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Introduction: What’s Coming Up For Real Estate in 2018?

The coverage of real estate in mainstream media is misleading and confusing at the best of times. But a bad situation is about to get worse. You’re going to be reading a lot about “the end of the Australian property boom” and the likely decline in “Australian property values”. If you do come across this kind of coverage, rest assured that you can ignore it. The problem is that most articles in our major media about the housing market are re-cycled press releases. And most of those media releases are brain farts from economists or attention-seeking businesses which lurk on the periphery of the real estate industry. Their understanding of the complexities of our many different real estate markets is wafer thin. Here’s a clue: anyone who discusses the Australian housing industry as a single market is a pretender. And that includes most economists. The reality is that, while the Sydney market is well past its peak and I expect Melbourne to be winding down soon, many other significant markets around the nation are just getting started on their growth paths. The secret to profiting from real estate will lie in understanding that Australia has many different property markets – and some of them will be rising strongly in 2018. For analysis of markets nationwide, click on the topics below ...

National Overview

Next Year We Will Be Talking Less About Sydney and Melbourne (Thankfully)

I keep seeing TV talking heads referring to the slowdown in “the Australian property market”. They’re Sydney-based boffins thinking about the Sydney scenario but transferring that nationwide. So much of our major media emanates from Sydney and far too many writers and commentators extrapolate Sydney’s situation to the rest of the nation – or rely on shallow data which portrays Australia as a single property market. The reality is quite different – and will remain so in 2018. Observe the different stories told by the latest Asking Prices Index for houses from SQM Research:
  • Melbourne’s index is up 20%, so that’s boom-time growth;
  • Canberra and Hobart are both up 14%, which is strong growth;
  • Sydney’s growth rate has dropped to 9%, so that market is moderating;
  • Adelaide and Brisbane are both up just a few percent, so those markets continue to stagnate; and
  • Perth and Darwin are still falling.
That’s a five-speed market scenario within the eight capital cities, without considering the multiple scenarios playing out across regional Australia. The message, for those slow on the uptake, is that we don’t have an Australian property market. We have many different markets, all influenced by local economic conditions. Even within one city, there are myriad different scenarios in play. Brisbane has rising markets, stagnant precincts and downturn markets that need to be avoided (notably the inner-city unit market). Expect more diversity of market performance in 2018, but with different growth stars. By this time next year we won’t be talking so much as Sydney or Melbourne. It’s more likely to be about Canberra and Perth, and possibly also Brisbane and Adelaide. I’ll be talking a lot about regional markets, but media probably won’t be because it’s so focused on the big cities. In simple terms, I’m expecting little price growth in Sydney but no major price decline, with the possible exception of individual unit markets weighed down by oversupply. Melbourne’s growth rates will reduce, with much of the action in the outer suburbs – and the inner-city unit markets will see some reduction in values. The price growth leaders among the capital cities are likely to be Canberra and Hobart. Brisbane should do more than it has in the past few years, but there will be significant discounting by those unfortunate enough to own an inner-city apartment. The nation may wake up to the possibilities of Adelaide’s under-rated property market, especially if early signs of better economic performance prove sustainable. Perth will become the comeback kid of the major city markets and there may be glimmers of hope for downtrodden Darwin. Regional Australia has myriad possibilities. NSW is full of strong regional centres and we will see good growth in some of them, in contrast to the trends in Sydney. Melbourne’s strong market has rippled out to regional centres within commuting distance. We’ll see more of that in 2018, led by Geelong and Ballarat. Queensland has lots of enticing prospects, headed by the Sunshine Coast and Townsville. But investors should beware of being seduced by the Commonwealth Games hype oozing out of the Gold Coast. Much of the impact created by jobs on construction projects leading up the Games has been felt already and developers are working hard on creating an oversupply of apartments. We’ve seen signs of recovery in regional towns and cities impacted by the resources sector, most notably in Queensland, Western Australia and New South Wales. The worst is over for many of these locations but, as always, I urge caution about buying in locations that are essentially one-industry towns. They will always be volatile and high-risk.

Adelaide and South Australia

Adelaide Uplift Likely As State Economy May Have Found Its Missing Mojo

In the September edition of this report, the headline read: Adelaide Likely To Remain Stalled Until The State Economy Finds Its Mojo Well, South Australia may have found it. The latest quarterly edition of the State of the States report from CommSec elevated SA from No.6 to No.4 in the rankings of the various state and territory economies. SA now rates higher than Queensland, Tasmania, WA and the Northern Territory. The latest Business SA-Statewide Super survey of business expectations, which showed confidence and business conditions are on the rise (but there are still concerns about the direction in which the state is tracking). And the latest jobless data from the ABS shows the SA unemployment rates steady at 5.8% in seasonally-adjusted terms, a little above the national average of 5.4%. The trend data had the SA jobless rate dropping 0.2 to 5.6%, which was the lowest in five years. At the same time there has been a number of positive news items from a range of major projects:
  • The first major round of hiring for the construction of vessels for the Navy has started.
  • The stalled expansion of BHP’s Olympic Dam mine at Roxby Downs appears to be reviving, though at a smaller scale.
  • Multiple major energy projects have been announced, many of them targeted on Port Augusta, with an additional one focused on Whyalla.
  • Work on the ongoing re-development of the Tonsley precinct in Adelaide is creating large numbers of new jobs.
  • There is a raft of government and private enterprise measures designed to respond to the closure of the Holden car plant.
  • Arrium, the biggest employer in the key regional city of Whyalla, has been taken over by a new owner who appears to have expansion plans.
Given the correlation between the health of the state economy and the performance of the capital city property market, this series of positive outcomes bodes well for Adelaide real estate. I expect the SA capital will surprise property observers with its positive progress in 2018. Reinforcing my optimism is the solid results for Adelaide from my quarterly research into sales activity Australia-wide. I look for suburbs with rising sales momentum and Adelaide has more of those right now than any other capital city in Australia, ahead of both Melbourne and Brisbane. It’s a very solid and much under-rated market. The leading precinct throughout 2017 has been the Marion LGA in the south-west of the Adelaide metropolitan area. This is largely middle-market Adelaide, but its price levels look like the affordable lower end in Sydney and Melbourne. Outside Adelaide, there are plenty of solid regional centres – Port Lincoln, Mount Gambier, Goolwa, Victor Harbor, the towns of Barossa Valley – but none with compelling reasons to grow strongly in the foreseeable future. Port Augusta, where the median house price is below $200,000, has the potential to become a boom town if some of the many proposed energy projects come off. Whyalla, rather typically for a resources-reliant centre, has gone from boom to bust in spectacular fashion – and may revive if the Arrium rescue mission works out and some of the other resources-related projects come to fruition. But it seems doomed to a life of volatile boom-bust scenarios.

