National Property Report – February 2015

Australian Capital Territory

Flat market set to linger longer

Growth in Canberra’s market is stagnating and the market’s cycle is on a downward swing. What does this mean for investors?

It is not an encouraging time for property investors in the federal capital. Thanks to ongoing economic uncertainty and dismal forecasts, it is difficult to see light at the end of the tunnel.

Unfortunately, the latest CoreLogic RP Data Home Value Index results only add to this gloomy picture. They show that Canberra dwelling values fell by 0.3% over November and by 3.3% over the quarter ending November 30. And the market recorded year-on-year growth of just 1.7%.

According to Positive Real Estate coach Elaine Chase, Canberra is sitting at four in its market cycle. Not only does this mean its market is ranked last out of all capital cities, but it indicates a flat market.

Chase says a position of four means there are no growth drivers. “The market isn’t likely to see an increase in value for a long period of time. With no major demand, Canberra will be flat for some time yet.”

The ambiguity surrounding public sector job cuts and their impact on Canberra’s economy and job market has affected demand, and is likely to continue doing so.

Chase says that, once demand has decreased, the property market starts to experience oversupply issues. “Then the market slides backwards before stagnating for some time. This half of the cycle normally takes five to 15 years but can vary tremendously.”

While this analysis might sound off-putting, the latest Herron Todd White report takes a slightly more optimistic view. It notes that land supply releases have been met with stable demand from buyers planning to build, and in the established housing market well-located properties in the sub-$750,000 range are sought after.

“The recent local government announcement to offer a buy back scheme to ACT home owners affected by Mr Fluffy Insulation is expected to increase demand, in the short term, with additional purchasers and renters likely to enter the market,” states the report.

However, it does concede that Canberra’s unit market is feeling the effects of a degree of oversupply.

Defence threat

To further complicate matters, the federal capital’s supply woes could be exacerbated by a mass sell-off of Defence Department land.

With the department under review, one option which has been mooted is a consolidation of its properties. According to recent reports, the department spends over $70m on building eases in Canberra each year. Consolidating this could save millions.

However, if the federal government was then to put a large amount of surplus defence land on the market, it could have a negative impact.

In a submission, the territory’s government warned that any ad hoc land release could negatively impact on urban planning, land sales and future development sequencing in the ACT and the surrounding region. To avoid this, territory planning strategies and the relevant commercial and residential markets should be taken into account, the submission said.

New South Wales

Sydney still sizzling hot

Sydney’s market is defying expectations to remain sizzling hot, and the glory days are not over yet. But experts say there are still opportunities for investors

Famous for its spectacular harbour, glistening beaches and waterfront vistas, Sydney always maintains a summer sizzle. And these days that heat seems to extend to the city’s property market too.

Whispers that the NSW capital’s market simply can’t maintain its current temperature continue to swirl. But, to date, there is little indication a cooling period is underway.

For example, take the latest CoreLogic RP Data Home Value Index results. They show that dwelling values in Sydney rose by 1% in November, and over the quarter ending 30 November they rose by 3.1%. Further, over the past year the city experienced value growth of 13.2%.

These results mean that, yet again, Sydney is the country’s best-performing capital city – although it is worth noting that, with a median dwelling price of $705,000, it is also easily the most expensive.

CoreLogic RP Data research analyst Cameron Kusher says that, after being one of the main drivers of growth over the last year, Sydney’s annual value growth peaked at 16.7% in April 2014.

Market indicators such as auction clearance rates and sales listings remain quite strong but also point to slightly weaker overall housing market conditions, he adds.

However, according to Positive Real Estate coach Elaine Chase, the Sydney market is sitting at between 10 and 11 o’clock in its cycle and retains the characteristics of a hot market.

While Sydney has experienced excellent growth in the last few years, it is locked in by mountain ranges and suffers from a shortage of available land, which limits supply, Chase says.  “With lots of job creation occurring, plus a new airport, there will be lots more demand … And with limited supply, prices will continue to rise.”

Northern Territory

Star performer looks for more

If there’s one part of Australia that’s been a small yet strong economic achiever in recent years, it’s the Northern Territory. But can it keep up the momentum?

