NEW SOUTH WALES
Slowing but not stagnant
Sydney property values will continue to grow until mid-year – but is that when the party ends?
After almost three years of exceptional and unprecedented growth, it would be virtually impossible for Sydney’s property market to charge into 2016 expecting another year of stellar results. That said, experts are suggesting there is still some growth to be squeezed out of the market yet.
NSW reported the strongest growth for residential investment lending in 2015, racking up loans that were 32% higher than the previous year.
“Investors have been the key factor driving the market, with the value of investor loans in NSW increasing by 89% in the two years to 2014/15,” reports multinational insurer QBE in its Australian Housing Outlook 2015–2018 report prepared by BIS Shrapnel.
“This growth has been influenced by a sizeable deficiency of stock across Sydney’s inner, middle and outer regions. This shortage is expected to maintain upward price pressure in 2016, driving growth to a forecast median price of a further 7% by June 2016.”
Price correction slated for 2017?
Strong growth through to the middle of this year may be where the party ends, however.
Andrew Wilson, senior economist at Domain, believes “the great Sydney house price boom has ended” and the capacity for price growth is moderating.
“The extraordinary house price growth [that] Sydney has recorded over the last three years is now clearly receding, although it remains relatively strong and well ahead of all other capitals, except
Melbourne,” Wilson says.
“The general outlook for housing markets across Australia is moderate to modest growth at best in 2016. Capital city results will increasingly reflect local supply and demand drivers.”
QBE researchers are going one step further, predicting not just slowing growth but a price correction in Sydney real estate from 2017, driven by diminishing affordability. Unit prices are expected to crash harder than free-standing homes.
“The prospect of a tightening interest rate policy in 2016/17 is likely to impact on investor demand, with limited potential to offset interest rate rises given Sydney’s low rental yields,” QBE reports.
“Consequently, investor demand is anticipated to weaken considerably over 2016/17 and 2017/18, with unit prices forecast to fall by a cumulative 6 per cent in this period … and a 5% correction in house prices.”
Already, buyers appear to be treading with caution, as most understand that Sydney is not the market to turn to if you’re seeking strong immediate growth.
“Buyers are taking a more conservative view in purchase decisions,” confirms Greville Pabst, CEO and co-founder of WBP Property Group.
“In Sydney, investors recognise that residential real estate has peaked or is close to its peak and the likelihood of short-term price growth has passed. Residential yields are softening and will continue to do so as more off-the-plan housing stock becomes available for rent.”
Some investors are withdrawing their attention from the residential market to instead focus on office, industrial and retail opportunities. “[There are] early signs of investors looking to commercial real estate and other potentially higher-yielding property, which may offer a better outlook for price growth,” Pabst says.
VICTORIA
Strong population growth underpins Melbourne market
There’s no denying that 2015 was a busy and profitable year for Melbourne’s property market, but will 2016 deliver the same financial rewards?
Till the very last minute, 2015 was a bumper year for Melbourne property vendors. Real estate agents scheduled more than 8,000 auctions in the six-week period leading up to Christmas Day, even booking auctions on Sundays and weekdays to make the most of the busy selling season.
“After December, a huge drop in the number of auctions [scheduled] means buyers that failed to purchase before Christmas are forced to wait until auctions in February 2016,” says Greville Pabst, CEO and co-founder of WBP Property Group.
“Add the prolonging of settlement dates and buyers become anxious they won’t be able to move into a new home until May. The result of this was a solid December where the market seemed to remain reasonably strong.”
Indeed, house value growth was in the double digits for 2015 as a whole, while apartments also performed well, albeit not as strongly as free-standing homes.
“Melbourne is clearly the second highest capital city housing market, still well behind Sydney,” says Domain senior economist Andrew Wilson.
“The recent strong capital city property markets of Melbourne and Sydney are now recording weaker price growth, with low interest rates, previously a key driver of the market, gradually losing impact … and the capacity for house price increases is moderating.”
One in four Australians live in Victoria
Despite predictions that Melbourne real estate won’t enjoy the same level of capital appreciation in 2016 that it did last year, experts still expect Melbourne property investors to experience decent growth in 2016, and likely next year as well.
