National Property Report – July 2015

NEW SOUTH WALES

Desperately seeking affordability in the Sydney market

It might be like looking for a needle in a haystack, but reasonably priced properties can still be found in Sydney. It’s just a matter of finding them before their price climbs.

For people looking to buy a property in Sydney at the moment, the numbers make for scary reading.

According to the latest report from Domain, the Sydney median house price rose to $914,056 during the March quarter. “These prices are causing ur best and brightest to review their housing situation in Sydney,” says REINSW president Malcolm Gunning.

“As a result, many essential services workers including police, firefighters, teachers and nurses can no longer afford to live here,” he says.

The interest rate cut to 2% in May has not made housing affordability any easier. On the contrary, it appears to be doing just the opposite. And with further speculation that the RBA could cut rates further, it is highly unlikely Sydney’s housing prices will fall any time soon, says Linda Phillips, head of research at Propell National Valuers.

“It is widely held that the Sydney market is currently over valued and yet it will increase further by the end of the year,” she says. “However, Sydney has a fundamental shortage of property, with demand in excess of supply, and there are good reasons to see the current price adjustment as an overdue reaction to increasing demand levels.”

She says that concerns of housing affordability and encouraged urban sprawl has forced lower income producing families to venture further from jobs and local business hubs.

Phillips says that it is near impossible to buy anything for just $500,000 in Sydney, but in searching for something with prospects, perhaps looking out into the Illawarra region or the Newcastle/

Hunter would offer opportunities.

CoreLogic RP Data recently compiled a report where they discovered that all of the “affordable” middle-ring suburbs for houses in Sydney are either in the Canterbury or Bankstown council areas.

For houses, these suburbs and their median values include Birrong ($644,349), Chester Hill ($646,328), Sefton ($662,657), Lakemba ($676,479) and Yagoona ($686,338).

For units, these include Lakemba ($362,363), Wiley Park ($366,464), Punchbowl ($388,635), Regents Park ($391,364) and Granville ($400,992). These suburbs are all located west or south-west of the CBD.

However, despite the rising prices, Phillips says that Sydney still looks cheap compared to other large cities, such as Shanghai and Hong Kong.

“Sydney is now regarded as a global gateway city and is in demand from international investors,” she says.

Gunning agrees and adds that foreign investment is creating many jobs in NSW. “Construction is a big employer in NSW and around 47% of new apartments are being purchased by investors,” he says.

“This is providing much needed rental accommodation, and property taxes are financing infrastructure.”

VICTORIA

New tax for foreign buyers creates uncertainty

With Victoria racking up billions of dollars’ worth of foreign investment, how much impact would the new levy have on the market?

A recent decision by the Victorian government has provoked a debate about what effect it will have on the property market, not just in Victoria, but other states as well.

From 1 July, foreign investors will pay an extra 3% stamp duty on purchases of houses, apartments and vacant residential zoned land. The decision was made as part of the Victorian government’s 2015 state budget.

An additional 0.5% land tax surcharge will also apply from 2016 to foreigners who do not occupy the property they purchase. The changes are expected to raise $300m in additional tax revenue over the next four years.

Permanent Australian and New Zealand residents will not be affected by either of the extra fees.

Data from the Foreign Investment Review Board (FIRB) shows that foreigners added about $14bn into the Victorian property market last year, up from $2bn five years ago. It also shows that roughly 40% of new residential properties in metropolitan Melbourne are snapped up by overseas buyers.

The Victorian treasurer, Tim Pallas, argues that the measures are necessary to assist Victoria manage the impact of population growth and the demands upon infrastructure, while ensuring people are paying their fair share.

He also argues that the changes are “modest”. Indeed, in Hong Kong and Singapore there is an additional 15% stamp duty for foreign buyers.

What it might mean, according to some lobby groups, is that states such as NSW and South Australia could be the beneficiaries of more foreign investors who believe Victoria is too expensive (which could then mean a further increase in their respective median property prices). In response

to the announcement of the policy, the Queensland treasurer, Curtis Pitt, has already ruled out any new taxes on property purchased by foreign buyers.

Craig Whatman, partner at the Melbourne-based accounting firm Pitcher Partners, says that the last thing Victoria’s economy needs at the moment is for this tax to impact the flow of property development investment that has come to the state over the past two or three years. “At the end of the day, the only thing that this is likely to achieve is a reduction in the amount of residential development activity in Victoria, which would over time decrease the level of available stock and ultimately decrease housing affordability, thereby defeating the very aim of the government in introducing the new surcharges imposed on foreign buyers,” he says.