If NSW is Goliath, then the Northern Territory is surely David.

The Top End had the fastest economic growth in 2012/13 – the last year for which there are official figures, according to the latest Deloitte Access Economics Business Outlook report.

Furthermore, Deloitte predicts the NT will have repeated that performance in 2013/14, for one primary reason: the Ichthys LNG project.

“The Territory has superb natural resources, but it was slow to join the global (and Australian) resources boom until Ichthys came along,” the report says.

The good news is that the construction phase of this project is still in progress and will continue for some time. However, the Territory may run into transitional troubles as it moves out of construction and into exports.

In fact, an increasing number of Territorians are already moving to other states as the peak of the construction work has now passed.

Furthermore, the Top End has also traditionally been a strong performer in retail spending, but this, too, has fallen back recently. Indeed, retail turnover is only predicted to grow by 1.8% over 2015/16, a far cry from the 5.8% growth over the previous year.

However, the livestock export industry in particular is beginning to pick up again, especially since the fall of the Australian dollar. In December, it was arranged for approximately 50,000 cattle (including about 33,000 sourced from NT producers) to be shipped from Darwin, which will benefit the NT economy to the tune of $32m. This was similar to December 2013’s record activity that followed the reopening of trade with Indonesia.

Darwin development turning heads

Darwin is always an interesting market, which has experienced fantastic growth over the years, says Elaine Chase of Positive Real Estate. And even though this paused for a while in 2014, it appears to be gaining momentum again.

“Darwin will need more signs of demand to ensure it is in an upward cycle,” says Chase.

Situated on the edge of Darwin’s rural area, the suburb of Coolalinga and its Gwelo development are being particularly well received in the market, with duplex-style units giving Coolalinga’s traditional performer (acreage-only style dwellings) a run for its money.

Close proximity to road infrastructure and a shopping centre are real positives for this development, according to the latest Herron Todd White report.

“Further off the plan residential sales and commercial construction suggests that this location has more to offer,” the report says.

Queensland

The Gold Coast’s time to shine?

The Gold Coast property market has shown some promising signs in the last 12 months. But will the future continue to look bright?

After a few years of difficult challenges, the property market has finally been gathering steam in the Gold Coast, particularly so in the central suburbs ranging from Main Beach to Mermaid Beach and out to Nerang.

Consequently, price increases have ensued for well-located dwellings due to a lack of supply, low interest rates and positive market sentiment, according to the latest Herron Todd White report.

“The best results have been found for residential dwellings with water frontage, located near the beach or presented to a high standard,” says the report.

In general, there are opportunities for investors looking at units, as price levels are still below the peaks of the market in 2007 and 2008.

“In terms of the unit market, confidence has increased however the capital gain has not been as significant when compared to dwellings,” says the report.

It’s the affordable end of the unit market across Gold Coast suburbs that has traditionally performed better than the luxury end, as the main demographic groups targeting this area are not looking spend too much money.

Economy picking up 

The impressive thing about the Gold Coast for investors looking now is that its growth drivers are on target to kick into gear over the next few years.

For one, the Australian dollar is falling and the Gold Coast’s mighty tourism industry is ramping up. This is already its largest industry, as tourism accounts for about one in four jobs in the city.

And the Gold Coast should only become more popular once it hosts the 2018 Commonwealth Games, which are expected to create up to 30,000 jobs and spark further rapid infrastructure development.

The extensive light-rail project, which opened in July 2014, may be expanded to cater for the demand expected during the Commonwealth Games. So far it has already has exceeded expectations in terms of the number of people using it.

Along with tourism, construction and retail – its traditional strengths – the Gold Coast economy has diversified in recent years, with growth in the education, marine, food and sports industries.

Another recent highlight is that resources companies have contributed almost $718m to the Gold Coast’s economy in the last financial year. This has resulted in $118m paid in wages to more than 1,000 full-time employees and $222m spent locally on goods and services, supporting at least 441 local businesses.

Additionally, the Pacific Fair Shopping Centre at Broadbeach is getting a massive $670m transformation, with work scheduled to be completed by the end of 2016.

The Gold Coast is also home to a major film industry and the third biggest film production centre in Australia (after Sydney and Melbourne).

