National Property Report – December 2014

Australian Capital Territory

A city facing up to its demons

Canberra’s economy is going through testing times, but investors should not dismiss this market as somewhere that can’t offer capital growth.

The latest RP Data CoreLogic Home Value Index results don’t make for riveting reading for those who have owned investment properties in Canberra over the past year.

They show that dwelling values in Canberra have increased by just 1.7% over the past 12 months, compared to the roaring 14.3% growth that Sydney has experienced over the same time. They were even a long way off the next weakest performer, Hobart, at 4.6%.

And in an area that’s closely tied to the public service, the talk of more potential cuts has not helped property prices. The Australian Public Service Statistical Bulletin shows that almost 8,000 jobs were lost over 12 months, as the APS was shrunk from 167,051 to 159,126.

However, the minister assisting the prime minister for the public service, Senator Eric Abetz, says more than half of the job losses (53.5%) were actually due to natural attrition, as opposed to redundancies.

“The Australian Public Service will reduce by 16,500 staff across the four years to 2016–17,” says Abetz.

This figure includes the loss of 14,500 jobs that was proposed under the previous government.

But the combination of declining revenue and increases in spending has left some commentators predicting that further cuts could be on the way.

“It might even intensify given the failure of some of the budget cutbacks to get through the senate,” says Shane Oliver, chief economist at AMP Capital. “The government may at some point be forced to undertake more public service cutbacks, like maybe in the May budget next year.”

Additionally, in a sign of waning confidence, ACT retailers experienced the second largest slump in trade in Australia over August.

Reasons for optimism

However, early signs in spring are that the Canberra market will improve as agents are reporting increased sales activity, according to the Herron Todd White report.

“The activity is expected to continue until the end of the year when Canberra generally becomes quiet over the Christmas and New Year period,” says the report.

For investors seeking capital growth over the longer term, it may be worth checking out the central suburbs of Canberra City, Braddon, Turner, Kingston, Barton and Forrest.

Above-average unit stock there includes two bedroom, two-bathroom modern accommodation with prices ranging between $500,000 and $600,000 plus.

However, investors should keep in mind that the rental returns on standard residential properties may not be as positive as the returns available in the medium-density housing and unit markets.

Meanwhile, families looking for more space are targeting four-bedroom dwellings in the districts of Woden, Weston Creek and Belconnen, where prices generally sit between $550,000 and $650,000.

New South Wales

Growing investor activity in the Northern Rivers

Investors looking for growth and rental returns – without breaking the bank – could do a lot worse than the Northern Rivers, for a number of reasons

It might be famous for its music festivals at Byron Bay, but the Northern Rivers region has also recently been attracting residents, as well as tourists.

Located in northeast NSW, the Northern Rivers comprises an area of approximately 20,732 sq km with a population of roughly 288,000 people.

The region’s diverse economy includes the production of agricultural commodities such as dairy, tropical fruits, cattle, poultry, plantation forests, soya beans and sugar cane.  This is complemented by local research organisations exploring innovative ways to further improve soil health and mitigate climate change.

The area also has the largest coal seam methane gas reserve in NSW.

Other key industries include building/construction, manufacturing, fishing, education (there is a regional university), biotechnology and tourism.

In fact, the Northern Rivers boasts the second highest level of international tourists in NSW, thanks largely to key tourist icons such as Byron Bay and Nimbin, which deliver world-famous music and arts festivals. Its arts community is continuing to thrive, and the region now has more documentary makers than anywhere in Australia except Sydney or Melbourne.

The Northern Rivers is also well serviced by the Pacific Motorway, the interstate rail network and the Ballina and Gold Coast Airports.  Some of the area’s up and coming suburbs include Grafton, Lismore and surrounds, and Ballina.

Grafton

In recent times, investors have been active in the lower end of the Grafton market, seeking to purchase properties for renovation and resale, says the latest Herron Todd White report. 

And for this commercial hub of the Clarence River Valley there is particularly good news regarding infrastructure projects planned by the NSW government.

