National Property Report July 2013

NEW SOUTH WALES Regional NSW awakens Sydney is due some marginal growth this year, but investors in search of the best NSW property performers would do well to consider some of the state’s regional alternatives.

Just a few years ago, outside visitors to interior NSW towns such as Mudgee were tourists and not much else. Couples and small groups would head their way for wine-tasting weekends, content to leave sedate country living behind as soon as it came time to jump in the car back to Sydney.

For many of these regional towns, that picture is changing. On the one hand, mining activity is ramping up in regions as diverse as the Hunter Valley and the central-west of the state, but, more critically, these areas are set to receive the lion’s share of future infrastructure spending from state, federal and private company coffers.

Leading the infrastructure investment landscape is Xstrata’s $1.4bn Ravensworth coal mine expansion and the $1.1bn Ulan West underground coal project near Mudgee. These projects promise to continually create jobs, bringing additional workers to their surrounding economies and rental markets.

“Mining projects and road projects have led the pick-up in activity in NSW,” says Deloitte Access Economics’ latest Business Outlook report.

“The value of engineering construction work in NSW is starting to pick up to become a more respectable component of the Australian investment landscape.”

Deloitte Access Economics points to other key infrastructure projects that will have a major effect on local economies in regional NSW, including their property markets. BHP Billiton’s $833m Appin coal project in the Illawarra is one of them, as well as upgrades to the Hunter Expressway that are on track for completion by the end of the year.

NextHotSpots.com.au director Andrew Peterson says the roll-out of infrastructure projects will create some ideal investment conditions in select regional areas.

“Several regional centres continue to promise stronger growth than most parts of Sydney,” he says, listing Newcastle, the Lower Hunter region and the Gunnedah Basin as areas where property markets are set to heat up. And it is not just infrastructure projects that bode well for these markets.

The State government’s Lower Hunter Regional Strategy recently called for an astonishing 90,000 new residential dwellings over the next 30 years in order to cater for a forecasted 160,000 new residents.

BIS Shrapnel senior residential manager Angie Zigomanis sums up the situation in infrastructure-affected parts of regional NSW as being healthy on multiple accounts: “There are more mining and resources-related project proposals there, and if they get off the ground that should help the economy and prices in some of those areas. Even then, they may benefit from people in Sydney moving up to the area for more affordable prices as they have done in recent times.”

VICTORIA

Melbourne inside out

Despite the bad press they’ve been getting, Melbourne’s outer suburbs harbour hidden pockets of investment potential.

Victoria’s property market is continuing to defy the state’s lacklustre economic climate as sentiment has gradually improved over the last few months. This has been seen in an increase in the number of home loan approvals, particularly in the value of loans for investment housing, as well as consistently strong auction clearance rates.

More critically, a handful of Melbourne’s outer areas have shown their resilience, despite dire warnings of oversupply issues gnawing away at price growth.

Adrian Foster, director of Hockingstuart Frankston, says demand has climbed steadily in certain outer-city areas over the first half of 2013, with especially strong signs emerging in Melbourne’s southeast. “We’ve seen annual growth of up to 7.5% in suburbs like Langwarrin, Frankston and Frankston North,” he says. Foster adds that these suburbs are among fringe areas of the outer city that have been shielded by the excessive supply of units still coming onto the market within the inner city. “Investors are starting to consider outside the traditional inner-city developments…

At the moment there’s 25,000 new apartments scheduled to be released in or near the CBD,” he says. Something to consider is that Greater Melbourne’s southeast remains a popular region for first home buyers, and has started to attract investors too, as the local population grows and job markets develop outside of the CBD.

Spearheading a list of southeast growth drivers is a $110m development at Port Hastings on the Mornington Peninsula, announced in April. The project is expected to create hundreds of jobs over the next four years, spurring economic growth in the area. That the area is already fairly popular can be seen in the consistent population growth over the last decade, which has doubled the population of many suburbs in Melbourne’s southeast.

Foster says the recent introduction of the Peninsula Link, a 27km stretch of freeway connecting Carrum Downs to Mount Martha, is likely to draw even more people to the area, with recent Real Estate Institute of Victoria figures placing Frankston, Mount Martha, Frankston South and Langwarrin in the organisation’s top 20 growth suburbs. “Suburbs like Langwarrin and Frankston are attractive to investors because housing is more affordable and amenities and infrastructure are already in place.

The opening of the Peninsula Link has given the area a huge boost, with many residents no longer being subject to a long commute into the city,” Foster says.