In 2015 the new Pirates of the Caribbean movie will be filmed in the Gold Coast (as well as in Port Douglas and locations north of Mackay). The film is predicted to add $100m to the Queensland economy and create thousands of jobs locally.

South Australia

Flat market shows positive signs

For astute investors looking to purchase at the bottom of the market, Adelaide might just be a sweet option

It’s fair to say that there wasn’t much excitement and growth for the Adelaide property market over 2014, particularly compared with what happened in Sydney and Melbourne.

But the market also proved to be quite resilient, especially given the concerning local economic conditions.

To name a few, there have been job cuts in manufacturing; the Olympic Dam expansion hasn’t got underway; and it also looks like Canberra will be buying Japanese submarines instead of getting them from Adelaide.

However, Elaine Chase of Positive Real Estate sees the difficult conditions not as a threat but as an opportunity.

“Adelaide is still a good market to invest in at the bottom of the market, but it’s hard to predict exactly when it will begin to rise,” says Chase. “Capital growth might be a few years away or it could be just around the corner.”

Giving some hope that SA’s economy could improve sooner rather than later is the pleasant surprise that two significant upgrades are now happening at once, says the latest Herron Todd White report.

This has come about because the federal Liberal government promised the $620m Darlington upgrade, which is a 2.3km road between the Southern Expressway and Ayliffes Road, Darlington. Meanwhile, the state’s Labor government promised the $896m Torrens to Torrens upgrade, which is a 3.7km road between Torrens Road and Torrens River.

In a twist, there ended up being no squabble over which project would commence first. Instead they came to an agreement that the two projects would run concurrently and begin towards the latter part of 2015.

“This is a great result for SA, providing jobs and stimulus for the local economy, and definitely not what we expected to occur,” says the report.

More reasons for hope

Despite Australia’s mining industry going through tough times, mineral and petroleum production in SA totalled $7.5bn in 2013/14, according to Department of State development figures.

Not only was this the highest level on record, but it also beat the 2012/13 result by more than $1.3bn.

Furthermore, it is expected that the value of SA’s mineral and energy resources production will increase to $10bn per annum by 2017, and that an additional 5,000 jobs will be created in this sector.

Another area that’s on the up is tourism. The falling Australian dollar is helping attract more and more people to SA. A total of 390,000 people visited the state during the 12 months to September 2014 – an increase of 7.5% on the previous year. More good news is that they are also spending at record levels – a total of $735m for the year to September, which was a rise of 7.2% on the previous 12 months.

In particular, the number of visitors from the UK was up by 22% to 69,000 for the year to September, while visitors from New Zealand – South Australia’s second-largest market – increased by 7.5% to 42,000.

There has also been a strategic push towards Asian markets, with the number of visitors from China up by 13% to 31,000 visitors, and those from Malaysia up by almost 50% to 20,000.

In December 2014, the first phase of the Adelaide Convention Centre redevelopment was completed. And the events already booked for the redeveloped Convention Centre will bring a further 70,000 people to SA and contribute about $188m to the state’s economy.

Challenges to watch out for

The weak job market in SA is not doing much good for its commercial construction sector, according to the latest Deloitte Access Economics Business Outlook report.

“Office vacancy rates in Adelaide are among the highest in the country, while ongoing weakness in retail sector investment is being hit from several sides as disposable income growth lags the national average and online business models challenge the correlation between consumer spending and the demand on retail infrastructure,” the report says.

Deloitte also says the cuts to car and related manufacturing have now been joined by the predicted smaller spend on submarines to add to the difficulties facing the SA economy over the next few years.

However, the report makes clear that going ahead with Japanese subs would not mean that Adelaide would totally miss out.

“In fact, there’d still be billions of dollars of local value-add as we stickytape American weapon systems into Japanese subs. Even so, this would be a substantially smaller spend than had more fully blown options been preferred,” the report says.

Tasmania

State in transition

Change needs to happen in Tasmania in order to kick-start both the economy and the property market. Is this the year to make it happen?