Brisbane and Queensland

Queensland Shows Why It’s Dangerous To Generalise About “The Property Market”

Queensland is the best example of my contention that there is no “Australian property market” but multiple individual markets, each doing its own thing, primarily influenced by local economic conditions. Regional Queensland has more locations with growth markets than anywhere else in Australia – and it also has the greatest number of “danger” markets, the ones that smart investors would avoid. Equally, the Brisbane metro area has several locations with good growth potential – as well as the market I regard as the weakest and most dangerous in the nation, the inner-city unit market. Generally speaking, there’s a growing list of reasons to like real estate prospects in Queensland. The state is creating more jobs than any other state or territory, it’s the biggest winner from inter-state migration, exports are booming and there major signs of revival in the resources sector. Each month when I write another of my quarterly documents, The Ryder Report, I include a summary of major project announcements in each state and territory. And every month Queensland has more significant action in this regard than any other part of the nation. Some massive enterprises have made big announcements in recent times, including mining, energy, transport infrastructure, retail, commercial and residential projects. The level of investment pouring into Queensland is impressive and it bodes well for real estate demand. This is partly responsible for bringing improvement in the prospects for Queensland regional centres impacted by the resources sector. We’ve seen a reduction in vacancy rates in locations such as Gladstone and a marked improvement in sales activity in several regional centres including Townsville, Mackay, Rockhampton and Emerald. The general improvement in the resources industry and the advancement of major mining projects is lifting both sentiment and activity in some of these cities. There is also a generally positive vibe in the recently-published QBE Housing Outlook Report about these markets, albeit with a note of caution. The report suggests price growth is likely to remain subdued for a number of years although there might be investors re-entering these markets. “The median house price in the Isaac Region has recovered slightly since bottoming out in March 2016, suggesting the worst is behind it,” the report says, referring to the region that includes the boom-bust coal town of Moranbah, plus others like Dysart. “The market in Mackay looks to have also bottomed out. Its median house price also increased between December 2016 and June 2017, while vacancy rates tightened from over 9% in 2015, to 4.5% in June 2017.” Beyond those resources-related locations now showing signs of improvement, the regional markets that stand out for me are the Sunshine Coast and Townsville. The Sunshine Coast is being transformed by major spending on infrastructure and other developments, while Townsville is recovering after a couple of difficult years and will be boosted in 2018 by new developments and the city’s links to the resources sector (including being the HQ for the $20 billion Carmichael mining project – if it happens). The Gold Coast will generate hype over the upcoming Commonwealth Games but much of the lift has already been felt by the property market, which was busy in 2015 and 2016 as construction projects related to the Games, directly and indirectly, brought workers into the region. The biggest impact felt by the Gold Coast property market may be a negative one: apartment over-supply as developers do what they always do, which is to over-react to a major event that might otherwise generate a property boom. Many investors have turned their attention from Sydney and Melbourne towards Brisbane because of its cheaper prices and better rental yields. And, according to a HIA report, Brisbane remains among the county’s most affordable capital cities for residential land. Brisbane’s median lot price is $239,500, behind Sydney ($470,000), Melbourne ($275,000) and Perth ($262,500). Over the year to June 2017, there was little change in Brisbane land prices, in contrast to Melbourne where prices rose 20% and Sydney which rose 10%. Despite Brisbane’s modest price result, it was Australia’s third most active land market based on sale volumes recorded over the June 2017 quarter. Affordable areas of the Brisbane metro area are expected to do well in 2018, headed by the Moreton Bay LGA on the northern fringes and Ipswich City in the far south-west. I’ve warned many times in the past few years about the Brisbane inner-city unit market and the evidence is clear right now – vacancies are high and values are falling, at a time when demand from buyers is dropping. Ignore the hype from developers and the REIQ, avoid this market – and focus on Brisbane’s affordable housing markets.

Canberra and the ACT

Canberra Expected To Be Among The Market Leaders in 2018

Canberra provides another fine example of the diversity of Australia’s many different property markets. Over most of the past four years while Sydney has been booming, Canberra has been largely dormant. And now, as Sydney winds down, Canberra is cranking up. Indeed, some predict that Canberra will lead the capital cities on price growth over the next few years. The QBE Housing Outlook Report has added weight to other forecasts of a strong market in Canberra next year and beyond. The report says: “Conditions in the house market are expected to remain largely positive, driven by population growth, an under-supply of houses and strong employment prospects.” I would add the consistent strength of the ACT economy (ranked No.3 in the State of the States report) as a key factor. The median house price in Canberra is forecast by QBE to rise 16% over the next three year, which means it’s predicting Canberra will have the strongest market of all the cities over this period. But I think its numbers are conservative. Earlier, there was a positive forecast for the Canberra market in The Housing Boom and Bust Report by SQM Research’s Louis Christopher. It suggested dwelling values in Canberra will increase by between 5% and 9% in 2018 – and I would suggest that might be conservative as well. The Canberra property market has been delivering some impressive statistics recently. It continues to record consistently low vacancy rates, its sales activity is persistently strong and its annual price growth rates are starting to challenge those in Sydney and Melbourne. But the real estate benchmark which really marks Canberra as a market to watch is rental growth. While some of the capital cities have delivered strong price growth, led by Sydney and Melbourne, few cities have recorded meaningful growth in rentals for houses and apartments. But Canberra is the stand-out exception. According to the Weekly Rents Index from SQM Research, house rents in Canberra are up 12.5% in annual terms and apartment rents have risen 5.2%. One of the things that underpins the Canberra market and puts a floor under values is the way the ACT Government controls supply. It drip-feeds the supply of new land to the market and demand is usually considerable higher than supply, which keeps values high (from which the ACT Government benefits). A report out of Australian National University recently claimed that Canberra had a serious over-supply of dwellings, but all other research makes nonsense of that. I would suggest their methodology was faulty because vacancies are extremely low in Canberra and rents have been rising strongly (something that cannot happen in an over-supplied market). Putting all those solid statistics together with forecasts of good growth in coming years suggests Canberra will be a leading property market in 2018. The strongest markets, in terms of forward movement in sales activity and the influence of infrastructure spending, are the northern precincts – the Belconnen District and the Gungahlin District.