QUEENSLAND

Depressed sunshine state shows glimmer of hope

The political cycle at both a state and federal level is having a material impact – good and bad – on Queensland’s less than buoyant housing market Despite showing gradual signs of improvement following some lows after the GFC, Queensland’s property market remains in a state of flux, with consumer sentiment influenced by political timeframes.

Real Estate Institute of Queensland chief executive Anton Kardash says activity justifiably slows down during a typical five-week election so that would-be buyers can assess the likely impacts of any policy commitments before a normal level of interest resumes. Given the Federal Government’s extended electioneering period – a total of seven months from announcement to polling day on September 14 – Kardash says this is set to fuel uncertainty among an already tentative Queensland public.

“Consumer confidence is already heavily depressed, and some reporting in the media unfortunately feeds that confidence. The overriding issue [for Queensland] is depressed confidence, particularly among families, consumers, and small business. It continues to affect the market,” he says. By contrast, the Queensland State Government has delivered a more positive narrative since Campbell Newman took over the premier’s office in March last year.

According to Kardash, Newman’s Government has committed to reducing regulatory red tape that impedes the health of the property market, as well as seeking to improve the professionalism of the property industry. “They’re getting rid of some of the silly nuances of property transactions.

There have been some nonsensical parts of property legislation for a long time that look set to finally be removed. Coupled with another interest rate cut, these factors should all serve to boost consumer confidence,” he says.

WESTERN AUSTRALIA

Investors and first home buyers compete in Perth

Low interest rates and rising rents are encouraging tenants to enter the housing market in Perth, which is putting pressure on supply and forcing property prices up.

A noticeable shift has occurred in Perth’s property market over the last 12 months, confirms Damian Collins from Momentum Wealth, and it’s likely to continue, at least in the near term. “During the last eight or nine months, rental vacancies dropped down low to around 1.9%,” Collins explains. “Then last year Perth had really strong rental growth and, with interest rates at 5.5%, tenants are thinking, ‘I can get a loan and buy a home, and it’ll cost me the same as renting’.

So a lot of people are moving out of the rental market and into home ownership.” This is translating to increased buying activity in the $400,000 to $500,000 price range, and even up to $600,000, Collins says – although, with the stamp duty exemption running out from half a million onwards, most home buyers are at the more affordable end of the market. What does this mean for investors? Firstly, we are seeing vacancy rates start to increase. “

They’re still under 3%,” Collins clarifies, “but the rental market is not as buoyant as it was.” Furthermore, levels of available residential stock – particularly under $600,000 – are shrinking, leading the Perth property market to a position where supply is outstripping demand. “A balanced market is considered to be 12,000 to 13,000 properties, but we’ve been at 8,000 listings,” Collins says.

“The sale market has been strong, and there is a shortage of stock, so we’re expecting the market will perform well. It’s moved already, but we’re predicting 9% growth in 2012/13, and 6–7% in 2014.” Backing up Collins’ positive predictions for Perth is a new RP Data report detailing almost 800 locations nationwide where they predict rental returns will double in value over the next decade.

Of these suburbs – each selected based on its past performance – 181 are in the west. “From an investor’s perspective, these are the ones that have done very well in the last five years,” confirms the report’s co-author Cameron Kusher, adding that each location on the list has experienced “consistent rental growth of at least 7.2%”.

SOUTH AUSTRALIA

Slow and steady wins the race?

Adelaide may not be a property investing hotspot just yet, but local landlords can still expect modest price growth over the next 12 months.

From a property investor’s point of view, Adelaide represents a fairly run-of-the-mill prospect at present. There are no large-scale mining projects to boost the local economy, no big supply-and demand issues to drive up rents and values, and no huge construction projects to attract workers and renters to the area.

But while there may be a distinct lack of serious growth drivers in the city, Real Estate Institute of South Australia (REISA) vice president Ted Piteo is quick to point out the other side of the story: Adelaide house prices might not have increased significantly in recent times, but they haven’t moved backwards either. And finally, the property market is showing small signs of improvement. “Housing is a medium- to long-term investment that has provided long-term security for many Australians, and we’re confident that the number of sales [throughout SA] will continue to slowly rise over the course of 2013,” Piteo says.

He predicts that both sales volume and value will increase over the coming year, particularly in Adelaide’s middle-ring suburbs, which have been the city’s top performers of late. REISA is not alone in this assessment, with APM also forecasting “modest price growth” for 2013. “The Adelaide housing market can look forward to modest price growth for 2013, with all indicators pointing to a slight improvement,” APM predicts in a recently released report. “This is consistent with Adelaide’s house price cycle, which is typically less volatile than the other major capitals.”

