National Property Report – November 2013

National Property Report – November NEW SOUTH WALES

Sydney riles investor frustrations

High investor activity in Sydney has run into a critical roadblock – a shortage of properties listed for sale

If you’ve been thinking about investing in Sydney but haven’t done so, you may have to work harder and look further to get a good deal.

Herron Todd White’s Kim Quick says there’s currently a distinct lack of listings as properties are quickly snapped up as soon as they come on to the market.

“The single biggest factor affecting the market across all metropolitan suburbs is the lack of available stock, especially up to the $1m price point,” she says.

The consensus from both agents and prospective buyers is that there is simply not enough property for sale at present, she continues. “Because of this shortness in supply, when properties do come on the market we are seeing some very positive sale prices.”

This anecdotal evidence is backed up by the latest report from RP Data, which found that listing numbers in Sydney are about 28% lower than a year ago. This comes as sales activity has jumped 30% over the same period, creating a perfect storm for price growth.

Over the past 12 months, housing values have surged 11.7% and a whopping 7% since the start of the year, according to the RP Data stats.

Rismark CEO Ben Skilbeck notes that while the owner-occupier segment of the market is more than twice the size of the investor segment, “there continues to be a number of indicators suggesting that this spring investors will be punching above their weight”.

Predictably, the strength in buying activity in the inner suburbs is causing a ripple effect to the outer areas as buyers are forced to look elsewhere for available properties.

“Buyers priced out of inner suburbs tend to look to the outer suburbs for better deals,” Quick says. “Agents have commented on an increase in out-of-area buyers taking advantage of the better-value-for-money property available within Greater Western Sydney. We believe this will continue in the short to medium term.” With mortgage interest rates expected to remain low over the next 12 months, buying confidence is likely to improve further, according to Cameron Kusher of RP Data.

“From here, we expect further sales increases throughout the 2013/14 financial year, given that mortgage rates are anticipated to remain at low levels. This will likely create greater confidence and encourage an increase in the levels of investment in housing, both from owner-occupiers and investors.”

VICTORIA

Melbourne strengthens, despite the odds

Moderate growth looks set to continue for the property market in the world’s most liveable city – despite an ongoing oversupply of apartments

Weak indicators in the broader Victoria economy aside, Melbourne’s property market is still displaying signs of ongoing, albeit modest, growth. Recent data from several sources makes it clear that Melbourne’s housing market is continuing to recover.

Compared to a year ago, conditions for both buyers and sellers are a lot more favourable, according to the Real Estate Institute of Victoria’s (REIV’s) Enzo Raimondo. “Consumer sentiment has improved, auction clearance rates are higher, and the number of transactions overall has increased, indicating there are now more buyers in the market.”

Raimondo adds that now that the cash rate is at a record low, even more buyers should stream into the market, further supporting market recovery.

QUEENSLAND

On the road up again

A string of upbeat news and stats about the Queensland property market is giving investors reasons to believe that the state’s hiccups of the last few years are finally over

While Sydney and, surprisingly, Melbourne are surging faster than expected, Brisbane has only recorded a modest increase in property values during the past 12 months. According to RP Data, dwelling values have risen by just 0.8% in the last 12 months, compared to growth of 6.5% in Sydney and 4.3% in Melbourne.

The good news is that some indicators are showing this is about to change.

The Real Estate Institute of Queensland (REIQ) reported a 40% increase in sales volume for units and townhouses during the June 2013 quarter over the same period last year.

While the June quarter is usually weakest of the four quarters throughout the year, REIQ chief executive Anton Kardash says that over the last 12-month period “this quarter was actually the second strongest and very nearly wore the crown as the stand out three-month period of unit sales activity.”

He adds that the market has sustained the growth momentum it recorded during the September quarter last year and says investors have been enticed by the attractive rental returns they can get. “No doubt investors have recognised the strong rental market, including low vacancy rates, and are taking the plunge,” he says.

However, first home buyers remain relatively absent, he adds. The report shows first home buyer numbers remain well below historical averages at just 11% of dwellings financed in June, a drop of 35% compared to June last year.

Australian Property Monitors senior economist Andrew Wilson says that while Brisbane’s housing market continues to record gradual increases in housing market activity, the results are mixed between regions, buyer types and price ranges.

However, properties in Brisbane’s established inner- and middle-ring suburbs remain popular with buyers, he says. “Investors are attracted by high yields, rising rents and solid capital growth potential.”

The Brisbane economy is also expected to perform strongly over the medium term, which will translate to increased demand for housing.

“There will be benefits from the lower dollar translating into increased activity in the mining and tourism industries,” says Wilson.

“The expected surge in job seekers from the southern states will lift the population significantly in southeast Queensland.”