Darwin and the Northern Territory

Signs Of Hope For Darwin - But Major Growth Drivers Are Lacking

While Perth has shown clear signs of recovery, the other downturn market among the capital cities, Darwin, is still mired in negativity – but with some hope for better things in 2018. One positive statistic pointing to the possibility of better things is the reduction in Darwin’s overall vacancy rate, although the inner-city apartment market is still over-supplied. There are also glimmers of hope from the Sensis Business Index and from the CommSec State of the States report. The latest Sensis index suggests that business confidence in the Territory has recovered to record its highest score since June 2016 - after dropping in the previous quarter to one of the lowest scores in nine years (however, NT business still remains the least confident nationally). Sensis chief executive John Allan says NT business confidence remains low by national standards but some individual businesses are positive. In the latest quarterly edition of the State of the States report published by CommSec, the Northern Territory remains stuck in its previous position as the No.7 (second last) ranked economy in the nation. But it topped the national charts on economic growth, while lagging on forward-looking indicators like population growth. The NT economy needs to keep improving - with new investment desperately needed - if Darwin is to rise out of its downturn. Louis Christopher’s SQM Research has forecast recovery for Darwin in the Housing Boom and Bust Report. It tips Darwin values to rise moderately in 2018 - between 1% and 4%. But QBE’s annual Housing Outlook Report has a less optimistic forecast for Darwin. It says: “With the decline in resource investment yet to bottom out, and an expected slow recovery, the outlook for Darwin is subdued. Further downward pressure on prices is expected in 2017-18 before the market bottoms. Few economic drivers will support population growth and demand will remain weak. The median price is expected to fall slightly in 2017-18, before recovering by 2019-20.” On the Darwin unit market it says: “Elevated unit construction will add further downwards pressure on unit prices as the current construction pipeline continues to deliver units to a weakening market.” So, some signs of hope, but nothing to suggest strong recovery. There’s not much to the Northern Territory, in terms of property markets, beyond the Darwin metropolitan area. There’s only Alice Springs, Katherine and Tennant Creek. Alice Springs has been a solid market and continues to chug along quite nicely, without doing anything special. Katherine might have a spurt of growth because there’s big dollars being poured into the Tindall RAAF Base near Katherine.

Hobart and Tasmania

Hobart and Launceston Have Been Sizzling - And Likely To Remain Hot In 2018

One of the core questions for 2018 is whether Hobart and Tasmania can maintain its status as the hottest market in Australia. I’m betting that it can – or go close. The strong recent performance of the Hobart property market has coincided with the strengthening of the Tasmanian economy. As Tasmania has risen in recent years to become the No.4 ranked economy in Australia, the Hobart market has followed suit and now, according to some research sources, is the leading capital city on annual growth in house prices (not all agree). The latest quarterly edition of the State of the States report from CommSec has seen Tasmania drop to the No.5 ranking, overtaken by South Australia. But No.5 is still well above Tasmania’s traditional place (last or second last) - and still above Queensland, WA and the Northern Territory. In the latest CommSec report, Tasmania ranked second on employment and third on population growth. So the underlying indicators remain solid for Tasmania and I expect the Hobart and Launceston markets to keep on pumping. Recently, Hobart has been dominating national lists of locations where homes are selling the fastest. One research report found that, of the suburbs around Australia where houses are selling in less than 10 years (on average), half were in Hobart. Mainland investors have targeted Tasmania, especially Hobart, because it’s so affordable compared to the biggest cities and offers much better rental yields. And, unlike the past, real estate performance is underpinned by a strong state economy and improved population numbers. Hobart continues to deliver the lowest vacancies in the capital city Australia. A recent report from Louis Christopher at SQM Research found a vacancy rate of 0.3%. It’s been like that for a long time and I wonder why developers are not flocking to Tasmania to build new dwellings, because clearly there’s lots of demand and a shortage of supply. It’s not all about Hobart. The state’s second city Launceston is also pumping strongly, partly driven by mainland investors who cannot believe that there worthwhile markets where you can still buy solid houses in the $200,000s. Plenty of smaller towns are also attracting strong demand because of their price levels, but I would urge investors to stick to the larger population centres, where there is a solid and diverse economy supporting real estate markets.

Melbourne and Victoria

Melbourne Will Follow Sydney Into Wind-down, But Regions Are Worth Watching

Melbourne gives the appearance that it’s still as hot as ever, but really it’s not. And, as we get into 2018, there will be growing signs that the Melbourne market is following Sydney into a steady wind-down phase. Melbourne has been one of the stand-out markets over the past couple of years. It got on its growth path later than Sydney did and so still has some time to run. But if you ignore the media hype and look at the important indicators, it’s clear Melbourne has already passed its peak. But there’s more to Victoria than its capital city – and there are some notable regional area that will be showing growth after Melbourne has run out of steam. The signals that Melbourne has passed the top of the cycle include these:-
  • Sales activity has declined in most parts of the metropolitan area
  • Price growth rates, while still strong, are gradually decreasing
  • The strongest markets for sales activity and price growth are the outer-ring areas
  • Auction clearances rates, not that you can ever believe them, are reducing
Melbourne’s real estate up-cycle started in the inner-city suburbs and then rippled out to the Middle Ring areas. Around two years ago the strongest market in Australia was Middle Melbourne. Now the ripple effect has taken the growth cycle to the affordable suburbs on the fringes on the metropolitan area, the Outer Ring areas. When that happens, you know the cycle is near its end. The strongest market in Melbourne now is Wyndham City in the far south-west heading towards Geelong. Suburbs like Werribee, Hoppers Crossing, Point Cook, Wyndham Vale and Tarneit are selling homes in record numbers – and most of these suburbs have had median price growth above 15% in the past 12 months. Here’s another indicator: The cost of residential land in Melbourne is risen sharply in the past 12 months. The HIA’s Residential Land Report finds that the median price for an Australian housing lot increased 8.5% to $256,683 in the past year and the Sydney median price rose 10% - but Melbourne surged almost 20%. Much of this Melbourne land sales activity is, of course, in the Outer Ring areas where the new housing estates and suburbs are occurring. The factors which have driven Melbourne’s boom – a strong state economy and the nation’s highest population growth, fuelled by overseas migrants – remain strongly in place. But there are powerful forces which can overpower the growth drivers – they include the affordability barrier, now a factor across most price sectors, and dwelling over-supply, which is a big influence on the inner-city apartment markets. So, in 2018, I’m expecting the growth to be seen in the regional cities and towns. Melbourne’s growth has rippled out into the regions of Victoria, especially towns and cities within commuting distance of the capital city. Geelong already has one of the hottest markets in the nation and will continue to pump strongly in 2018. Ballarat is starting to warm up as well and homes are selling fast there, thanks to the city’s lifestyle, affordability, strong economy and improved transport links to Melbourne. Other busy markets include Macedon Ranges Shire a little north of the Melbourne metropolitan area (towns like Gisborne, Kyneton, Woodend and Romsey); Mitchell Shire, also on the northern fringes of Melbourne (towns such as Kilmore, Wallan, Seymour and Broadford; and Cardinia Shire in the far south-east (including the towns of Pakenham and Officer).