QUEENSLAND

Can Brisbane finally deliver the long-awaited growth?

Investors are still waiting for that much talked about recovery. Can Brisbane live up to the expectation and how soon can it bring it on?

If you’re getting tired of waiting for that much touted rebound in the Brisbane market, you’re not alone. Experts have been predicting this turn around since last year.

So far, Brisbane has been slow to deliver. And it appears that the nascent recovery is still struggling to take root.

The recent data from Domain shows Brisbane’s recent housing market resurgence has stalled over the March quarter with both houses and units falling in values.

Brisbane was the second worst-performing market with median house values falling by 0.7% to $484,374. Units fared even worse with median values dropping by 2.3% to $354,246. Unit values have been dropping sharply for the third consecutive quarter.

Some experts are concerned that Brisbane’s unit market is approaching an oversupply situation and are even warning against buying new units in the area. “Brisbane is facing a potential oversupply due to the many projects currently under way, so investors are right to be concerned about this and some caution is advised if purchasing in this market,” says Linda Phillips, head of research at Propell.

Eliza Owen, research analyst with Onthehouse.com.au says that while there are exceptions to the rule, the new units being developed in Australia’s biggest capital cities may not give the best capital growth returns.

Owens points out that although units will present as relatively affordable, “it is clear they do not produce higher capital growth returns, particularly now when the unit market is showing signs of oversupply.”

Not all doom and gloom

There are a number of positive indicators that show growth should resume soon.

The latest auction clearance rate stats from CoreLogic RP Data shows a solid 8.8% increase to 55.5% compared to a year ago.

Investors appear to be fairly active, with the number of mortgages sold for Queensland property investment purposes climbing to 36.7% in April from 33.3% in March according to mortgage broking firm AFG.

Phillips says that as sales for residential properties grows steadily, median values could rise by up to 6% in the greater Brisbane area over the next 12 months. “This is especially true in the case of those assets within a 10km radius of the CBD,” she says.

“With recent changes to the Brisbane City Council planning scheme, investors are focusing on residential sites which have development potential.” Phillips points out areas close to the CBD and in the inner north and inner south as areas to target if you’re looking to ride the impending recovery. These include suburbs such as Bulimba, Balmoral, Norman Park and the inner north suburbs such as Milton.

“We have noted increased activity in the $1m-3m dollar prestige house segment, however, purchasers in this category are highly selective in their decisions,” she says.

“While the jury is out on the new state government, there is a feeling that the focus on infrastructure, health and employment is a move in the right direction. There are some early signs of improving consumer confidence.”

WESTERN AUSTRALIA

Values and rents set to fall further

If you’re thinking of getting back into the Perth market, you may want to hold off for now, warns an expert

The weak performance of Perth’s property market could linger a little longer if the latest data is an indication.

According to the recent stats from CoreLogic RP Data, Perth was the worst performing capital city with dwelling values falling by 1.6% during the April quarter.

During the past 12 months, dwelling values stagnated at 0.3% growth. Only Darwin performed worse with values dropping by 1.6% as the major infrastructure projects associated with the resources sector wound down.

Tim Lawless, research director with CoreLogic RP Data says flattening economic activity and falling confidence in Perth will continue to put downward pressure on house price growth as it transitions rapidly from its previous resource and population boom environments.

Linda Phillips, head of research at Propell sees a similar trend and adds that “until the world economy stabilises as a whole, inclusive of the iron ore price and resources sectors, we are likely to see some pessimism from purchasers which should lead to easing property prices.”

Rents under pressure

Not only are Perth investors getting hammered by the falling property values, their rental income is also taking a beating according to the latest numbers from the Real Estate Institute of Western Australia (REIWA).

Median rent across Perth has fallen by another $10 to $430 per week through the March quarter, taking the total losses to $30 per week from a year ago.

REIWA president David Airey is expecting vacancy rates to rise even higher during the winter months as a result of the weaker rental market.

“The Perth vacancy rate lifted to 4.4% for the first three months of the year, due to falling population growth, the volume of new dwellings on the market and the number of former tenants who became first homebuyers while interest rates were low,” says Airey.

The number of rental properties currently on the market soared to around 7,080, up from 5,140 in the same period last year, representing a hefty 37% jump in supply. At the same time, rents have remained steady.