The city of Melbourne overall is expected to have ongoing positive growth well into the middle of the year, with the Australian Housing Outlook 2015–2018, prepared by BIS Shrapnel for QBE, predicting that the median house price will reach $770,000 by June 2016.
This forecast is loosely tied to the city’s strong population growth, which is considered a strong indicator of future capital growth. More residents means more demand for property, which should translate to pressure on property prices.
In its recent Business Outlook report, Deloitte Access Economics confirms that, by this measure, Victoria is streets ahead of all other states and territories.
“Although the state’s population growth is a little off its highs [at present], there have been huge slowdowns in Western Australia and a notable slowdown in Queensland, leaving Victoria as the undisputed national leader in terms of its rate of population growth,” Deloitte reports.
“It’s ranked second only to NSW as a magnet for the migrants of the world, with net overseas migration adding around 55,000 people to the state’s population in the last year alone.”
Deloitte estimates that Victoria currently accounts for around a quarter of Australia’s population; for the first time in over 20 years one in four Australians can call Victoria home.
QUEENSLAND
Two-speed rental market
While some Queensland landlords are reaping the rewards of historically tight vacancy rates, others are struggling to find a tenant
Experienced investors know that there’s no such thing as ‘one’ property market, with dozens of micromarkets operating at any one time in every state, city, suburb and even street.
This is proving to be the case in Queensland, where the rental market is operating at two speeds, reports the Real Estate Institute of Queensland (REIQ).
Vacancy rates remain below 3% in the popular southeast precincts; however, they’re growing substantially weaker in regional markets.
From Gympie (around 160km north of Brisbane) down to the Gold Coast and west out to Toowoomba, rentals are reaching “almost historically tight levels”, says REIQ CEO Antonia Mercorella.
“We’re seeing strong demand for rental properties in areas like Caloundra and Noosa, with both registering a 0.9% vacancy rate, and while a small level of this demand is seasonal, it is good news for investors who have certainty around finding tenants for their properties,” she says.
Brisbane’s vacancy rate remains healthy at 2.8% in the most recent reporting quarter, although a rash of new big-box unit developments being released to the market are having an impact on rentals and vacancies.
“New apartments in Brisbane are reportedly being snapped up by investors and owner-occupiers, although the vacancy rate softened slightly, from 3% to 3.3%. Local agents are telling us that in order to secure a tenant, rental incentives are being offered,” Mercorella says.
“Asking rental prices are also said to be softening in response to the level of supply. However, it is evident that the tenant demand is still there.”
Vacancy rates swell in the regions
Elsewhere in Queensland, the Gold Coast’s vacancy rate dropped from 2.3% to 1.7%, and the greater Sunshine Coast area fell from 1.6% to 1.3%.
Further north, however, the market is softer, with Gladstone in particular suffering as its resource-based economy struggles to support the city’s workforce. Gladstone’s vacancy rate lifted from 5.2% to 7.1%, although Mercorella believes promised infrastructure projects in the region will soon see the situation turn around.
“With potential projects slated to go ahead, such as the Eden Bann Weir and the Gladstone to Fitzroy River pipeline, employment should improve, and with that the property market,” she says.
Vacancy rates aside, most landlords will rarely have trouble finding a tenant for a quality property in a blue-chip suburb. Lutwyche, a residential neighbourhood situated just 5km from the CBD is a prime example.
Of course, the only potential issue for landlords seeking to secure one of these properties is that these investments are not always priced within an everyday investor’s budget.
Blue-chip property boom
Mark Taylor, sales partner at LJ Hooker Brisbane Central, confirms that houses within a 5km to 10km radius of the CBD are currently in high demand with investors, owner-occupiers and renters alike. “Inner-city housing has been crazy busy for a couple of years now. That’s mainly what people want, but not always what they can afford,” he says.
“I mainly deal with inner-city units, so that attracts the investors and the occasional first home buyer [who are] looking to get into the market to start off their investment portfolio.”
While apartments do offer a lower price point to enter these markets, the capital growth isn’t always as robust.