Perth and Western Australia

Opportunity Alert: Perth Is Where The Smart Money Will Head In 2018

Some of the things I wrote in this report three months ago are worth repeating. Here’s a snapshot of my comments in September: “I’ve been watching the Perth market closely to determine the optimum time to buy there. The best time to buy in any market is when the market is at the bottom of the cycle ... I feel confident that the Perth market is over the worst and is beginning a long-awaited recovery ... Thanks to a weak state economy, Perth has had the weakest market among the capital cities … But Hotspotting is about identifying the opportunities for future growth, sometimes in defiance of the existing market situation.” There are now clear signs that the Perth market is recovering, after four tough years. And it presents opportunity to investors, because prices are down, there are few buyers in the market and you can set yourself up for capital growth by buying well. Here’s one of the indicators: The nation’s biggest improver in terms of jobs creation is the mining sector. According to the latest data from Seek, growth in mining sector jobs leads the nation. The figures for September show 60% annual growth in the number of jobs advertised in the Mining, Resource and Energy industry. Overall, national job ads grew 12% in the year to September and the next biggest growth (after mining) was recorded by the Science & Technology Sector, up 27% in annual terms. It’s the ninth consecutive month that Seek has recorded growth in the mining sector. Given the importance of the resources sector to WA, I see this as significant - and note also other research showing that large numbers of new jobs have been created in WA in 2017. This bodes well for the Perth property market, as it moves into a recovery phase. At Hotspotting we have detected a significant turnaround in sales activity in the various Perth real estate markets. For several years, sales volumes have been falling across Perth – a trend which pointed to a decline in property values. But in the June Quarter, for the first time since the downturn started in 2013, we saw many suburbs recording improved sales activity. The Real Estate Institute of WA keeps pumping out positive talk-up-the-market press releases to nudge things along, but of greater interest to me are the observations of independent, respected observers who are detecting the same trends that I am. People like Gavin Hegney, founder of the Hegney Property Group and one of the sharpest real estate analysts in Australia, have seen the improvement in activity and opportunities presented in this market. I particularly like the prospects of the Joondalup precinct in the north of the Perth metropolitan area. Joondalup is the regional centre for the northern suburbs and has impressive infrastructure, including education campuses, major medical services, government offices, a transport hub, good links to the Perth CBD, big retail facilities and plenty more. It’s been as solid as anywhere in the face of the recent downturn and one of the first to show signs of recovery. Many of the suburbs in this precinct are affordable. There are other precincts around Perth worthy of consideration, including Forrestfield in the east, Armadale in the far south-east, the Murdoch precinct in the south, the Wanneroo LGA in the far north and the coastal precinct around Rockingham in the far south. I’ve seen rumblings from investors that maybe they should be showing interest in the some of the resources-related towns in regional WA, because prices are a fraction of their peak levels at a time when the resources sector is recovering and hiring personnel again in large numbers. Popular targets, as in the boom times, are Port Hedland and Karratha. The buying there looks attractive now, but you need to be very cautious. Prices won’t return to those massive levels of the past any time soon and those markets will always be volatile because they’re essentially reliant on the health of the resources sector - which is notoriously fickle.

Sydney and New South Wales

Regional NSW Will Take Over From Sydney – But Don’t Expect Media To Notice

Mainstream media, the worst possible source of information about residential real estate, obsesses over cherished storylines. For several years, the Sydney boom and affordability issue has dominated everything. Media was talking up the boom long after it had passed its peak. Now journalists and commentators have got the message that the party is over – so they’ve switched their obsession to the downturn storyline. Now it’s all about decline: values plummeting, bubbles bursting and the end of life as we know it. Attention seekers have seized the opportunity for free publicity by pumping out material which “warns” of impending doom. Investment bank UBS, whose economists could write what they know about real estate on the back of postage stamp in crayon, has been a particular source of nonsense. One desperate grab for publicity shouted that if the RBA hikes interest rates too much too fast, it could cause a crash – notwithstanding the clear messages from the Reserve Bank that it’s not planning even one small rise in the official rate any time soon. There’s also no precedent to suggest that increases in interest rates cause property crashes – or even slow down property booms. The two most notable, genuinely national property booms of recent times – the late 1980s and the early part of this century – happened in times of high and rising interest rates. I’m not expecting anything dramatic to happen in Sydney markets this time around. The most likely scenario is the one we saw in 2004 after the boom of 2001-2002-2003. There was no dramatic decline in prices in Sydney (or anywhere else) – there was an end to the previous high growth. The annual growth rates for prices dropped from double-digits to around zero. Sydney now has high property values but they’re underpinned by all the factors that caused the rises in the first place: the nation’s strongest state economy, huge spending on infrastructure, strong population growth – and the reality that, prior to the boom starting in 2013, Sydney had endured a decade without meaningful price growth. The key thing that has brought the price rises to a halt is the affordability factor. Prices cannot keep rising indefinitely because the divide between prices and incomes becomes too great. So the growth stops. But the fundamentals that got prices to those levels remain, so they’re unlikely to fall. The exceptions to that general rule are the places where too many apartments have been built. The greatest killer of property markets across Australia is oversupply and there are sectors of the Sydney metropolitan area which already look precarious, such as Parramatta. It’s notable that developers are now deciding not to proceed with planned apartment projects or are converting to other types of use, such as offices or short-term accommodation. High-rise Harry (Triguboff) has stopped trying to talk up the Sydney unit market and is now admitting that things could go pear-shaped if he and others continue building apartment towers. So, is it all over for New South Wales? Well, no. As I commented for other areas, there’s more to this state than the capital city. And many regional centres in NSW are coming into good growth periods. Newcastle has already shown massive price growth – several of its suburbs have seen their median house prices rise more than 20%, with some as high as 30%, in the past 12 months. It’s too late to get into that market at a good price, but neighbouring areas have potential to catch a Ripple Effect from downtown Newcastle. Examples include the Lake Macquarie LGA, the Port Stephens area and the Hunter Region, which is moving into a solid recovery mode after a few tough years (caused by oversupply). Other NSW regional areas which have already had good growth, but are likely to stay strong, include Wollongong, the Central Coast, the Southern Highlands, Dubbo, Port Macquarie and Coffs Harbour. Further afield, locations less advanced in the cycle and coming into periods of growth include Queanbeyan, Armidale, Wagga Wagga and Tamworth. Queanbeyan will benefit from its links to Canberra. It’s in NSW but it’s essentially part of the Canberra metropolitan area – and more affordable than most ACT suburbs while being closer to central Canberra than many ACT suburbs are.