TASMANIA

Tasmania’s tourism turnaround

Even though it is forecast that many of Tasmania’s leading industries will hang back over the foreseeable future, the one industry that could offer a light at the end of the tunnel is tourism Anyone who has not been living in a remote, internet-less bomb shelter over the last few years will know that Tasmania’s economy has seen better days.

The state business sector has been in the doldrums for years, and major engineering and construction projects remain few and far between. Young people are leaving the state, and unemployment is rising. Beyond that, the Apple Isle’s property market is Australia’s least healthy: vacancy rates are high, value growth has been stagnant at best, and while rental yields are attractive this is only because property prices have been falling faster than rents.

Of course, that’s hardly news. Investors who are frequent readers of Your Investment Property magazine will certainly have noticed the alarming regularity with which the Tasmanian property market has been receiving negative coverage. What the more opportunistic among them will be wondering is how long can the bad news keep coming. The reality is that no situation lasts forever.

That applies to Australia’s booming mining sector but equally to Tasmania’s underperforming economy. An economy can fall back or remain stagnant for a very long time, but not permanently. If history shows us anything, it is that even the most direct economies can get second wind and return to life.

Investors who doubt this assertion need only consider the Tasmanian tourism industry. That the state has massive tourism potential is undeniable, but the industry has been facing steep challenges over the last few years.

One of these is a historically high Australian dollar, which, as Deloitte Access Economics reveals in its latest Business Outlook report, hurts the industry not just in Tasmania but across the country. “The lift in the value of the $A makes international travel relatively more affordable for Australian tourists while at the same time making Australia a more expensive destination for international holiday makers,” the report says. The report points to a fall in tourist flows that can be directly attributed to the high value of the dollar.

The number of Australians who chose to holiday abroad increased by 5.7% in 2012 and by 41% since 2008, but the number of international visitors to Australia has not seen the same robust growth, increasing just 10.5% since 2008. That there has even been growth is something of a surprise, given that the tourist flows to Australia are increasingly being driven by select tourist markets.

Deloitte Access Economics reports that the growth in international visitors that has occurred can be attributed to the strong economic performance of key emerging tourist markets such as China, Singapore, Malaysia and Hong Kong. Deloitte further reveals that these markets offer Tasmania’s tourism industry the best hope for the future. “The rising middle class in Asia represent an excellent opportunity for the Australian tourism market, and one which has provided much needed support over recent years.

We are also starting to see investment in cultural and recreational facilities respond to the changing demand of international tourists, shifting from the traditional resort style investment to a focus on expanding hotel and gaming facilities in capital cities. At present, all the major States’ casino facilities, except Victoria, are planned to be extended,” says the Business Outlook report.

AUSTRALIAN CAPITAL TERRITORY

Job cuts stall ACT property market

Perhaps more than any other Australian state, the ACT’s property market is hinging on the impacts of the upcoming Federal Election A slashing of the resources of public sector departments and agencies continues to set the tone for ACT investors wary of further cutbacks.

According to APM senior economist Andrew Wilson, there are definitive signs that the ACT’s  property market is stalling, particularly within Canberra. He says public sector job cuts of the past 12 months, coupled with the high market growth of 2012, have meant the industry is now effectively on hold.

“Canberra is unlike any other market due to the public service; there’s no real ancillary industry. It’s a very tight market characterised by supply, and it’s very tough for first home buyers because it has one of the country’s highest median entry points.

[The market] has stalled, and it’s not good news going forward, with more job cuts expected,” he says.

NORTHERN TERRITORY

Rental hikes lead the nation

Predictions of strong capital growth are attracting increasing investor interest in Darwin, where local tenants are said to be struggling with the nation’s highest rents. In recent months, Darwin has achieved a title that its renting residents, at least, would perhaps prefer not to celebrate: the capital is now equal to (if not surpassing) Sydney as the most expensive city in Australia to rent in.

So just how did a location that is home to around 127,000 people rank up there with Sydney, a city of over four million people? It largely comes down to issues of supply and demand, says Quentin Kilian, president of the Real Estate Institute of Northern Territory. “What’s driving this is simply undersupply,” Kilian explains.

“The demand is still there, and there are a lot of people wanting to come to town, but if we haven’t supplied the market with sufficient housing – which we haven’t for the past 10 to 12 years – then we create a situation like this.” And according to APM senior economist Andrew Wilson, Darwin’s rental crunch won’t be easing any time soon, with upward pressure on rents a casualty of “a chronic shortage of housing [that] continues to put the rental bite on tenants”. “It’s a horror story for tenants,” Wilson adds, “and it’s nirvana for landlords.”

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