These include the allocation of funds for construction of the second Grafton Bridge, as well as plans for the new Pacific Highway bypass from Coffs Harbour to Iluka Road.

“These developments are expected to have a positive impact on demand for typical property throughout an extended period of construction,” says the report.

“A typical residential property would include a 1950 part-renovated three-bedroom, one-bathroom fibre cement clad dwelling on a 600 square metre parcel.”

Lismore and surrounds

Even though the typical purchasers in the Lismore, Casino and Kyogle markets are owner-occupiers, there has recently been an increase in investor activity, says the Herron Todd White report.

Residential property in Casino and Kyogle includes newer housing stock averaging in price between $325,000 and $350,000 for three- to four-bedroom, two-bathroom layouts with a double garage. However, for older-style homes with three-bedroom layouts, the price falls to between $200,000 and $250,000.

Investors would be wise to look for a standard house with a large living space, allowing for a third or fourth bedroom to be created, which would help increase the overall rental return.

“However, from an income return perspective, a block of flats or duplex pair could see the rental return increase to around 7% gross or more depending on location and condition,” says the report.

Those looking to invest in North and South Lismore should make sure they buy in an appropriate area, keeping in mind the flood-prone nature of certain sections.

Ballina

Local agents in Ballina are saying they do not have enough stock to supply keen buyers, says the Herron Todd White report. In fact, detached houses under $500,000 are selling like hotcakes at the moment in Ballina and nearby Alstonville.

“These two suburbs have all the services you need and would be considered safe living,” says the report.

However, if interest rates were to rise this could deter buyers and put the heat on those who have recently entered the market, due to the rise in mortgage payments.

Northern Territory

Changes ahead for Darwin market?

Darwin’s softer market is better for buyers, but it is hard to say how some changes to the market landscape might impact on the investor scene

Quieter times continue to dominate Darwin’s property market, yet it appears there may be some interesting changes afoot that could impact on the future property market.

The latest RP Data CoreLogic Home Value Index results show that Darwin’s dwelling values dropped by 1.0% over September and rose by just 1.4% over the quarter. The talk is that, after a strong couple of years, the market is currently correcting and thus levelling out.

Affordability concerns – due to some of the most expensive living and property costs in Australia – could also be playing a part in this softening of the market, according to the latest Herron Todd White report.

However, Peterson’s Property Search founder Tod Peterson believes the current market is beneficial for buyers. “They have more leverage and more negotiating power in this climate. As long as they are savvy, there are good opportunities for buyers to come into the market.”

It is worth noting that Darwin properties are also still pulling in the highest rents in the country, Peterson says. The latest RP Data figures show that this is indeed the case, with Darwin houses recording a yield of 5.9% and the city’s units posting a 6% yield.

“Accommodation is still tight up here.  It can be a bit seasonal, and demand is always strongest during the dry season.  But, overall, demand remains high … especially when you take shorter-term rentals into account.”

Despite the more subdued environment dominating the market, there have been some recent noteworthy developments. One such development is the Territory government’s drive to promote the top end’s resources to China.  The goal is to attract big agricultural and infrastructure projects. A similar tactic was successfully used with Japan and resulted in the Impex project.

As a result of the government’s efforts to reach out to China, Peterson says he has been increasingly dealing with Chinese investors. While they have been interested in big blocks of land for food production and plantation purposes, this trend could impact on the NT market further down the track.

Another noteworthy development has been the state government’s efforts to deal with the aforementioned squeeze on accommodation. House and land packages have been released in northern Palmerston and the northern suburbs of Lyons and Muirhead.

Peterson says the state government is also interested in making use of infill land. “The release of this land is a cheaper way to deal with the accommodation problem, rather than setting up a whole new suburb and putting in headworks.”

The latest Herron Todd White report points out that, given stamp duty concessions for new builds only, there is likely to be a continued softening of old housing stock as new developments are completed. Land releases for further development may well contribute further to that situation.

