National Property Report – March

Australian Capital Territory

Market may be more resilient than credited

Grim speculation about wide-scale cuts to public service jobs have haunted Canberra for months. But should cuts happen how will they really impact on the city’s property market?

The first cut is the deepest – and leaves lingering scars, advises the lyrics of Cat Steven’s 1967 hit. Having once suffered through John Howard’s public service jobs cuts, could this be the case for Canberra and its public service corps?

Colliers International’s Paul Powderly says speculation over potential cuts to public service jobs keeps harking back to the Howard cuts of 1996. Yet any cuts are not likely to be on the same scale or have the same impact as they did some 20 years ago.

The former Labour government shed many more jobs than previously thought prior to the election which should impact on future cuts, he explains. Also, not only is the bulk of the city’s workforce not actually in the public service, but public service jobs are spread around the country. For this reason, Powderly believes that, while more jobs will be cut, it is not the loss of jobs that will impact on the city’s property market – rather it is the ongoing negative speculation’s effect on confidence which will.

The market will be pretty steady overall, Powderly says. “I don’t think there will be any dramatic rises or falls. It will just continue to be steady as she goes. But the last 12-18 months have been pretty bad for the Canberra/ACT market, so any growth is likely to be moderate.”

Certain markets within Canberra remain highly competitive, largely due to supply and demand issues, he adds. “If you look at the markets in Belconnen, Gungahlin, Woden and Molonglo, there is a lot of competition between developers to sell stock. This means it is possible to negotiate and get good deals.”

BIS Shrapnel’s Angie Zigomanis has a different outlook. He says cuts to public service jobs will have a very negative influence on the Canberra/ACT property market for the next few years.

“It is a transient market. People tend to come in to the state for a few years for work and then leave again. That means there is a sizeable rental market. And that would be hard hit by any cuts to the public sector.”

However, Powderly says that, over the long term, the Canberra/ACT market has good, constant capital growth prospects. “Also, properties in Canberra will continue to be a good investment because they are of particularly high quality in terms of standard and finish.”

Several other commentators have also noted that Canberra/ACT’s prospects for investors may not be as bleak as posited. They say the rental market is returning good yields, that the city’s middle and outer-ring suburbs are comparatively affordable, and that its quality and heritage suburbs are often underestimated.

Sydney building activity vs. demand

In the ultimate twist, could Sydney, a city so famed for its shortage of housing, be in danger of becoming oversupplied with units?

Midway through last year, one of Sydney’s largest developers decided to make a critical switch, one that says a lot about where the city’s property market is at the moment.

A consortium made up of Frasers Property and Sekishui House was in the process of constructing Central Park – a new $2bn “urban village” at the old Carlton Breweries site in Broadway – but changed the concept for one of the buildings at the last minute to take advantage of some changing conditions in the NSW property market.

The building had originally been planned to house office space, but the developer put in an application to change the building to residential space. The idea was that the purpose of the building would go from accommodating commercial tenants to accommodating students.

There were some initial reservations about the idea. The change in plan would increase the number of students in the area from roughly 370 to over 1,100. Existing residents worried that this would turn the streets of Broadway into a haven for drunken revellers, but the plan eventually got the nod from local council.

In the end, the change meant that the 870 proposed new student dwellings would supplement Central Park’s other residential buildings, which are estimated to include close to 1,500 new apartments – a significant amount in any housing market.

The fact that the developer was willing to downgrade its commercial offering and increase its residential stock showed how much of a gamble it was willing to take on the Sydney housing market. The official reason for the change was that the developer believed, in spite of the massive increase in housing stock it had produced, that it would still be easier to find residential buyers over commercial ones.

But what’s a couple of extra houses got to do with anything investing may be asking?

In itself, the incident wouldn’t have held much significance, except that similar events have been happening all over the city. And the numbers prove it. Current residential building activity is at a level that hasn’t been seen in almost 20 years.

Housing Industry Association (HIA) figures indicate an 8.6% increase in new dwelling commencements between the September and June quarters of last year and association chief economist Harley Dale says this could become something of a theme for Sydney and NSW at large.