The Australian Housing Outlook 2015–2018, prepared by BIS Shrapnel for QBE, suggests that over the next three years house price growth will be the highest in Brisbane “among all state capital cities”. Apartments, however, are not expected to fare as well.
“Rises to interest rates through 2016/17, together with weaker economic conditions forecast in 2017/18 and the emerging oversupply in the unit market, are likely to have a broader impact in negating demand for houses as well. By June 2018, the forecast median house value in Brisbane of
$575,000 will be 13% above the median at June 2015,” it reports.
“[We] expect to see unit prices stabilise and even show a modest increase in 2015/16 and 2016/17. Prices are forecast to weaken again in 2017/18 as new units are completed and become available for occupation, impacting on both rents and prices. The median unit price is forecast to rise by a total of 2% to $420,000 in the three years to June 2018.”
WESTERN AUSTRALIA
Bargain deals negotiated out west
Most investors are aware of Perth’s prevailing reputation as a declining property market – but it’s not enough to prevent determined bargain hunters from diving right in
Perth’s declining value growth trend began at the beginning of 2015 and seems set to embed itself in 2016.
There are presently around 16,000 properties for sale in the region – well above the long-term average of 12,000 – but the city’s diminishing status in and of itself doesn’t seem to be deterring all would-be landlords.
Rather, bargain-hunting investors are increasingly turning their attention to the west, keen to sniff out below-market property deals from desperate buyers who are willing to negotiate hard.
“Property sales are slowing, but sales are still occurring in Western Australia,” confirms Greville Pabst, CEO and co-founder of WBP Property Group.
“However, purchasers are taking longer to make their decisions, as they have ample choice in the current state of the market.”
Murray Wellington, licensee and director at Wellington Barber Real Estate, adds that the market is “very price sensitive”, and only the most motivated sellers have been able to get a sales contract across the line.
The buyer demographic is mixed, he says, with assertive investors competing against first home buyers and baby boomers.
“We’ve got the older generation looking to downsize by losing the high-maintenance blocks in favour of the smaller, strata-type properties closer to the city, and there’s also demand from a mix of the young people wanting the bigger blocks,” Wellington says.
“Certainly the under-$500,000 bracket [is the most active]; the first and second home buyers have always been a little more active than the higher-priced end of the market.”
Vacancy rate above 5%
Those investors who decide to take the plunge and buy into Perth’s depressed property market may be able to snag a bargain, but they need to enter this market with both eyes wide open.
Recent capital growth has trended backwards, and investors also need to be mindful of the city’s lagging rental market.
Hayden Groves, president of the Real Estate Institute of WA, says the long-term rental vacancy rate average of Perth has been between 3% and 3.5%. Currently it sits at 5.6% in the metropolitan area, a vacancy rate that is “much, much higher than normal”.
“Because there is so much out there, tenants are tending to break their lease with far more frequency. They’re not worried about having to pay excess for a short amount of time, because they can get a really nice property for significantly less than they were 12 months ago.”
Groves is optimistically hoping to see “a turnaround in the house price [growth trend] over the next six months”, but he remains realistic about the fact that a recovery in Perth’s property market could be much further away.
“Any recovery will be slow and moderate, and prices in real terms won’t rise until excess supply washes through,” he says.
SOUTH AUSTRALIA
Sluggish property market set to stay
If 2015 was an unremarkable year for Adelaide property, what can we expect from 2016?
Adelaide’s real estate market performance has been somewhat unremarkable over the last 12 months, with values barely moving and sales activity on the slower side.
“During the first half of 2015, demand continued to exceed supply in the inner areas of Adelaide, resulting in a sellers’ market,” says Greville Pabst, CEO and co-founder of WBP Property Group.
As the year wore on, that trend continued, save for one distinct market: the high-end, premium market representing some of Adelaide’s most prestigious suburbs, many of which experienced double-digit growth in 2015.
“Market conditions are still very tight in the ‘blue chip’ inner-eastern and southern suburbs, as stock levels of established homes are at record lows. In particular, well-located period homes are achieving a premium in the marketplace,” Pabst says.
