery. Possibly the recent change of Territory government, after a landslide election result, may inspire something positive.
The Canberra market has undoubtedly improved in 2016. There’s evidence that rents are rising and that prices have shown moderate growth – and the city now has one of the lowest vacancy rates in capital city Australia.
The extent of the price growth depends on which research source you prefer, but several indicate growth of 7 per cent or higher in annual terms for houses. The apartment market is showing smaller numbers, having recently recovered from a period of oversupply.
TWO OF THE MOST upwardly-mobile markets in Australia are Brisbane’s coastal bookends: the Sunshine Coast and the Gold Coast.
Both these coasts are being boosted by strong local economies, major spending on infrastructure and highly-active construction industries. The outcome is a big increase in jobs, and arising from that, a rising demand for real estate accommodation.
The Sunshine Coast rates more highly at present because despite being a smaller city, it has more suburbs with growing sales activity than the Gold Coast does. The Sunshine Coast is being driven by over $20 billion in infrastructure and real estate developments and offers plenty of affordable real estate at good rental yields.
The Gold Coast has a busy real estate market, with infrastructure spending being a big factor as well as high-rise construction, which is creating lots of jobs. The 2018 Commonwealth Games is providing some of the momentum.
However, investors are urged to avoid the high-rise markets, which are heading for another bout of oversupply.
As the Queensland economy improves–boosted by rising commodity prices, a strong tourism industry and a revival in population growth–Brisbane may start to deliver more in the way of price growth. A recent survey of investors nationwide found that 50 per cent rated Brisbane the best location to achieve future capital growth, while only 11 per cent favoured Sydney.
There are some emerging indicators that the Perth market may have touched bottom. I await further data to be sure, but I don’t expect Perth to fall much further.
Recent improvements in commodity prices have added to optimism in Perth. The Western Australian economy is highly dependent on fortunes in the resources sector and rising prices for iron ore are a promising sign that recovery may happen.
But in the meantime most of the numbers portraying the Perth property market are negative. It continues to have the highest vacancies among the state and territory capital cities by a wide margin, with a 10 per cent-plus decline in rents for both houses and apartments.
Regional centres in the south that are not directly impacted by the mining industry are proving to be more resilient, but there are no signs of growth anywhere in the WA property market.
There has been a significant improvement in Tasmania’s economy and it has received positive reviews from a range of analysts, including CommSec and Deloitte Access Economics.
The state’s tourism industry is delivering record numbers and other sectors, such as agriculture and construction, are strong, with record amounts being spent on infrastructure across the state.
Hobart is starting to produce solid growth in prices and there is also evidence of good growth in rentals. Hobart’s great appeal is that it has the lowest prices, tightest vacancies and highest rental yields among the capital cities. One forecaster, Simon Pressley of Propertyology, has predicted that Hobart will lead the capital cities on capital growth in 2017.
Elsewhere in the state, Launceston and Devonport are worth considering.