Mine closures, job losses, dwindling prices and environmental issues are just some of the problems that have plagued Tasmania’s mining industry throughout 2014. And the Apple Isle’s other traditional performer – the forestry industry – hasn’t fared much better either.

None of this has helped the Tasmanian property market, which has been very flat in recent times.

“Locals are leaving Tasmania to come to the mainland for jobs. Something needs to change in Tasmania for demand to increase,” says Elaine Chase of Positive Real Estate.

Angie Zigomanis of BIS Shrapnel agrees, and believes that even though middle-aged people are moving there, it’s primarily the youth who are leaving. This is backed up by the fact that Tasmania’s median age is 40, according to the latest ABS figures – three years more than the Australian average.

“Typically, young people leave and the people who move there – they are not necessarily retirees, but they might be close to it, in their ’50s,” says Zigomanis.

“They trade out of their home, release the equity, and buy something cheaper in Hobart and take a more casual job and support themselves like that. They are atypical migrants, in some ways a lifestyle migrant, but not a pure retirement market or a real economic migrant.”

At present there is a transition happening, with mining and forestry making way for sectors such as tourism, education and agriculture.

“Some parts of northern Tasmania are a bit of a food bowl, and if the dollar falls there might be some scope for exports to be ramped up, and that might impact on employment,” says Zigomanis.

Victoria

Short-term volatility, long-term gains

Despite signs of a slowing market due to affordability constraints and oversupply fears, Melbourne’s prospects remain healthy over the long term

Talk about a study in contradictions!  Trying to analyse the Melbourne market can be a difficult task.

This is because of its very obvious multimarket composition, and the very different situations in each market.

Positive Real Estate coach Elaine Chase – who says that overall the Melbourne market is sitting at five to seven in its cycle and is in a growth phase – provides a breakdown.

“Landlocked areas in the inner and eastern suburbs have increased in value … Yet Melbourne’s inner apartment market is still in major oversupply, with more apartments approved for construction,” Chase says.

She adds that land estates in the outer suburbs are recovering from oversupply. “But there is still so much land in those areas that developers may start oversupplying the market again, if the demand returns.”

The latest Herron Todd White report also highlights the diversity within Melbourne’s market.

It states that, although the inner east has been the dominant market of late, the inner north is attracting lots of interest from developers and investors.  This is because the area is becoming a hotspot for students and young renters, thanks to the infrastructure surrounding the universities.

The report then notes that high-density areas, like Melbourne’s CBD, have the potential for oversupply, while in the outer suburbs housing costs are increasing.

Melbourne’s strong population growth is causing massive development of housing and accompanying infrastructure on the rural urban fringe, the report continues. For example, in the northwest of the city where land is relatively cheap, multiple developments are going up.

First home buyers are heading to these outer areas in droves, while investors and developers are competing for inner-city properties. The report says this is pushing housing prices up.

Hard data

However, according to the latest CoreLogic RP Data Home Value Index results, Melbourne’s dwelling values seem to be on the decline.

Over the month of November, dwelling values fell by 2.6%, while over the quarter ending 30 November they fell by 1.6%. Conversely, the year-on-year result shows values rose by 8.3%.

CoreLogic RP Data research analyst Cameron Kusher says the city has moved past its cyclical peak, which was 11.9% in January 2014.

It is worth noting that the CoreLogic RP Data results show that Melbourne continues to have the lowest rental yields of all the capital cities, for both houses (3.3%) and units (4.2%).

Long-term view

Despite these results, Open Wealth Creation CEO Cam McLellan is a staunch believer in the Melbourne market.

While he never predicts short term, he is willing to bet the city’s prices will double in the next 10 years.

“Melbourne has an excellent long-term population growth forecast, which makes for long-term growth in the property market.”

He says that, currently, consumer confidence is up, while new restrictions on inner-suburb development are resulting in increasing prices and small-scale developers moving to the outer suburbs.

Oversupply of various types of stock is an issue in some areas, McLellan continues.

“For example, the west has an oversupply of poorly delivered developments and an oversupply of investor stock,” he says.

Such situations impact on the rental markets in affected areas. This means there is an oversupply of rental property in Melbourne’s west, while at the same time there is a strong need for rental properties in the east and north.