During its peak, landlords were getting $475 week, but this has since tumbled by 9.5% over the past two years as there is now more supply of property than the market can absorb.

“Property owners would need to review their asking rents to attract and hold good tenants amid the competition,” says Airey. “It’s also important for properties to be well presented and properly maintained to attract interest and secure the best lease in the shortest time.”

The reiwa.com data shows the average time taken to lease a property had stretched to 36 days, up by almost a week on March last year.

SOUTH AUSTRALIA

Growth momentum gathers pace

The latest stats show a strengthening Adelaide market. Can this continue and where should you look?

And just like that. From a relative underperformer to the next property market superstar. While it may be too early to break open the champers, the signs are now becoming clearer and louder that South Australia’s property market is finally emerging from its long slumber.

You only have to look at the recent stats to confirm what many locals have known for a while. A quick check, and the fact that a lot of listings now have an ‘under contract’ tag on them soon after they go up online.

Marissa Schulze, an Adelaide-based mortgage broker and investor says that there is now greater confidence among buyers, as shown by the quick sales turn around for houses, and vendors are now getting more than the listed price.

“Historically, Adelaide property prices start rising after the larger capital cities have gone through their big booms,” she says. “With Melbourne and Sydney property prices sky-rocketing and their rental returns reducing, Adelaide presents a solid investment option in the current environment. I see the Adelaide property market improving and great opportunities for capital growth over the next 6-12 months.”

Schulze tips the low to mid-price bracket properties to have the best potential for recovery in particular, such as family homes under $450,000 which are now in high demand and attracting many interested purchasers.

Meanwhile, Linda Phillips, head of research at Propell sees the high-end properties in the eastern and inner southern suburbs starting to surge, with some strong price growth in recent weeks.

“Affordability remains a strong attraction to the Adelaide market,” she says. “Recent changes to planning regulations in near city LGAs are seeing some innovative higher density near city developments coming on line. The high-end market segment is demand heavy at the moment, demonstrating an underlying confidence in the state economy.”

Uneven recovery

Looking closely though, there are some markets that remain depressed, such as the northern metro suburbs.

“These suburbs are experiencing a ‘stalling’, with the imminent closure of the General Motors Holden factory at Elizabeth,” says Phillips.

“Outer northern suburb investors could experience price corrections in coming years amid the widening gap between the ‘mortgage belt’ and the elite locations. A shift in property investment characteristics, from outer suburb detached dwellings, to inner city high density apartment style accommodation, is also reducing outer suburb demand.”

South Australia’s country towns, particularly those reliant on mining such as Whyalla, are still slowing down, says Phillips.

TASMANIA

Solid recovery appears underway

Affordability, good rental returns, low vacancy rates and strong sales, are just some of the things that are making investors smile these days

Tasmania’s property market is often the victim of bad press. However, things have begun to turn around.

“According to recent figures from the Real Estate Institute, Tasmania achieved its highest number of sales in five years during the March quarter.

Sales numbers climbed 12.1% on last year and the upswing was recorded across the state. Specifically, house sales in Hobart shot up 20.5% on last year, while Launceston led the charge at 24.9%.

Additionally, mainland buyers rose to 17% of all sales, and investor figures were up 2% to 16% of all buyers.

“These figures are indicative of the Melbourne and Sydney markets being near the top of their run, with many mainland investors looking for other destinations to invest, which are positive signs within our property market,” says Tony Collidge, president of REIT.

Reasons to be optimistic

Collidge says it’s important to be optimistic about the Tasmanian market for the following reasons:

• Market confidence is definitely improving
• Continued strong sales growth in 2015 will see time on market decrease and upward pressure on prices
• Low vacancy rates and good rental returns make investment in Tasmanian real estate worthwhile
• Most Tasmanian real estate is coming off a strongly depreciated/low base, creating an opportunity for strong capital growth in the future
• Tasmania remains the most affordable market in Australia

“The upswing in our market can be attributed to an improvement in confidence across all sectors of the economy,” says Collidge.

In particular, the state is rising as a tourist destination. Tasmania recently won more awards than any other state or territory at the Australian Tourism Awards (winning 10 out of 29 categories).

The industry contributes $2.4bn to the state economy per year and directly and indirectly employs 28,000 Tasmanians.

The Tasmanian government’s ultimate goal is to attract 1.5 million visitors to their state every year by 2020, which could create a further 8,000 jobs.