In conclusion

The Often Forgotten Topic of Rental Growth – And How Vacancies Influence It

Media obsesses over median prices and their growth - and seldom looks at other kinds of indicators about our major property markets. Another core factor is rentals – and figures from SQM Research, run by experienced analyst Louis Christopher, indicate that few of our major cities have delivered much in the way of rental growth. The cities which consistently have the lowest vacancy rates, Canberra and Hobart, are the only cities to deliver strong rental growth, while the capital with the highest vacancies, Perth, has the worst outcome with rentals. Hobart’s vacancy rate fell to a record low of 0.3%. Christopher says it’s now the lowest on record since SQM started recording data in 2005. In Canberra, the vacancy rate dropped to 0.8% in October from 1.0% in September. SQM’s Weekly Rents Index for Canberra is up 13% in annual terms for houses and 5% for apartments. In Hobart, house rents are up 5.4% and apartments rents more than 12%. “In Hobart, the shortage of rental accommodation is the most severe, with just 75 properties available for rent in October,” Christopher says. “This has prompted a record low vacancy rate of 0.3% and higher asking rents, especially for units which were up 7.9% over the month to 12 November.” None of the other cities have recorded rental growth as high as 5%, either for houses or for apartments. Perth, Darwin and Brisbane – the cities with the highest vacancy rates in recent times – all have negative figures on rentals. [post_title] => Property Market Report - December 2017 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => property-market-report-december-2017 [to_ping] => [pinged] => [post_modified] => 2017-12-07 12:22:11 [post_modified_gmt] => 2017-12-07 01:22:11 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=355 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 225 [post_author] => 1 [post_date] => 2017-09-01 15:48:45 [post_date_gmt] => 2017-09-01 05:48:45 [post_content] => By Terry Ryder, creator of hotspotting.com.au

Introduction: Major Change Coming To Markets Around Australia

Property markets around Australia are entering a phase of notable change. Cities that have been leading on price growth have passed their peaks, while some which have under-performed in recent years are now showing better outcomes, and others that have been in decline for local reasons are now showing signs of recovery. This reinforces a persistent theme in these quarterly reports: that there is not one property market in Australia, but many different ones influenced primarily by local conditions. It also reminds us that markets are in a state of flux – not rapidly, as property is a slow-moving creature, but change occurs over time. So now we are seeing adjustments in the pecking order of capital cities, in terms of price growth and the overall condition of their property markets. I noted in the previous report three months ago that “there are growing signs that Sydney and Melbourne will slow down, both Hobart and Canberra are rising, and Perth and Darwin appear to have touched bottom, with hope of recovery”. I also said there are similar evolutions happening in regional markets across the nation”.
The past three months have confirmed those impressions. Sydney is no longer the national leader on price growth, with one research source ranking Hobart No.1 on capital gains over the past year.
Read on to learn more. For analysis of markets nationwide, click on the topics below ...

National Overview

City Property Markets Are Closely Tied To State Economies

There’s no doubt in my mind that there is a strong correlation between these two factors:
  • The strength of state or territory economies; and
  • The performance of property markets in capital cities.
If a state economy is thriving, with jobs being created and infrastructure spending strong, it’s highly likely the capital city of that state will have a strong property market. And if you rank the state and territories from No.1 to No.8 in terms of their economic strength, you will find a close relationship with the rankings of the state and territory capital cities on house price growth. According to the State of the States report published quarterly by CommSec, New South Wales has been the No.1 economy in Australia for several years. Victoria has ranked No.2 (recently challenged for that position by the ACT). Hobart is the rising state, climbing up the ladder in the past couple of years to position No.4 in the national rankings. The Northern Territory has ranked second last and Western Australia last. It’s not coincidence that Sydney has been the national leader on price growth, followed by Melbourne. Recently Canberra, boosted by the improving ACT economy, has been challenging the national leaders on price growth. So too has Hobart, helped by the greatly improved economic performance in Tasmania. Meanwhile, Perth has been the weakest of the capital city property markets and Darwin has been performing almost as badly on prices and rents. In the middle of the pack are Queensland and South Australia, where economic performance recently has been only average – and both Brisbane and Adelaide have delivered only moderate growth in property prices. It should not surprise anyone that this linkage exists between local economic performance and property market outcomes. Economic activity is the engine that drives spending on services, creation of jobs, growth in wages and increases in population. A strong local economy usually involves a high level of spending on infrastructure. Jobs, incomes, population, infrastructure spending – they’re all factors that generate demand for accommodation, both for purchase and for rental. And when market activity rises, prices rise. Before 2013, NSW had experienced a prolonged period of poor governance and weak economic performance. Sydney dwelling prices stagnated between 2003 (the end of the previous boom) and 2013 (the start of latest up-cycle). That represented a decade of under-achievement by Sydney real estate, because the underlying economy was weak and little was being spent on infrastructure in a city that badly needed it. A change of state government in 2011 was the starting point of a new cycle. With stronger governance came an improving economy and a significant increase in infrastructure spending. Today Sydney is alive with major construction projects, including rail links, motorways, hospitals and universities. That activity, and the jobs that have emerged from it, has driven Sydney’s four years of rising property prices. Now, as Sydney’s market inevitably winds down, the challenge for investors is to identify the next economies that will rise and the property markets that will generate rising prices on the back of the uplift. This report will provide some clues.

