National Property Report – March 2013

2012 was very much the tale of the stay-in-bed investor, but will sentiment and buying activity improve over 2013?

NEW SOUTH WALES (NSW)

Across NSW, 2012 was very much the tale of the stay-in-bed investor, but will sentiment and buying activity improve over 2013?

It’s been a long wait for the Joyce family. Their beautiful face-brick home, up for sale in NSW’s mid-north coastal community of South West Rocks, has had its asking price dropped many times, but with no luck. More than 320 days since they first listed it they still haven’t found a suitable buyer.

It is a fate shared by the owners of 310 Tuggerawong Avenue in Tuggerawong, some 250km south. Their property has been on the market for over 500 days, as of yet, unsold.

In fact, all across NSW, numerous sellers are having a tough time getting their properties to change hands for acceptable prices. This is the same in areas as far apart as South West Rocks, Tuggerawong, Green Point, the Hunter Valley, and Ourimbah, on the central coast, all of which are experiencing average property listing periods close to a year, according to RP Data.

These suburbs have been joined by a host of other affordable suburbs, in regions ranging from the Central West to Sydney and the Northern Rivers, where buyers remain largely absent from the property market.

One of them, quite surprisingly, is the unit market in the Sydney CBD. Right in the heart of the city – in what is arguably a highly desirable location – the average listing period for units during 2012 was just over four months (according to RP Data). This is a stark contrast to two years ago when properties in the same area where selling within 50 days, on average.

Tim McKibbin, chief executive of the Real Estate Institute of NSW says “It has to be acknowledged that during 2012, market confidence, or lack thereof, had an effect across the entire spectrum.’’ “The greatest challenge we face in 2013 is installing that much-needed confidence back into the market,” he says.

QUEENSLAND   (QLD)

Queenslanders are nothing if not optimistic, with many industry pundits believing that the market has bottomed out – and, therefore, the only way is up

As 2013 marches on, the Queensland property industry is hopeful that the improving market conditions that came about in the second half of 2012 will continue.

“In most areas across the state, sales numbers were up substantially during the later parts of last year. There have been more people through open homes and more buyers actually willing to buy,” says REIQ chairman Pamela Bennett.

“The Queensland market certainly appears to be on the road to recovery, helped in no small part by the necessary lowering of interest rates by the RBA to help stimulate our economy… and the return of the Principal Place of Residence (PPR) concession on stamp duty,” she says.

While this was “a hugely welcome policy turnaround, following its axing in 2011”, she comments, the return of the owner-occupier stamp duty concessions does little to encourage investors into the market.

The axing of the $7,000 first homeowners grant (FHOG) – which was succeeded by the $15,000 first homeowner construction grant (FHOCG) – has also discouraged activity at the bottom end of the market.

“The next six months is going to be a real test of the overall effectiveness of this policy change,” adds Ryan Connors, REIQ research analyst.

VICTORIA (VIC)

Melbourne property prices as a whole, show tentative signs of stabilising, but suburbs on the city’s western fringe could be in trouble

As traffic roundabouts go, the intersection of Cinel Crescent and Carandon Drive in Truganina is quirky, but hardly remarkable. A bright pink two-storey house sits on its eastern-side, while everywhere the pavement grass looks trim enough to putt on. At the centre of the roundabout is a small garden, distinctive only because its modest designer made it almost too small to spot.

To the keener observer, however, the view from the roundabout says a lot about what is happening in the western fringes of Melbourne. That’s because no matter which direction you look down Cinel Crescent or Carandon Drive, every house is newly built. It’s the same in the streets that run parallel and perpendicular and it’s the same even further afield in Tarneit and Wyndham Vale, other suburbs on Melbourne’s western fringe.

That’s the problem. With the stellar rate of building that was initiated in Melbourne across 2010, much of the city property market remains heavily oversupplied with new dwellings. Out west is where this is most immediately apparent.

In Truganina, where new houses rule the market, the proportion of all properties up for sale remains just above 6%, according to DSRscore.com.au. In nearby Wyndham Vale and Tarneit, that figure is closer to 4%. To put these numbers into perspective, the average suburb in any Australian city normally has roughly 1% of its properties up for sale at any given time.

WESTERN AUSTRALIA (WA)

After climbing steadily for the last 12 months, rents are starting to ease along the western fringe, while investors are competing with first homebuyers for the best deals on the market

As the biggest beneficiary of the mining boom, WA boasts the lowest unemployment rate of any state or territory at just 4.3% – well below the national average, which hovers around 5.5%.

Six months ago, however, WA had an unemployment rate of 3.5%. Paul Braddick, ANZ ‘s Head of Property Research, says that while the western state’s employment rate was strong throughout 2012, growth “moderated towards the end of the year, as the iron ore price fell sharply and the global outlook became more uncertain.”

He adds, “Strong population growth has meant that the unemployment rate has increased a little in WA, as a rising share of jobseekers have not found work.”

Moving forward, any caution about the health of the state’s economy and specifically the resources sector, seem to have had little impact on the industry’s faith in the market. The Property Council of Australia-ANZ Property Industry Confidence Survey, which seeks feedback from thousands of people who work in construction and property, has delivered WA a score of 131, up 11 points for the March 2013 quarter.

A score of 100 is considered neutral, so with a score of 131, confidence in WA’s real estate market is very high. The state is also ranked well above the total score for Australia, at 107.

This demonstrates that WA possesses strong economic fundamentals, despite intermediate concern over the longevity of resources investment, Braddick explains.

“Despite a softer outlook for WA mining infrastructure spending in recent months, the economic benefits of committed infrastructure spending and tight market fundamentals should drive solid growth in building construction in 2013,” Braddick says.