In fact, last year 190,000 tourists visited a winery during their stay in Tasmania. This is up 18% on the year before.

Moreover, Collidge says the state government is encouraging growth and development, saying it has stopped its public service reduction program and is seeking to stimulate employment.

“This, combined with low interest rates and one of the country’s most affordable marketplaces, has paved the way for a resurgence in the market,” says Collidge.

However, there are two things which worry Collidge. These include the state’s economic vulnerability and the government’s ability to maintain and encourage job growth.

NORTHERN TERRITORY

Proceed with caution in Darwin

Despite economic headwinds, there are still some great opportunities for investors in the Darwin market. It’s just a matter of being careful

The question is not so much what the future will be for Darwin’s massive INPEX gas pipeline. It’s more what Darwin’s future will be like after INPEX, says Linda Phillips, national research manager at Propell National Valuers.

This project is currently halfway through a five-year construction phase employing about 8,000 workers, which has been a major factor in the dramatic increase in the Darwin market over recent years. However, its effect appears to be losing its impact.

“There is no doubt the market within the CBD and Palmerston has seen contraction from the record levels of the past couple of years,” she says.

Additionally, the downturn in the mining industry (iron ore) has seen the port significantly wind back its exports. However, the good news for economic activity in the Top End is that the live export trade in cattle and buffalo to the Asian market is ramping up.

Indeed, more than 493,000 head were shipped out of Darwin Port last year, breaking the previous high set in 1997 at 448,196, according to the Darwin Port Corporation.

Moreover, the recent increase in Darwin tourism will be another good thing for the Darwin economy and any potential for growth in the property market.

And while there is big potential in mining exploration (which is at an all-time high throughout the NT), the high barriers of entry and lack of foreign investment prevents these projects from gaining much momentum, says Phillips.

“The short of it is that the NT has huge potential for major projects/industries, which will be supported by workers and facilities within Darwin,” says Phillips.

Where to look

Despite the fact there has been a general contraction across most sectors of the Darwin market within the last six months or so, there are still good buying opportunities available, says Phillips.

The prestige and coastal suburbs of Darwin, such as Larrakeyah, Fannie Bay, Parap and Nightcliff, will always be attractive options for both investors and owner-occupiers.

“Suburbs surrounding those areas, such as Rapid Creek and Millner still offer some value for money with the potential for reasonable capital growth,” she says.

Meanwhile, the northern suburbs of Darwin including Nakara, Wanguri and Brinkin seem to be holding levels of value from last year, with agents reporting good demand.

But wherever you choose to buy in Darwin, it’s quite a challenge to buy something for $500,000 or less. “If purchasing in the entry level price bracket, avoiding the unit market within the CBD is a good idea. Perhaps looking for a gem among the rough in the northern suburbs would likely be the best bet for any future capital growth,” Phillips says.

AUSTRALIAN CAPITAL TERRITORY

Market struggles to find bottom

Recovery remains fragile as prices fall again during April

Just when you think the downturn in Canberra’s property market is coming to an end, other stats comes out to show otherwise.

During April, Canberra was the worst performing capital city, with dwelling values dropping by 1.5% while the rest of the capitals grew in value according to CoreLogic RP Data.

House values lost 1.4%, while unit values fell by 2.4%. While it’s only for the month of April, the poor performance has cast doubt about Canberra’s recovery.

During the three months ending April, the picture is slightly better for houses. Median values rose by 2% to $590,000 according to the data provider. Units remained in the doldrums, however, with median values dropping by 2.4%.

Despite this uncertainty, Linda Phillips of Propell thinks the market is already improving in general. “Although the recovery remains patchy, investors are picking up on Canberra at the moment,” she says. “We consider the market has found a base and will improve in the next year.”

As such, Phillips believes that investors should consider re-entering the housing market.

“This is the time to move into the market. Well located and popular properties offer good potential.”

Defying a slow market

Despite the broad weakness in the Canberra market, many suburbs have racked up exceptional growth during the past 12 months, including Lyons, Bonner, Kingston, Isaacs, Yarralumla, Weston, Casey, Wright, Mawson, Macquarie.

“With confidence in the market improving, Canberra in general has better prospects for investment in the  next year, though newer properties, or those with redevelopment potential, will do better than average,” says Phillips.

However, Phillips remains pessimistic about the prospect of the unit market over the medium term.

“The apartment market is likely to remain sluggish due to oversupply and weakening employment prospects due to public service cuts,” she says.

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