“But perhaps the highest capital growth during 2015 occurred in middle southern suburbs, in part due to zoning changes that allowed for higher-density development in some areas.”
More pain ahead
Overall, there are few opportunities to profit in the short to medium term, with capital growth prospects in the doldrums.
Adelaide’s outer mortgage belt suburbs are suffering the most, in part due to increasing unemployment and an oversupply of new housing. Sales of entry-level investment properties in these areas “have particularly slowed, due to tighter lending restrictions for investors by APRA”, Pabst explains.
“Off-the-plan apartment sales in the CBD also appear to be slowing, despite an increase in the number of projects being released. We expect that prices for… apartments will fall,” he warns.
This sentiment is echoed in the Australian Housing Outlook 2015–2018, prepared by BIS Shrapnel for QBE, which pinpoints a number of factors impacting on the state’s economy.
“Adelaide faces headwinds in key industry sectors, with trade exposed industries such as manufacturing having been weakened by a high Australian dollar. Many people are not in a position to invest in the short term, while automotive manufacturing will be discontinued with the closure of the Holden plant in 2017,” the report states.
It predicts median house price growth of 1.9% in 2016, before rising oversupply and slower economic activity halt price growth in 2017 and induce a 1.1% decline in 2017/18. Units are forecast to perform at a similarly dismal rate, with negative growth of 1% predicted by June 2018.
TASMANIA
High housing construction but no new growth
For every negative turn, there is always a silver lining to be found, and in Tasmania it’s the state’s lack of capital growth
It’s not common practice to view a property market’s backwards growth in a positive light, but for Tasmania it has provided something of a pricing floor.
Over the last decade, Tasmania hasn’t boomed alongside its resources-rich neighbours to the north. This means that while Queensland, Western Australia and the Northern Territory have suffered the impacts of the contraction of the mining industry, Tasmania has largely been unaffected by these pressures.
“Tasmania isn’t as exposed to downside risks now that China is slowing and commodity prices have slipped to the floor. If you didn’t have a boom in the first place, it’s hard to have a bust coming from the same direction,” states Deloitte Access Economics in its Business Outlook: Global Challenge – Too much supply, too little demand.
“Equally, the economic levers moving at the national level in response to China’s slowdown and the commodity crunch of the moment are actually big news for Tasmania – lower interest rates have helped housing construction and retail, while the lower exchange rate has helped manufacturing in the state hold its own and tourism see some better outcomes.”
Furthermore, a range of economic indicators are showing some signs of life in Tasmania, the report says, including increased retail spending by locals and an upsurge in the number of holidaymakers travelling to Tassie.
“The housing market too has been a happy beneficiary of Australia’s low interest rate environment,” Deloitte adds.
“There’s still enough good news in the pipeline to indicate some pretty solid levels of housing construction activity as being likely to extend through the course of 2016.”
None of this has yet translated to any property price growth in the Apple Isle. However, it hasn’t stopped investors from flooding into the market.
Growth in lending for residential investment during 2014/15 was strong in Tasmania, increasing by 30% on the previous year, confirms Phil White, CEO of QBE LMI.
In its Australian Housing Outlook 2015–2018 report, prepared by BIS Shrapnel, QBE says Tasmania’s sluggish value growth has been impacted on by “excess dwelling stock and weak local economic conditions”.
Despite this, dwelling construction in Tasmania is “rising strongly”, it adds.
“Buoyed by a $20,000 grant to first home buyers of new dwellings, which was extended through to the end of calendar 2015, the increased activity is expected to push the market further into oversupply, keeping pressure on rents,” White says.
He believes price growth in 2016 and beyond is “likely to be modest and mainly underpinned by low interest rates”.
“The median house price is forecast to rise by 1–2 per cent per annum, or a total 5 per cent, by June 2018 … although there could be further growth in house prices if net interstate migration strengthens more than expected.”
NORTHERN TERRITORY
Weak overall, but units fare worst
Darwin real estate is suffering on all fronts, but its apartment market is experiencing the biggest downturn
It was the property market that investors were clamouring to invest in just a few short years ago.