Adelaide and South Australia

Adelaide Likely To Remain Stalled Until The State Economy Finds Its Mojo

Adelaide real estate has plenty in its favour – it’s been quite busy with sales over the past year or two – but it’s stuck in third gear and unable to build up any serious speed. The key undermining factor is the absence of economic strength. As I commented in the “National Overview”, there’s a significant link between state economic performance and capital city real estate. So it’s not good news for real estate markets that SA business confidence is at its lowest level in four years, according to a recent survey. BankSA’s State Monitor suggests the State Budget has triggered an “alarming” increase in pessimism. For the first time in 20 years, apparently, both consumer and business sentiment are negative at the same time. State pride had dropped to its lowest level since the survey began 20 years ago. BankSA chief executive Nick Reade says a “cocktail of concerns” has contributed to the results, including electricity security (anyone who follows the news will know of the power outages in Adelaide and South Australia) and the proposed State Government bank tax.
Most of the 300 businesses surveyed indicated that the State Budget had made them pessimistic about the short-term future.
Business confidence fell 8.3 points from February to sit at 95.7, on a scale where 100 indicates a neutral sentiment. This was the lowest since May 2013, while optimism about the short-term future was at the lowest since 1998. Reade says few positive factors emerged from the survey. It’s a fairly familiar story. While economic growth and rising populations have helped to push property markets in Sydney and Melbourne, Adelaide seems unable to generate any traction in these critical growth drivers. There are irons in the fire for Adelaide and South Australia. It’s a significant resources state and there are signs of the revival in the mining sector, generally speaking. If and when that takes off, the state economy and Adelaide real estate will respond. There are some big mining projects gestating but awaiting a catalyst before mining executives hit the Go button. Adelaide stands to benefit from big vessel-building projects for the Navy. The frustrating thing for the SA economy is that these ventures are long-term in nature and dependent on government decision-making processes, so don’t hold your breath. There is also a raft of government measures designed to respond to the closure of the Holden car plant in Adelaide and the financial difficulties of Arrium, the biggest employer in the key regional city of Whyalla. But, again, there are bureaucratic procedures to overcome so things won’t happen overnight. In the light of those realities, you can’t get too excited about Adelaide real estate in the short-term. Longer-term the city’s good quality housing stock, affordable prices and above-average rental yields will drive an upturn – once some of those impending economic events provide some impetus.

Brisbane and Queensland

Under-Achieving Brisbane May Improve On The Back Of Jobs Generation

A recent analysis of the Brisbane market commented that the city had under-performed expectations in recent years and that the missing element in the equation was jobs growth. There’s some truth in that assessment – and, if it’s on the mark, we can expect improvement in Brisbane markets in the near future, given the latest official data on jobs creation. As I state in the “National Overview” section of this report, there is a strong correlation between the health of the state economy and the strength of the capital city property market. Queensland’s economy, which traditionally has been towards the top of the national rankings, recently has been a lukewarm performer. The downturn in the resources sector has been a factor in this and the state’s historic status as a leader on population growth has been diluted. Brisbane’s property market has been solid overall, with some individual sectors showing good price growth – but the general trend has been only very moderate growth. The state economy has been under-performing and so too has the capital city property market. Most research sources report house price growth averaging around 3% or 4% per year in recent times. But new data shows two important changes: Queensland is gaining more from interstate migration than any other state and the state is now creating more jobs than any other state. Since the start of 2017, according to ABS figures, Australia has created 202,000 new jobs and 71,000 of them have been in Queensland, well ahead of NSW in second place. This adds to growing momentum in the Queensland economy, helped by growing export earnings, a revival in the resources sector and big spending on infrastructure in the tourism sector. Many analysts and commentators have been expecting solid growth in the Brisbane property market (including me) but to date Brisbane has disappointed, other than in individual pockets which have out-performed. With jobs being created, population growth rising and interstate buyers showing greater interest in Brisbane because of the price differential with Sydney and Melbourne, better things are expected. The most active markets now are the affordable ones in the outer-ring areas of Brisbane: the Moreton Bay Region in the far north, Logan City in the south and Ipswich City in the far south-west. These precincts all offer affordable dwellings, major employment nodes and good infrastructure.
But investors need to be careful about where and what they buy. Some of the Brisbane apartment markets need to be avoided.
There’s no doubt about the status of Brisbane’s inner-city unit market – over-supplied, with high vacancies, and set to get worse – although some entities like the REIQ have tried to deny the undeniable. Further evidence comes from a growing trend of developers offering kickbacks to secure buyers or ensure existing contracts settle. We have also had a dozen Brisbane postcodes named in a blacklist by lender Citi, which includes core inner-city suburbs like Hamilton, New Farm, South Brisbane and Brisbane City itself. Corporate recovery firm Ferrier Hodgson says “crunch time looms” for the Brisbane apartment market, advising financiers and developers to prepare for multiple scenarios. “With all the headwinds facing the apartment sector in Brisbane, we expect prices for new apartments to decline, as will sales volumes for off-the-plan apartments, with settlement risk being a significant concern,” a Ferrier Hodgson report says. The report suggests the inner-city problems are spreading to the middle-ring suburbs. This has been recorded previously by Hotspotting, with vacancies high in a number of middle-ring suburbs, especially north of the Brisbane CBD. Our “No Go Zones” report has said that suburbs such as Albion and Chermside should be avoided as much as the near-city markets. Ferrier Hodgson agrees: “While inner-city areas such as Newstead, Fortitude Valley, West End and South Brisbane will face these pressures, we have heightened concerns for developers and financiers with exposure to middle-ring suburban areas such as Albion, Nundah, Cannon Hill and Chermside where significant apartment projects are completing now and throughout the rest of 2017.” Some developers are offering rental guarantees to lure buyers, a practice used only when markets are weak. The renewed population exodus into South East Queensland isn’t all going to Brisbane. Both the Gold Coast and the Sunshine Coast have been attracting their fair share of the growth. And both areas are generating jobs through the size of their infrastructure spend. As a result, both have busy property markets, with the Sunshine Coast continuing to stand out as a market that’s thriving as its economy transitions to greater strength and diversity. The Gold Coast property market has been busy but, as with Brisbane, buyers need to differentiate between housing markets and the high-rise apartment market. Townsville is Queensland’s comeback market. The current statistics on prices, rents and vacancies don’t look so attractive but the city economy is primed for a growth surge, with multiple large projects set to have a big influence. It’s a market to watch – and one where the buying currently is good, following several below-par years.