Dale adds that over the 12 months to September there were 163,250 new homes commenced in all of Australia (the biggest spike in building activity since 2004, outside of the GFC-related stimulus) and the majority of these commencements came from NSW and WA.

“The overall recovery in new dwelling commencements since the trough [in activity] in March 2012 is being driven by New South Wales and Western Australia… but the recovery is also being driven primarily by other dwellings (multi units) rather than detached housing,” Dale says.

He adds that both housing segments are growing, but annual commencements for detached houses are 9% below their 20 year average while commencements of multi-units are running 35% above their 20 year average.


Darwin comes off the boil

It may have been a sweltering summer in Australia’s northern most capital, but appreciation in property values appears to be cooling.

The Darwin property market looks set to be cooling down over 2014, as the rate of price increases slows and more housing stock gets released onto the market.

This is according to research and advisory company SQM Research, whose managing director Louis Christopher points out that the upward momentum in Darwin house and unit prices has started to change.

“We think the Darwin market boom, which really had its heyday throughout the course of 2012, has been slowing [through] 2013,” he says. “Our prediction for Darwin in 2014 is that while we may see some capital growth, it is going to be at a far slower rate.”

One of the primary reasons for the slowdown is that investor interest has been waning, Christopher says, and this is having a big impact considering that the 2012 boom in house prices was driven primarily by investors. The owner occupier segment of the buying market, in contrast, had largely remained dormant.

Another, albeit more critical, driver of the softening market is the level of properties on the market. It has been no secret that Darwin property prices have surged over the last 18 months and this has brought a lot of optimistic sellers into the market and encouraged new housing developments.

A look at DSR Score numbers ( reveals just how pronounced this change in stock levels has been. In December 2012, DSR Score reported that 337 properties were listed for sale within the Darwin metropolitan market. By December 2013, that number was 1,691. This represents a 400% increase in the amount of properties up for sale in the space of a year.

For commentators such as Redwerks research director Jeremy Sheppard, inventor of the DSR Score, such an outcome is hardly surprising. “Prices change according to changes in supply and demand,” Sheppard says. “Many people will consider the start of new [housing] developments or the opening of new estates as a positive for the property market… more often than not, these events will actually represent a stifling of capital growth.”

Sheppard says that even in conditions where demand remains good, an excess level of supply will put something of a buffer on property price increases. This certainly helps to explain the already slowing growth of Darwin’s median house price and why it looks forecast to continue losing steam. RP Data figures indicate that Darwin’s median house price grew by just shy of 13% between January 2012 and January 2013. Between December 2012 and December 2013 the growth rate slowed to just 4.7%.


Far North begins to stir

As the Brisbane real estate environment strengthens, Northern Queensland remains something of a contradiction as positive and negative market forces match up in a game of tug of war.

On a quiet stretch of Cairns walkway, beside the city’s Esplanade, there is a sign advising walkers to be on alert. Pitched beside muddied water that flows under thickets of mangroves, the sign warns of the dangers of stepping too close to a seashore teaming with jellyfish and crocodiles. “You never know what’s underneath the surface”, it says.

It’s a phrase that aptly describes the hodgepodge of activity across Queensland’s northern regions. Dubious forces are certainly at work in some of the area’s property markets. Strong activity is being interspaced with prolonged price falls in markets that have historically been robust and while this isn’t dangerous in itself, it presents investors with an unsettling feeling – uncertainty.

As examples, Cairns and Townsville offer two startlingly different property experiences, despite the cities sharing certain market drivers, such as the tourism industry and fly-in fly-out workers.

In Cairns it is clear that the property market is still largely being affected by a softer tourism industry dragging down demand. There are one or two bright spots, but on the whole, activity has been depressed, especially in the unit market. Units in Cairns suburbs such as Bungalow, Portsmith, Woree and Manunda have had among the country’s worst performing property values of late, with all seeing price declines in excess of 20% over 2013.