WESTERN AUSTRALIA

Do Perth price increases have an expiry date?

Impressive results are still a feature of the Perth property market, but is the city nearer the end of a strong growth period or at the start?

No party lasts forever. Just ask the Australian national cricket team. Back in 2007, the likes of Glenn McGrath, Brett Lee and Adam Gilchrist had built a team that seemed indestructible. Of course, it didn’t last. The team has now drifted to a dire position and the betting money is on the opposition. It’s a lesson Perth investors would do well to remember.

As Perth property prices continue an impressive run of growth, investors have to wonder when the inevitable cycle of boom to bust is going to commence. Already, the city is into its sixth quarter of successive growth in property values, and a predicted slowdown in economic activity as the resources boom winds down hardly reflects the kind of conditions that will support further growth.

Regardless of whose numbers you look at, there’s a lot to suggest that current growth has been prolonged. RP Data August 2013 figures show city-wide house values to be 6.3% up on August last year, while competing numbers by Australian Property Monitors (APM) show values are up 7.5% over the same period. “This is the best performance by any capital city housing market,” says APM

senior economist Andrew Wilson. Despite the fact that significant growth has already been recorded in the Perth property market, and that history suggests the pattern cannot continue unabated, Hotspotting director Terry Ryder says investors shouldn’t discount the possibility of further growth just yet. According to Ryder, one element that’s continuing to tick prices up is a chronic, and probably understated, shortage of houses.

“Perth appears to be facing a land shortage as developers try to release enough blocks to meet demand on the urban fringe,” he says, adding that demand for houses remains strong, despite increasingly expensive property prices.

His view is that such conditions suggest there is more growth in the pipeline for Perth and that growth is likely to continue for some time yet.

“WA is still the nation’s powerhouse… [It] is the strongest [state] economy,” Ryder says.

SOUTH AUSTRALIA

Slow recovery underway

Tentative signs of a recovery are appearing in Adelaide’s property market, but there are a few things currently conspiring to slow the process down

Some experts are declaring that Adelaide’s property market may have reached the bottom of the property cycle last year and is now in the early stages of recovery. However, that recovery could become a long, drawn-out one, thanks to a few economic hiccups that could derail this upturn.

For example, the manufacturing sector is slowing down and job losses could escalate as a result, says Herron Todd White’s Michelle Richardson.

“The uncertain future of Holden’s car manufacturing plant at Elizabeth and the slowing down of the SA mining sector appear to be offsetting the benefits of low interest rates,” she says.

South Australia’s economy also remains in the doldrums, recording a slowdown of 0.5% in the June quarter, according to the ABS. Only Tasmania recorded a lower performance at -1.8%.

Despite this, there are signs that activity is returning in the property market.

“Since the start of 2013, auction clearance rates have improved and over the last four or five months have fluctuated around the 70% mark,” says Richardson. “Auction as a sales method has also increased since the start of 2013. Now, the improvement in clearance rates and increase in auction numbers is a positive sign for the beginnings of a recovery.”

Hotspotting’s Terry Ryder says Adelaide markets have much stronger growth prospects than some experts have suggested. This is because inner-city construction is cranking up, new infrastructure projects are being completed, and another crop of SA mining ventures is set to come on line.

His research shows rising numbers of sales around the Adelaide metropolitan area. “The last time we did a suburb-by-suburb analysis of Adelaide we found that the cheaper areas showed the best capital growth, while the list of worst performers was dominated by the ‘prime’ inner-city expensive suburbs,” Ryder says.

“The areas with the best capital growth always tend to be the affordable ones with good transport links to the CBD, as they attract demand from the masses.”

With record low interest rates and stagnant property values, SA is at the peak of housing affordability, which is enticing an increasing number of first home buyers.

TASMANIA Improvement on the cards?

Economic doom and gloom has long plagued the Apple Isle’s property market, but some recent announcements might herald the beginning of better times

In recent times, there has been nothing but bad news for Tasmania. But now, suddenly, amidst unrelenting gloomy predictions, a glimmer of hope seems to be emerging.

The recent release of the Real Estate Institute of Tasmania (REIT) June Quarter Property Report has revealed a dramatic increase in house sales. REIT president Adrian Kelly says Tasmania has reported a 10.5% increase in property sales for the quarter, and a 19.2% increase for the year.

“Hobart house sales were also up 18% for the quarter, which is the highest we have seen in three years,” he says. “Although it could be argued these figures are skewed due to the low volume of sales, the figures still remain positive, particularly given the market conditions over recent years.”

Launceston house sales have seen a particularly sharp increase (up 34.4% for the quarter and 11.8% for the year), which is the highest rate the region has seen in two years, Kelly continues. “In contrast, the Northwest centres saw a slight decrease in house sales – down 1.7% for the quarter but still up 7.5% for the year.”