Canberra and ACT

Canberra Market Sparks To Life And Starts To Challenge The Price Growth Leaders

Canberra’s recent performance relative to Sydney provides good evidence of my view about “the Australian property market”. Many commentators, especially economists, speak about residential real estate as a single national market with commentary on what will happen to “Australian house prices”. Given the size and diversity of the nation, it should be apparent that this is nonsense. And a comparison of the market outcomes in Sydney and Canberra, only a few hours apart, is a case in point: for most of the four years in which Sydney has been booming, Canberra has been just muddling along. Now, with Sydney past its peak and price growth rates diminishing, Canberra is rising strongly. Two research sources now have Melbourne leading on price growth and Canberra second, with Sydney third or fourth. (As is always the case, other sources disagree, but all have Canberra recording solid to strong growth in prices in the past 12 months). An underlying strength of the Canberra market is its low vacancy rates. It is consistently competing with Hobart as the city with the lowest vacancies – and, consequently, the highest rental growth. Canberra prices and rents generally maintain solid growth because of the way dwelling supply is so stringently controlled by the ACT Government. Land releases never keep up with demand (quite deliberately by the Government, because it maximizes its revenue) and this puts a floor under values and keeps vacancies low. Canberra has no bargain suburbs – even the cheapest locations have median house prices in the $400,000s. Consequently, the Canberra market is one of the steadiest in the nation. It’s a government city so unemployment is usually very low and average incomes are high. With land supply so closely controlled by the Territory Government, it’s a recipe for solid real estate performance. The only hiccups in the market occur when developers build too many apartments – or when a Federal Government seeks to downsize the public service. Both those things happened a couple of years ago, and it took the Canberra market a little time to adjust. Now, having moved beyond those times, Canberra is back to its solid, boring best: strong economy, low unemployment, good incomes, low vacancies, high property values and all the ingredients for price growth.
the Canberra market is one of the steadiest in the nation.
Canberra has emerged as one of the two strongest cities for price growth, as Sydney gradually slips down the ranking lists. Both SQM Research and CoreLogic have published recent data showing that annual price growth is strongest in Melbourne, followed by Canberra. Hotspotting has predicted the rise of Canberra up the price charts, based on our research showing steady increases in sales activity, plus other evidence showing improvements in the ACT economy. Both Domain and SQM Research record vacancies below 2% in Canberra, which maintains the city’s status as one of the two tightest rental markets in Australia (the other is Hobart). “Available rental accommodation in Hobart and Canberra remains scarce, with the lowest house vacancy rates of all the capitals at just 0.5% and 0.8% respectively,” says Domain chief economist Andrew Wilson. According to SQM Research, the median weekly rent for Canberra is $558 for houses and $412 for apartments.

Darwin and the Northern Territory

Darwin Still Bogged In Downturn, Despite Agency Efforts To Talks Things Up

Whenever a market is mired in downturn, the local real estate industry works overtime to talk up the market. There will be frequent bulletins advising that the worst is over and recovery signals are popping up everywhere. In their worst moments, they’ll tell you to get in quick before prices rise. This pretty much describes the scenario in Darwin at the moment. The latest press release from the Real Estate Institute of Northern Territory portrayed a vibrant market with spectacular rises in sales activity, with price growth imminent. They are, of course, kidding themselves - and consumers. The reality for Darwin is a depressed market, with rents down and prices still falling. The Darwin market needs something strong and positive to happen in the Northern Territory economy. There needs to be some big projects happening, generating jobs and demand for real estate. The recent Territory election brought in a new government but to date the new regime has not been able to generate any economic excitement. It has increased incentives for home-buyers but that doesn’t appear to have regenerated the market (and you wouldn’t expect it to, when the underlying economy and jobs market is weak).
The reality for Darwin is a depressed market, with rents down and prices still falling.
The Chief Minister recently appealed to resources industry executives to stop using fly-in-fly-out personnel and hire more local people, a move that smacked of desperation – and futility, given that mining companies will do what works best for them financially. Failing government incentives, they’re not going to change their practices to do the local economy a favour. In this report three months ago I wrote: “Ultimately it’s about the local economy. Something big needs to happen to re-generate economic activity, jobs and demand for real estate. Incentives to first-home buyers can’t do all the heavy lifting.” Not much has changed. And so the Darwin property market remains weak. According to the latest figures from CoreLogic, Domain and SQM Research, Darwin prices are still falling, both for houses and for apartments. Keep watching this space, but don’t expect rapid change.

Hobart and Tasmania

Hobart Is Hot, With Rapid Rates Of Sales And Strongly Rising Prices

Recently I challenged the audience at a Sydney property investment seminar to nominate the city they thought had the hottest market in Australia. The various suggestions from the floor included Sydney, Melbourne, Canberra and Brisbane. But the answer I was looking for was … Hobart. Of course, it depends on the parameters and measures you use, but the market with the greatest upward momentum is Hobart. And the city with the fastest-selling suburbs in Australia is, again, Hobart. And Hobart is now challenging the big cities on price growth. For the past few years, it’s been Sydney first, Melbourne second and daylight between them and the rest. More recently, Melbourne has overtaken Sydney and Hobart is rising. One research source, in their latest figures on price growth, has Hobart third among the capital cities. And the latest figures from CoreLogic have Hobart No.1 – both for house prices (up 14% in the past 12 months) and for apartment prices (up 11.7%). This reflects the busy and vibrant nature of the Hobart market. Three months ago I wrote: “Research figures for days on market suggest than homes in some Hobart suburbs are selling within 10 days, on average, including inner-city suburbs like New Town and South Hobart as well as more distant, cheaper locations like Moonah and Warrane.” Hobart remains busy. But it’s not just about the capital city – there’s general vibrancy in markets across the state. The Tasmanian real estate market is on track to reach $4 billion worth of home sales this year, eclipsing last year’s record of $3.1 billion. In the first half of 2017, 5,782 sales were recorded, setting Tasmania on a path toward 11,000 housing sales, a result not achieved in more than a decade. The Real Estate Institute of Tasmania’s June Quarter report shows the strong results have spread outside of Hobart. There were 2,896 sales in the three months to June, with a gross value of $989,629,768, up 10 sales on the previous quarter. Median prices increased across all regions with Hobart at $430,000 (up 4.9% for the quarter), Launceston $292,000 (up 4.3%), and the North-West $249,000 (up 4.2%). REIT president Tony Collidge says the transformation in Tasmania’s market results from a shortage of properties for sale and rent, coupled with an increase in population and positive economic conditions. The regeneration of the state economy follows a similar story to that in NSW – a state election in 2014 brought in a new government with a strong mandate and economic growth, well above average for the state, has been the result. A rise in spending on new infrastructure has been a significant contributor.