Queensland

Let the good times roll

Forecasts for Queensland continue to be optimistic, and this means Brisbane is not the only market in the Sunshine State that investors might want to keep an eye on

Rolling waves of upbeat forecasts continue to break on the sandy shores of the Queensland property market. Even as ‘bubble’ warnings swirl around other state markets, experts agree that the tides are calmer when it comes to the Sunshine State.

This state of affairs is enticing many a savvy investor to dip their toes into those warm waters. And, with the Real Estate Institute of Queensland’s (REIQ’s) Market Monitor for the June 2014 quarter reporting an increase in sales activity for all property types across the state, who could blame them?

REIQ acting CEO Antonia Mercorella says that, while there was a rise in sales of houses, units, townhouses and vacant land, the state’s total house sales were up across all price points during that period.

“The Brisbane LGA led the charge with an increase of 19%, closely followed by Logan, which was up 18%. These unusually robust winter sales look set to be replicated in a number of markets throughout the state amid increasing demand, sales volumes and prices.”

However, the increase in activity was predominantly recorded in Queensland’s southeastern corner. This indicates that certain markets within the broader state market are poised to perform better than others.

Ipswich

One such market is Ipswich, which sits in Queensland’s southeast, 40km from Brisbane. Once a large city in its own right, these days it has been absorbed into the larger Brisbane metropolitan area.

According to a new report by property analyst Michael Matusik, the Ipswich market has entered the recovery phase of its cycle, and is a market to watch as sales volumes, prices, rents, rental yields and new dwelling starts are all rising.

Matusik believes it has the potential to be the Parramatta of Southeast Queensland. This is due to its large tracts of relatively cheap residential and industrial land, high levels of public and private infrastructure spending, and a proactive local council and state government.

Strong population growth is on the cards, with the latest state government projections anticipating it will grow to over 450,000 within the next 25 years.  This will impact on sales volumes, housing starts, job creation and the rental market.

The Matusik report notes that, with an already tight vacancy rate, rents should continue to rise, but only for affordable property that caters to the emerging demographics. Therefore dual-income housing, followed by small-lot detached housing and then townhouses are the best choices for investors.

Gold Coast

Another Southeast Queensland market it might pay for investors to keep an eye on is the Gold Coast. While it hasn’t been viewed positively for some years, recently the outlook has started to change.

Tony Holland, from Colliers International, says it is currently the most undervalued property market in Australia. “It is well positioned to enter a long-awaited growth phase following on from the strong demand and price growth in the Sydney, Melbourne and Brisbane markets.”

Major infrastructure and development projects are driving the Gold Coast market and contributing the increasing activity. Projects include:

 

  • construction of the Commonwealth Games 2018 infrastructure
  • a $300m redevelopment of the Pacific Fair Shopping Centre
  • a Chinese-investment-driven $300m joint venture to develop the iconic beachfront Jewel project site
  • plans for a $345m hotel tower at Jupiter’s Casino
  • the planned redevelopment of Wavebreak Island

However, some commentators recommend watching this market closely, due to a potential risk of oversupply.

Toowoomba

Toowoomba sits to the west of Brisbane and is one of the Queensland markets that commentators keep talking about.

Long known as the service centre for the Surat Basin, but with a well-diversified economy of its own, it is now set to become a freight and logistics hub as well. This is thanks to the new Brisbane West Wellcamp Airport development, the new Toowoomba Second Range Crossing, and the planned Inland Rail project.

Already blessed with low unemployment, this market will see job opportunities increase as a result of these projects, along with the $350m retail centre development in the CBD and upgrades to medical facilities, including Toowoomba Hospital.

The REIQ’s Mercorella says it is already one the state’s key regional markets and is experiencing solid growth.  “Toowoomba continues to perform strongly, with sales activity up 5% for the June quarter on the back of a thriving local economy and strong buyer activity.”

Further, Toowoomba offers affordable prices, strong rental returns and a tight vacancy rate, all of which should also be appealing to investors.