Tasmania’s median house price saw an increase for the quarter (up 2.5%, which means a 3.2% increase over the year), he says. “It is a positive sign for the market, especially heading into the cooler winter season, which historically sees fewer properties coming on to the market.

Sellers might think it is a good strategy to wait until spring before listing their properties, but selling in winter when there are fewer properties available for purchase can sometimes work in their favour, Kelly says.

Another positive sign is that the number of days it takes to sell a property is falling and is now sitting at 75 days, according to Kelly.

PRDnationwide Hobart principal Tony Collidge says Tasmania still has valuable offerings for owners and investors in both metropolitan and rural localities.

While there have been falls in the value of Tasmanian property in recent years, the market has all but bottomed out and is about to turn the corner, he says. “This provides a great opportunity for buyers to get into a market where values should start to appreciate.”

Investment properties are providing returns in excess of 5% and, for investors who are prepared to look around, there are some real opportunities out there, Collidge says. “Tasmania continues to provide Australia’s most affordable housing at some of Australia’s lowest prices.”

Hotspotting’s Terry Ryder says that, given the overall state of the Tasmanian economy, it is surprising the property market is holding up as well as it is.

One thing driving buyers back into the markets of Tasmania is the improvement in affordability, he says.

“Thanks to lower prices and falling interest rates, the June period was the seventh consecutive quarter of improving affordability. Also, the REIT says the proportion of income required to meet loan repayments is at its lowest since late 2009.”

AUSTRALIAN CAPITAL TERRITORY

Better than expected

Elections aside, the Canberra property market is not doing too badly, and a recently passed tax break might help it out even further

Defying predictions of election related stagnation, the latest RP Data–Rismark property value index shows that Canberra’s property market has actually been growing.   According to RP Data research director Tim Lawless, Canberra recorded a 0.9% growth in dwelling values over August, which was the second strongest result of the capital cities. Over the three months before that, Canberra recorded 3.7% growth, he says.

While the latest figures take the rolling three-month change in overall capital city dwelling values to 4%, the rate of growth has slowed.

“This is a welcome sign after the strong growth conditions of previous months fuelled renewed debate around the sustainability of dwelling values,” Lawless adds.

Rismark CEO Ben Skilbeck says there continue to be a number of indicators suggesting investors will be punching above their weight this spring. “With year-on-year gross total returns being 10% across the combined capital cities, and borrowing costs close to half of this, it’s likely investors will continue to be attracted into the market.”

Herron Todd White’s Jordan Hayes says that federal elections have a stronger influence on the mindset of Canberrians than on the market  itself, and it is this that can play a pivotal role in creating uncertainty.

Yet, perhaps surprisingly, the Canberra market is currently doing better than most expected, he says. “This can in part be attributed to the cut in interest rates which somewhat nullified the adverse effects of uncertainty which the elections generate.”

It is as though while some were discussing the potential repercussions of the election, others were out in the market capitalising on the historically low interest rates, Hayes continues. “If interest rates remain this low, you can predict that the property market in Canberra will continue to remain stable and possibly grow when the uncertainty somewhat fades.”

NORTHERN TERRITORY

Red hot rental market squeezing tenants

A booming rental market may lead to property price growth, but one commentator suggests caution

Tales of accommodation discrimination and apartment sharing with strangers continue to emerge from the country’s most expensive rental market, Darwin.

This comes as rents for both houses and units continue to be the most expensive of all the capital cities.

Herron Todd White’s Brendan Clark says the median rent for a three-bedroom house has gone up by 1.9% in the last quarter and 16.3% over the last year. The median house rental is now $650 a week, while the median unit rental is $550 a week.

This strong rental demand is fuelled by several major infrastructure developments led by the $34bn Ichthys gas project, which is attracting a large number of workers into the Territory.

Predictably, Darwin also has the lowest rental vacancy rate of all the capital cities, which means landlords can afford to be picky with their tenants, while collecting the highest rental yields of any capital city (6.2% for houses, 6.3% for units, according to RP Data).

Hotspotting’s Terry Ryder says that a sustained period of high rent rises tends to, eventually, lead to price growth. “After one to two years of rising rents, tenancy costs become so high that renters decide they can buy a home for roughly the same weekly or monthly commitment.”

At this point, multiple tenants leave the rental market and become buyers, which helps to push up dwelling prices in competition with investors, he says. “This is a driving force in the Darwin property market at the moment. With current tenants being driven into buying by the high rents, this could lead to capital growth in the northern suburbs.”

Clark says the Darwin CBD is dominated by investor owners looking to cash in on high rental yields, while the more affordable northern suburbs are mainly the province of owner-occupiers.

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