McLellan recommends that investors buy medium-density houses and land located in infill areas.

“The middle to outer ring is where they can achieve a good yield which increases their DSR, allowing them to hold a larger asset base for less out of the back pocket.”

Bedroom indicators

Meanwhile, the Real Estate Institute of Victoria has released data showing that demand from families wanting more space has led to strong price growth in four-bedroom homes over the past year.

The median price of four-bedroom homes grew in inner, middle and outer Melbourne by 3.9%, 4.2% and 5.6% respectively.

However, the biggest median price change in the outer suburbs was for smaller, two-bedroom homes. These were up 7% (to $390,000).

This suggests that Melbourne’s rising property prices have increased demand for these more affordable smaller houses which offer a good way to enter the market.

Western Australia

Quieter times open up buying opportunities in WA

The impact of the mining sector’s slowdown on WA’s market can’t be ignored. But investors should look beyond the talk of doom and gloom to find the opportunities still present

After the celebration and festivities of any party end, there is always a lull and the return of harsher reality. Such is currently the case in Western Australia.

Now that the exuberance of the resources boom has peaked and the sector is slowing down, so, too, is the rest of the state. For the property market, this is leading to quieter times, coupled with some gloomy reports.

In light of this, the latest CoreLogic RP Data Home Value Index results for Perth might seem surprising, because dwelling values in the city actually rose slightly. They were up by 0.9% over November and by 0.4% over the quarter ending 30 November.

However, tellingly, the year-on-year result showed growth of just 1.4%. This is very moderate and an indication of the softening market.

Real Estate Institute of WA (REIWA) president David Airey has been warning of a downturn in the market for several months. Slowing sales transactions, a growing number of sales listings, and higher vendor discounting are evidence of this.

In his view, WA is going through a reorganisation of its finances as a result of the resources downturn. “While the state economy is very strong, there’s less confidence in the marketplace. We’ve got less investors, less first home buyers.”

Some consolidation in the property market is the inevitable result. Airey says this means there will be more choice for buyers, but sellers will need to be very realistic about their asking price.

Holding pattern to lift off

Property Wizards managing director Liz Sterzel has a more optimistic take on Perth’s property market. She believes it has been coasting along in a “wait and see” mode in recent months, but that will change.

“Budget negativity, the cost of living, and the political and economic environment are on the minds of people and have been holding them back from buying and selling.”

Property prices in the months ahead will be influenced by people’s sentiment and how they feel about their future and their financial position, she continues.

But while concerns about the continued effect of the mining downturn on jobs are ongoing, WA still has the second-best-performing economy* in the country.

Rather than the mining sector, the state’s new economic drivers are housing purchases, housing finance, and construction. Agriculture and tourism are also set to be major economic contributors.

Sterzel says more people appear to be in a better financial position, which puts them in a better place to make any property purchases they have been contemplating.

“Where the market goes from here is very much dependent on sentiment.  But we are cautiously optimistic about Western Australia’s performance for the next 12 months.”

Opportunities still present

There are still plenty of opportunities for investors looking for property in WA.

Sterzel recommends looking for value-adding opportunities, with a focus on subdividing now or holding a property in a proposed rezoning area for later.

“Good add-value properties are a very popular investment strategy, but as prices have risen since last year, buyers are moving further afield in their search.  Areas with proposed rezoning especially are growing in popularity.”

If going down this path, it is important to target properties further from the city but with strong public transport links and local amenities that will appeal to tenants.

Different rental market

As prices have softened in many parts of Perth, so too has its rental market.  According to the latest REIWA data, the median weekly rent for the Perth metropolitan area remained steady (at $450) in the quarter to November. However, that was a drop of $20 per week on the same time last year.

Meanwhile, the vacancy rate is sitting at just under 4%, which is slightly down from the June quarter but still 49% higher than a year ago.

Airey says that, while the median rent was steady, the market overall was patchy. There have been price adjustments between houses and units as well as variances in several subregions.

Investment property owners need to understand that the market has changed, he adds. “Listen to the advice of your property managers when setting the asking price. It’s not like it was a year ago. Landlords must be realistic.”

In Airey’s view, Perth rents are likely to soften further this year.

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