South Australia

Moderate market on the mend

SA’s property market doesn’t offer much in the way of exciting ups, nor does it dole out devastating lows.  So, does the state’s capital city market attract negativity due to a lack of drama?

Plodding along, slowly and steadily, the SA market doesn’t throw up much in the way of surprises or excitement. Therefore many people don’t get excited about it.

Yet lack of volatility is not a bad thing, which begs the question: is the SA market, and in particular Adelaide’s market, a victim of its own moderate nature?

This question seems particularly apt when looking at the latest RP Data CoreLogic Home Value Index results.

According to this data, Adelaide recorded a solid increase in dwelling values over the September quarter, posting a 3.1% capital gain. It was one of only three capital cities to do so. Further, its year-on-year result was a healthy 5.8% growth in dwelling values.

Meanwhile, the latest Herron Todd White report notes that Adelaide’s market continues to show increasing capital growth, above-average auction clearance rates, reduced time on market, and less vendor discounting.

This is all positive commentary, and yet, all too often, Adelaide seems to be overlooked.

On the bright side

Adelaide is still Australia’s most affordable mainland state, and the market is displaying consistent, sustainable growth, says Real Estate Institute of SA president Ted Piteo. “Buyers are active and informed. How can this be bad news?”

The city’s traditionally sought-after eastern suburbs are showing a marked increase in activity, with stories of sales well above the reserve and/or in record time, says Piteo. “This is a good sign, especially as those markets have taken a bit longer to actually emerge from the downturn.”

But he would prefer to see the bottom-end markets take off more in the short-term future. Buying in those markets has a ripple effect, he says.

“When more investors and first home buyers get in there and buy up the cheap stuff, that pushes up prices and growth across the board, which is what we want to see.  Having said that, we are seeing long-term investors starting to get into those markets again.”

Adelaide’s rental market is performing solidly too. According to the latest SQM Research data, the city’s vacancy rate is 1.6%. The weekly asking rent is $357 for houses and $278 for units.

Opportunities for growth

Piteo says investors might want to think more about long-term growth than current yields and opt for the capital growth that will come with well-selected properties. Such properties include those in suburbs close to Adelaide’s CBD.  If thinking of an inner-city apartment, investors should choose one that is well designed and has car parking.

Piteo also recommends that investors check out the city’s southern beachside suburbs, from Christies Beach down towards Noarlunga, because of the recent completion of the dual expressway servicing the area, and the upgrade of its train lines.

“This will make a huge difference because it means that so much time has been cut off computing and travelling times. Improvements to such infrastructure are always good.”

These developments essentially mean that it is now a fabulous lifestyle area with easy proximity to the city, he says.

“There are some real opportunities there for people looking to invest.”

The problem of negativity

Given these positive market tales, why do the frequent gloomy reports about Adelaide’s market keep coming?

Piteo concedes that the SA economy is struggling and has a high unemployment rate (7%), but he thinks the media drives too much negativity about the state’s situation.

Despite the state’s close alignment with the troubled manufacturing sector, there is potential and opportunity around in all industries, he says.

“Remaining positive is crucial, though.  Too much negativity and consumer confidence drops and activity drops off, and that impact on all sectors, including property.”

Further, in Piteo’s view, the state government should be doing more to stimulate economic activity and confidence. While he acknowledges the need for the government to replenish its coffers, he says SA has the most crippling land tax regime in the country, and property owners suffer because of it.

“Tax reform and abolishing stamp duty on the purchases of homes would have a huge impact on the property sector, and on all the different small businesses and retail outlets that are involved every time a home is sold.”

Tasmania

A market apart

Tasmania continues to struggle along, but some observers feel there is light at the end of the gloomy economic tunnel

Wild, remote, untouched – these features are what give islands a certain mystique and appeal.  As Australia’s island state, Tasmania possesses all of these qualities. And, conversely, they could be part of its problem.

It is the Apple Isle’s isolation that contributes to the significant number of people leaving for other parts of the country. It has also contributed to certain logistical problems for businesses in the past.