But here’s where Cairns got interesting last year. Apartment values, which fell across most of the city over 2013, increased by a massive 17% in the CBD.  More than that, there was also resilience in rental prices since the average rental yield figure on apartments came in at 6% – an unusually high figure for a city market that has recently benefitted from big capital growth.

It is worth noting that it is not uncommon for once subdued markets to start growing again from the centre outwards. However, the fact that the Cairns economy remains fairly weak and that the employment market is also soft suggests that this might be a bit of a stretch. Still, it should give investors pause for thought: is the market seeing the first green shoots of recovery? It would be very hard to call.


Green shoots of recovery or false hope?

Holden’s announcement of the impending closure of its Australian operation leaves SA reeling, but how will it impact on the state’s economy and its property market?

When General Motors-Holden announced the imminent closure of its Australian manufacturing operation, late last year, it marked the end of a formative era for SA.

The company’s long history in the state contributed to significant population growth in Adelaide in the decades following WWII and the development of the suburb of Elizabeth. For many years Holden was the flagship of SA’s car industry and one of the state’s major employers.

Months of confidence-eroding speculation ended when GM announced its decision to close down, but it also became clear that the fate of at least 1,600 state workers had been sealed.

While GM Holden managing director Mike Devereux said it was a priority to ensure the best possible transition for those workers, there was immediate consternation about what the closure would mean for the wider South Australian economy.

A National Institute of Economic and Industry Research report estimated the Australia-wide cost to the economy would be an annual $4bn and that over 65,000 jobs would be lost by 2020. Twelve thousands of those jobs would be in SA.

APM’s Andrew Wilson believes that, while the economic and confidence impact of the closure will be significant, there is too much political capital involved for nothing to be done. There will have to be policies and initiatives designed to moderate the employment market and the closure’s impact on it, he says.

The bigger picture is that SA’s economy is a poor performer and has been for some time, in Wilson’s view. “There is not a lot of significant economic activity for SA to hang its hat on generally. The unfortunate Olympic Dam saga and now the double whammy of the Holden closure have impacted on the real economy and confidence.”

Unemployment is now sitting at around 7%, which is about 1% over the national rate, he says. “This situation will take some time to recover from and is fundamentally negative for income and house price growth.”

All of this means that the SA property market has long been a flat market overall and is set to continue to be for some time.

Meanwhile, the Adelaide market has always had less peaks and troughs and volatility than other capital city markets, Wilson says. “Going forward, the market will remain subdued market due to the generally weak SA economy. I forecast very moderate price growth of 1-3% over the coming year.”


Recovery hopes build

Significantly improved sales across Tasmania give the property industry hope that the times are a-changing and the future will be brighter than the reality of recent years

Sometimes in the midst of darkness, there is a touch of light. It might be just a flickering single flame, but it can be enough to create warmth and guide the way.

Unrelenting coverage of the woes of Tasmania – a stagnating economy, high unemployment, a struggling minority government – have meant dark times indeed for the property industry. But Real Estate Institute of Tasmania (REIT) president Adrian Kelly has seen the light.

There has been an increasing volume of sales over the last year, he says. “At the end of 2013, we finished up 10-15% in terms of sales – in comparison to last year. This is very positive news: we are seeing a turning point.”

For example, despite Tasmania not being a big auction state, auctions are starting to do OK now, and the industry is seeing multiple offers on properties again.

While he concedes the trend was largely evident in the metropolitan areas, and that the regions are still struggling to show increases, he remains upbeat. “2013 was the best year that we have had for a few years. We feel the improvements that we are starting to see should flow through and continue.”

At this point, prices have not moved much. Nor does Kelly expect them to for a couple more years because the drivers are not there yet. But he believes there will be further increases in the volume of sales in the near future, and that prices will flow then through eventually.

As the prices skyrocket in markets like Sydney and Melbourne, Tasmania is starting to see an increase in mainland investors. This is largely due to Tasmania’s affordability in comparison to those mainland markets. “Mainlanders” are now about one in every seven buyers.

Kelly says this is one way in which what is happening on the mainland is starting to flow through to Tasmania.

However, he also thinks that the record low interest rates are finally starting to impact on the state’s market too. “It took a long time, but I think we are now starting to see increased sales as a result.”