But in a testament to how quickly real estate cycles can shift, Darwin’s property market has become one of Australia’s least-appealing locales for investors in 2016, with property oversupply and backwards capital growth creating a myriad of headaches for landlords in the Top End.
“The Northern Territory is approaching the tail end of its mining-related construction boom and there are signs the economy is slowing, while population growth has dropped to the nation’s weakest,” confirms Deloitte Access Economics in its most recent Business Outlook report.
Part of this market shift has been due to slowing demand from China, where the drivers of growth are “increasingly shifting from construction to services and the consumer”.
“That weighs on construction prospects in Australia and trims the dividend in mining from past investment,” Deloitte adds.
Domain senior economist Andrew Wilson agrees, pointing to the fact that because the NT is a resource-rich region it is now one of Australia’s clear underperformers in terms of both real estate and economic growth.
The Darwin median house price has fallen over the past year, reflecting “reduced demand from interstate jobseekers and an associated weakening of local economic activity”, he says.
“Recent high levels of new apartment construction in the Darwin area also are a significant factor in weaker unit market performance,” Wilson says.
While housing growth has been subdued, the unit market is clearly the city’s weakest link, with sales activity slumping dramatically in the second half of 2015. Quentin Kilian, CEO of the Real Estate Institute of NT, says 64% fewer properties were sold in the September 2015 quarter than in the same period the previous year.
“It’s hard to say when the market will see an upward swing again, but you can be pretty confident based on history that it will gain ground again at some time,” Kilian says optimistically.
He further contends that Darwin’s depressed property market could present bargain buying opportunities for those who can withstand the current sluggish state of affairs.
“Of course, every cycle in the market opens opportunities, and at present these exist for people looking to purchase a property,” he says.
“With more stock available and lower interest rates, this is a great time to be looking at your first home or an investment property.”
AUSTRALIAN CAPITAL TERRITORY
High confidence in Canberra property
Confidence in Canberra property is high as the market appears to move forward – but property experts warn there may be a few more tough years ahead
Strong recent capital growth and excellent yields are attracting investors to Canberra’s outer suburbs, where relatively low purchase prices and high-quality amenities and services are driving the market forward.
A stronger return of 5–6% can be found in the newer suburbs of Gungahlin and Woden Weston, reports Herron Todd White, as well as in Macgregor, a suburb that provides affordable modern dwellings priced at around $400,000 to $600,000.
However, demand for general investment “has tightened due to the slowed market conditions of Canberra”, says Herron Todd White in its November 2015 Month in Review.
“Potential investors or opportunistic builders and developers are actively looking for the right block with the appropriate zoning to possibly develop … but the current lease variation charges that developers must take on has been the biggest obstacle in investment and development,” it reports.
The new housing developments that are moving ahead “generally leads to a ripple effect within the suburb, as values could increase due to the increased activity stimulation these potential blocks attract”, Herron Todd White adds. “This has not come into full effect, but we see that this trend is on the cusp of occurring.”
Meanwhile, consumer and industry confidence in ACT real estate overall is officially on the rise, with the ANZ/ Property Council of Australia Survey for the December 2015 quarter showing an increased score of 135 points. This is an increase of four points on the September quarter and eight points on this time last year; a score of 100 is considered neutral.
“The survey finds more positivity around forward work expectations and staffing levels and the industry is clearly readying its workforce for when the jobs land,” says the Property Council’s ACT executive director, Catherine Carter.
There is work in the pipeline, including the Denman Prospect, West Belconnen and eventually along
Northbourne Avenue, which should underpin growth in jobs and generate economic activity.
But Carter says some of the upswing in outlook “can be attributed to our highly experienced local industry picking up significant jobs interstate”.
“However, it doesn’t fully reflect the state of the local market, which remains subdued.”
Carter says confidence in the ACT Government remains in negative territory, and there is a consensus that “the industry faces a few more tough years ahead”.
“Given the lack of Commonwealth investment, now is the right time for us to focus on urban regeneration, and some local companies are already positioning themselves in preparation for large-scale urban renewal,” she says.
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