Both of these issues – in particular, weak population growth – continue to cause trouble for the state’s struggling economy. Unfortunately, this scenario also has an impact on the property market.

According to the latest RP Data CoreLogic Home Value Index results, Hobart recorded a decline of -1.0% in dwelling values over the September quarter. On a more positive note, Hobart’s year-on-year result was growth of 4.6% in dwelling values.

Newly elected Real Estate Institute of Tasmania president Tony Collidge says it is better to focus on that year-on-year result. In his view, the property market, led by the inner areas of Hobart, is improving.

However, he admits that over the last month there hasn’t been much change in the market. There has been a slight pick-up in the number of transactions overall, and that will start to flow through to prices and listings.

“I work in the northern suburbs, which are traditionally a bit slower, and we have just had our best three months in two years in terms of the number of sales. So it is starting to flow through the market slowly but steadily.”

Improving atmosphere

With both the state and federal elections over and out of the way, a greater sense of stability is taking hold of Tasmania.

Collidge says everyone, be they businesses or consumers, knows what to expect now. As a result, there is a growing focus on getting things done.  The new government is doing its best to generate more activity in the economy, he continues.

“That should have the flow-on effects of creating more work and boosting consumer activity, which will benefit the property market too. Generally, we are seeing more optimism and confidence down here than there has been for many years.”

Public sector cuts

One development worth commenting on is the big cuts that are being made to Tasmania’s public sector workforce in a bid to save $370m.

Over the next four years the government will be slashing a total of 1,200 jobs from the 27,000-strong public service. With one public sector worker for every 20 residents, Tasmania has a much higher ratio of public servants than any other state or territory.

Despite this, Collidge doesn’t think the move will have a major impact on the property market, particularly on investors. “I suppose it might slow things down a little because some people who were planning to buy might now not buy.”

Taking an optimistic view

Meanwhile, the latest Herron Todd White report also paints a brighter picture of the country’s most affordable state and its future.

It states that over the past seven years the Apple Isle has been forced to make fundamental changes to its economic make-up. This includes relinquishing reliance on an inefficient manufacturing sector and, instead, adopting “innovation and future thinking around niche markets”.

Examples of this include government irrigation infrastructure spending; wind farm development; funding of new cattle farms and dairy processing plants; and private investment in tourism (eg the Mona Gallery).

According to the report, having made such changes, Tasmania is now at the beginning of an upswing in its economic cycle, although some struggles do remain, notably the issue of freight transport. Overall, these sustainable changes will, in turn, underpin growth in the residential property market after a long downturn.

Victoria

Regions on the rise

As property prices continue to increase in the city, country Victoria is looking more and more attractive to astute investors

The fact that home values have risen so much that more than 50 suburbs in Melbourne now have median house prices above the $1m mark has left many investors looking at regional alternatives.

But it’s not just the cheaper dwelling prices that are attracting attention to country Victoria. It’s the lifestyle too.  Many country areas offer a coastal location, brilliant bushland, and peaceful settings that can’t be matched by Melbourne’s densely populated urbanised suburbs.

Moreover, Victoria’s regions are continuing to attract workers. In fact, regional employment grew by 5,100 over the three months to August, according to the ABS. This was led by the Hume region, which benefits from agriculture in the west, and the alpine, wine and gourmet food in the east that help make tourism a key pillar of its economy. And as the Australian dollar continues to soften and more Asian tourists visit the area, this can only be good news for this industry and the region.

Hume’s population growth is already projected to grow by over 38% over the 20 years to 2031.

Aside from Hume, there has also been a reported employment increase in Latrobe-Gippsland, Shepparton, Geelong and Warrnambool, and Southwest Victoria.

There are now 26,300 more people employed in regional Victoria since November 2010. And over the three months to August, Victoria’s regional unemployment rate was 6.6%, which is actually below the statewide average of 6.8%.