Expectations for house price growth have also increased amongst those in WA’s property and construction industry, with the Property Council scoring confidence in capital appreciation at 129 in the March 2013 quarter, up from 118 in December. WA was only one of four states with positive expectations for house price growth.

SOUTH AUSTRALIA (SA)

Slow growth in rental and sales in SA may start to change as interest rates drop and people look for more solid investments

With its beautiful character homes, relaxed yet cosmopolitan atmosphere, proximity to world-renowned wine districts and plentiful beaches, the city of churches has a lot going for it.

But unfortunately, Adelaide and the greater state of South Australia have numerous factors working against them, from a property investment point of view.

First up is the significant issue of growth – or the lack thereof. Property values have slumped over the last 12 months, in both country and metropolitan areas, across all dwelling types.

Flat property prices do little to entice landlords to the market, which has the impact of slowing investor demand and this in turn then causes a supply/demand imbalance, which further weakens the market.

Throw in slow rental growth, weak overall confidence in the economy, and the deferring of BHP’s Olympic Dam project, and you can see why South Australia fails to top many investing hot spot lists right now.

AUSTRALIAN CAPITAL TERRITORY (ACT)

Canberra’s property stability is proving a major strength

Much to the chagrin of people who live there, Canberra has developed something of a reputation as a place where, apart from politics, nothing much good or bad ever happens.

True or not, it’s a sentiment that has found its way into the property market. Prices show that Canberra is the wallflower of Australia’s capital city markets: property values neither plummet nor skyrocket, they simply coast along. In good times and bad, Canberra property never makes the headlines.

This is the city’s major tragedy. A quick look at ACT property stats tells us why.

Canberra 101

Australia’s capital is home to just 360,000 people and is a smaller market than a lot of the major suburbs in bigger cities. The Gold Coast’s Surfers Paradise alone had more unit sales than the whole of the Australian Capital Territory in 2012, according to RP Data. The town of Orange in NSW, home to 40,000 people, had almost the same number of house sales.

Despite its size, the market is robust. Over 2011, Canberra showed the highest value growth among all capital cities. The official figure was only roughly 0.5% growth, according to Residex, but this was as every other capital city sank backwards. Brisbane, Adelaide and Perth house and unit prices, by comparison, each fell by around 5%.

2012 was a similar story for Canberra. The best performer among capital cities were Darwin’s houses (8.1%), but apart from that the only other capital cities that saw growth (Sydney and Perth) recorded figures of less than 1%. Canberra growth was at 0%. Meanwhile, Australia’s four remaining capital cities all shrank back in median property values.

“Canberra is a very dense housing market,” says APM senior economist Andrew Wilson. “It doesn’t have a real top or bottom end and doesn’t have the same fluctuations that you see in other cities.”

Wilson says that what keeps the Canberra property market ticking is higher-than-average incomes and an ongoing shortage of land. “It does have a shortage of accommodation and there are constraints to the release of new land because of the cost of infrastructure development, among other things,” he says.

Wilson adds that the release of land is further slowed by mechanisms such as ballots, which contribute to the ongoing land shortage. Demand from first homebuyers tends to be good too, keeping the market active. It’s the age-old equation of supply and demand and this is what has kept the Canberra market resilient.

Unemployment and population figures also bode well for the ACT. Estimates by the ABS have the city unemployment rate at 3.9%, among the lowest in the country, while population growth has been above the Australian average at 1.9%.

Wilson remains optimistic. “I think Canberra will have a strong year moving forward,” he says.

NORTHERN TERRITORY (NT)

Darwin property prices are increasing at a time when neighbouring states are floundering and rental returns are amongst the highest in the country, and it’s not tipped to change any time soon

Our nation’s northernmost capital city is in the unique position of holding a number of ace cards, that all but guarantee its growth and prosperity over the coming years.

With a booming economy, growing population, low land supply and diverse employment nodes, boosted by a healthy resources industry, the city of Darwin wants for little… except, perhaps, some more affordable housing options.

The city’s rising rents are cause for celebration for investors, but cause for concern for local residents. Even Real Estate Institute of NT chief executive Quentin Killian admits that the lack of affordable rentals in Darwin is a serious problem, with a definite “under supply of properties in the lower price ranges”.

“We need to start bringing people back into the city and the northern suburbs, and we need more apartments for the younger generation,” Killian says, pointing out that supply and demand issues are likely to continue throughout 2013.

“More and more people are coming to town for the economic activity,” he adds. “No other capital city (in Australia) is showing the level of growth that we are facing, and will be facing, for the next 10 years.”

TASMANIA (TAS)

There are no two ways about it: Tasmania’s property market is in the doldrums, and it’s likely to stay that way… in the short-term, at least

With a 7% unemployment trend, the Tasmanian economy is struggling. This is well above the decade average of 6%, and tree-changers have all but disappeared from open homes.

“High unemployment and the outflow of young people have been large contributors to the state’s flat market,” says RP Data senior research analyst Cameron Kusher.

“Hobart and Tasmania are not attracting the influx of retirees as they did in 2003-04, even though prices are lower,” he explains.

“I can’t see what is going to turn it around until the world economy gets better and people start buying holiday homes, and the tree-change and sea-change [buyers] become prevalent again.”

Kusher says Hobart is one of three cities – together with Brisbane and Perth – that holds the distinct honour of boasting home values that are presently below what they were five years ago.

Adjustments to official interest rates are having less effect now than they had in the past, he adds, which is to be expected, “given that households are saving around 10% of their disposable income, and are showing a preference for saving and paying down debt rather than spending.”

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