Investors should also note that, due to the affordability of property, the state’s rental market remains particularly strong with attractive yields.

Louis Christopher, from SQM Research, says Hobart is recording a clear trend of declining vacancies with the vacancy rate currently standing at just 1.4%. This means rental properties are increasingly sought-after.


China: Melbourne’s game changer

Viewing Chinese expansion into international markets as something of a threat may be a tired cliché but China investor activity into Melbourne is having a far reaching impact – not all of it good

Sixty-three point one million people. It’s more than the population of the UK, France or Italy and it’s the amount of China residents estimated to have the financial capacity to be able to purchase property outside of their country. And they’re coming to Melbourne.

The Chinese-language Juwai web portal estimates that these cashed up Chinese investors conduct close to 90 million online searches for property every month. They are armed and ready to invest outside China and they’ve identified Australia – but more particularly, Melbourne – as one of their top choices of investment destination.

Colliers International research shows that Chinese property investments in Australia have grown by more than 5,000% since 2007 and resulted in some $871m in real estate purchases in 2013 alone. One of the more prominent of these transactions happened last year when Melbourne CBD property 229-234 Franklin Street sold for $17m to a private Chinese investor.

Colliers national director of research Nerida Conisbee says Chinese investment activity is expected to grow in the next decade and could be a potential game changer for a lot of markets. This is in light of first home buyers becoming increasingly priced out of the market just as investor activity is intensifying. It has also helped that regulations in China are being changed to better support overseas investment at exactly the same time Chinese banks have been imposing stricter rules on the release of credit.

“Changes to regulations surrounding investment into property by Chinese investors is expected to lead to significant amounts of capital entering Australia,” Conisbee says.

Colliers International CEO for Australia and New Zealand John Kerry adds that strong investment conditions were the defining feature of the Australian property market over 2012 and 2013 and this has created an environment that encourages more Chinese investment.

“Our market has been considered a safe haven with low interest rates and attractive yields [that] continue to attract international investors,” he says.


Mixed outlook

Perth looks set to continue along a path of attractive growth, but a few whispered warnings are echoing in the background

Perth property market’s phenomenal rise over 2012–2013 was long overdue after spending a few years in stagnation following its 2006 boom. Terry Ryder, director of, says 2013 was a solid year for the Perth property market.

“In fact, it was the state’s first decent growth year for some time, and it’s not over yet. It is the beginning of something for Perth. I think there is a further good year to come.”

Ryder adds that Perth now has in placed all of the factors that are necessary for a good property market: a strong economy, low unemployment, good population growth, and rising sales. WA’s resources economy remains strong, with many of the successful mining outfits planning development and even expansion, Ryder adds.

“Despite what some media commentators say, the boom is not over yet. Massive investment continues and more is to come in the future.”

Ryder’s view of the Perth market is backed up by recent Real Estate Institute of WA (REIWA) data. It shows that sales turnover in the city lifted towards the end of 2013, pushing the median house price to a record high of $535,000.

According to REIWA president David Airey, this increase is due to the fact that Perth had come out of a slump in sales over the September quarter and has more recently returned to more normal conditions.

First home buyer activity is still very evident, Airey continues.

“But there was a solid increase in sales within a 10km radius of the CBD and a softening of activity in outer areas, particularly along the coastal subregions north and south of the city.”

A shift in sales composition towards more expensive properties on the market also helped to pull the median upwards, Airey says.

However, the REIWA data also shows there was a weakening of sales activity in some of WA’s coastal subregions, including parts of Wanneroo and Joondalup, and in Rockingham.

Airey says that while the sales retraction was modest at around 2–3% on the previous month, it was accompanied by a drop in listings, which meant that oversupply was not the issue.

“It is more likely that first home activity away from the coastal strip has been the focus of buyers,” he says.

It is worth noting that WA first home buyers appear to be dancing to a different tune to those around the rest of Australia. Recent ABS data shows that, while first home buyer activity is at a 20-year low nationally; in WA it remains strong at 23.1% of the state’s finance commitments.



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