Further job creating infrastructure projects in regional Victoria include the following:

  • The Murray Basin Rail Project (up to $220m)
  • The Shepparton Courts redevelopment ($73m)
  • Latrobe Regional Hospital ($73m)
  • Bendigo Hospital ($630m)

Additionally, the western section of the East West Link will also provide an alternative route to the West Gate Bridge for Geelong and Western Victoria, which should support export industries with improved freight and logistics networks.

Mildura and the Murray Outback

The northwestern regional city of Mildura is one area that’s catching the eye of investors.

Apart from being a significant service centre for Northwest Victoria, as well as for parts of SA and NSW (providing transport and warehousing services, professional services, health services and tertiary education), it is also a producer of premium agricultural and aquacultural products for the domestic and international markets. In fact, food and beverage manufacturing are among Mildura’s major exports, as the region’s arid climate creates the perfect conditions for citrus and grape growing.

Mildura Airport is also the busiest regional airport in Victoria for passenger services, and the number of passengers has doubled over the past decade.

According to the latest Herron Todd White report, a buyer looking for an average home in Mildura would need to spend about $275,000 to $350,000 for a three- or possibly four-bedroom brick veneer dwelling constructed between 1985 and 2005.

“Improved demand in the past 12 months has the seen values of this type of property increase by around 7% and we see no reason why this growth won’t be maintained,” says the report.

“Our experience has been that buyers seeking this type of property tend to value being close to either the centre of Mildura or the Murray River and sale prices reflect this.”

The sale prices of better-quality townhouses have also increased by around 7% during the past year.

Western Australia

WA turns towards tourism and agriculture

There’s a lot more to WA than iron ore. In fact, signs are indicating a resurgence for agriculture and tourism once the resources boom fades

Too often it seems that media headlines are linking the WA property market directly to the wellbeing of the mining industry. But investors should take heart from the fact that WA has a diversified economy and other areas look like they will be picking up steam.

Although the resources sector still has life left in it, the state is placing increasing emphasis on its tourism and agricultural industries.

Currently, tourism provides 91,000 jobs for West Australians.  It contributed $8bn to the local economy in the 12 months to March 2014. And, according to Tourism WA, the number of international visitors to the state grew to more than 776,500 during that period, which is up 4.3% on the same time last year.

In particular, there are an increasing number of Chinese visitors targeting WA, with 33,900 arriving in the 12 months to March. This is significant because Chinese visitors spend about $5,000 on average, which is a massive $3,000 more than the average international visitor.

In the recent state budget, the government allocated $3.9m just for tourism marketing to China.

Even regional centres are proving to offer much more than just minerals.  The Pilbara region, for example, boasts spectacular gorges, magnificent rock formations, stunning beaches, music festivals and Aboriginal culture. In 2013, the total visitor spend in WA was $7.7bn, $3bn of which was spent in regional WA.

Why agriculture is crucial

Agriculture in WA could be on the verge of experiencing its best fortunes in more than half a century, particularly due to the growth of Asia, according to WA premier Colin Barnett.

“If we see this as just another ‘good time’ for farming, then we will have failed. This is the opportunity to take agriculture to a new level and to provide greater financial security for farmers and to provide benefits for all West Australians,” says Barnett.

Indeed, Asia is already a significant importer of Australian food commodities, and the average annual incomes in India and China are expected to grow by 5.5% each year to 2050 – approximately double the rate expected in Australia.

“With higher incomes, consumers spend more and spend differently.  Staple food commodities will benefit, but the new prize will be areas of higher quality and diversity,” says Barnett.

The typical size of a wheatbelt farm in WA has grown from about 4,200 acres in the 1970s to over 10,000 acres today.

There are now new opportunities for farms to take on a more corporate structure to better exploit the current opportunities available through the agricultural investments of large private, institutional and foreign investors, says Barnett.

Currently, the total value of WA’s agriculture and food products is $20bn at the retail and export levels, and two thirds of its agriculture and food products are exported.

After years of struggle for the farming sector, it is now predicted that it will grow faster than the mining sector due to strong demand for the state’s food products.

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