Melbourne and Victoria

Melbourne Still Vibrant, Boosted By A Strong Economy and Population Growth

There’s plenty of evidence supporting the view that Melbourne is a great city with a strong property market, underpinned by a solid state economy and the strongest population growth in the nation. So it’s no surprise, really, that Melbourne is now the price growth leader – according to some research sources. SQM Research, for example, says that annual price growth is strongest now in Melbourne, followed by Canberra. CoreLogic has Hobart No.1, with Melbourne close behind. Sydney, slowly but steadily, is slipping down the rankings list. The most bullish figures for Melbourne come from SQM Research. Its Asking Prices Index has Melbourne up 23% in annual terms for houses and 12% for apartments. This is underpinned by the strength of the Victorian state economy, which has ranked as No.2 in the nation (behind NSW) for several years. Also important is the rate of population growth for the state and for Melbourne – the strongest in the nation, boosted primarily by overseas migration into Melbourne. More evidence of the strength of the economy and property markets comes from this: Victorian householders are among the nation’s best at paying their home loans, with the state recently recording a decline in delinquent mortgages. The proportion of Victorian mortgages more than 30 days in arrears fell 0.02 percentage points to 1.1% in May, according to figures from ratings agency Standard & Poor’s. It meant the state outshone the nation, which recorded a delinquency rate of 1.21%, unchanged from April. All this is consistent with Hotspotting’s quarterly research into sales activity. Melbourne’s market is past its absolute peak, I believe, but remains very resilient, with strong sales across the metropolitan area. But the strongest activity is now in the outer-ring suburbs – the cheaper areas on the fringes – which is evidence that this cycle has almost run its course. Melbourne’s growth has rippled out into the regions of Victoria, especially towns and cities within commuting distance of the capital city. So I’m not surprised at Real Estate Institute of Victoria figures showing rising sales activity and faster sales rates in many locations in regional Victoria. Homes in regional areas took a median of 55 days to sell in June, 11 days fewer than the same period last year. REIV data suggests homes in several regional towns sold faster in June, with the median days on market falling by double digits over the year. The fastest-selling locations include Waurn Ponds (22 days on market), Corio (27 days), Lara (29), Belmont (29) and East Geelong (29). All these locations are part of the City of Greater Geelong LGA, which has featured prominently in Hotspotting reports in the past two years. Another of the improvers, Cowes, is part of the Bass Coast LGA, recently included in our Top 5 Regional Victoria Hotspots report as a growth market. Other busy markets include Macedon Ranges Shire a little north of the Melbourne metropolitan area (towns like Gisborne, Kyneton, Woodend and Romsey); Mitchell Shire, also on the northern fringes of Melbourne (towns such as Kilmore, Wallan, Seymour and Broadford; and Cardinia Shire in the far south-east (including the towns of Pakenham and Officer).

Perth and Western Australia

Clear Signs Of Market Revival As Perth Moves Past The Bottom Of The Cycle

I have been watching the Perth market closely to determine the optimum time to buy there. The best time to buy in any market is when the market is at the bottom of the cycle (most investors act when they read that a boom is happening) and Perth has been approaching that point. The waters have been muddied by the agency industry making frequent claims over the past few years about impending recovery without hard evidence to support the claims. Now, however, we feel confident that the Perth market is over the worst and is beginning a long-awaited recovery. The Western Australia economy is again creating jobs in significant numbers and there are signs of sales activity reviving in the Perth housing market. There is a long way to go, but the indicators suggest the market is past the bottom of a deep trough, after four tough years. As we have commented previously, the hardest task in Hotspotting is identifying credible future hotspots in the Perth market. Four years of decline in dwelling prices and rentals, coupled with high vacancies right across the metropolitan area, mean there are few markets with strong real estate statistics currently. Thanks to a weak state economy, Perth has had the weakest market among the capital cities, with the highest vacancies and greatest price decline. But Hotspotting is about identifying the opportunities for future growth, sometimes in defiance of the existing market situation. So, any consideration of investment in Perth needs to be approached from a visionary perspective. The current situation represents opportunity for investors taking a long-term view. When a market is down, there’s a tendency to forget history. Perth traditionally has been one of Australia’s strongest city markets, with a good record on long-term capital gains, underpinned by nation-leading population growth and a strong state economy. It’s a volatile economy and property market, because of the influence of the highly-cyclical resources sector. There’s a tendency towards sharp rises and steep falls. Perth has been in its current situation before and will recover. We think now is a good time to be looking in Perth for bargains, with an eye to the next upward phase. In the current real estate cycle, Perth was the first capital city to get on a roll, alongside Darwin. That was in 2011 and 2012, ahead of the rise of Sydney which has so captivated the media since 2013. This is not an unusual scenario: WA has often been a national leader on economic and population growth, and Perth has often led the nation on house price growth. And the beginnings of the fight-back towards stronger times are now under way. I am now finding sections of the Perth market where sales activity is growing again. Areas leading the revival include the Joondalup and Wanneroo LGAs in the north of the Perth metropolitan area. The current situation represents opportunity for counter-cyclical investors to buy at low prices ahead of recovery. There are also signs of life in some of the regional markets – although I urge extreme caution for any investor considering markets strongly aligned with the resources sector. They include the key Pilbara regional centres, Port Hedland and Karratha. Both were greatly affected by the wind-down in the resources investment boom, with median prices now a fraction of their peak levels. The latest figures from the REIWA tend to support earlier Hotspotting analysis that sales activity is improving in these locations, although prices still remain well below the boom-time heights. REIWA reports there were signs of recovery in the Pilbara region in the June 2017 Quarter, with preliminary data showing Port Hedland and Karratha experienced positive results in key market indicators. Landgate data shows sales transactions in Port Hedland increased 18% in the June Quarter, while the median house price in the Karratha Urban Area lifted 7% to $300,000. REIWA President Hayden Groves says Port Hedland and Karratha had faced “their share of challenges” as a result of the slowdown in the resources sector, but signs of strength were emerging. “In Port Hedland, transactional activity improved across most price ranges, with the biggest spikes occurring within the $150,000 to $500,000 range,” says Groves. “Despite the increase in activity, Port Hedland’s preliminary median house price did soften in the June quarter to $220,000, which can be attributed to a reduction in sales in the over $600,000 price range.” The median price for Port Hedland topped $1 million at the peak of the boom, so there’s been quite an adjustment. So, while these markets have a long way to go, there are indications that the worse may be over.

Sydney and New South Wales

Sydney Market Not As Strong As The Numbers Reported In Media Would Suggest

If you can believe the statistics reported in mainstream media, Sydney real estate is still pumping. The thing is, you can’t believe them. The main data reported by media on Sydney property consists of growth in median prices and auction clearance rates. Both fit my definition of dodgy data. All real estate statistics are rubbery figures to some extent, but the dodgiest data of all are the auction clearance rates published weekly by newspapers and other media outlets. The clearance rates figures compiled by research entities for media consumption are dependent on the reliability and honesty of the agents running auctions. Many auction results are not reported by the agents, especially the ones that fail. Recent research shows more and more auction results are not being reported, as the market weakens. If all the unreported failed auctions are included in the figures, the reported 70% clearance rate is likely to drop to less than 60%. Even allowing for rubbery figures, the numbers describing the Sydney market are gradually weakening. CoreLogic has Sydney now ranked third on price growth, while SQM rates Sydney fourth. Melbourne, Hobart and Canberra are all starting to overshadow Sydney. So, after leading the nation on price growth for at least three years, Sydney is dropping down the ranking lists. Sydney’s market remains quite solid and I don’t expect any significant price decline. But the boom is steadily fading and is most evident when sales activity is examined: sales volumes have been decreasing across Sydney throughout 2016 and 2017 - and, as the Price Predictor Index published by Hotspotting shows, there are now very few suburbs in the Sydney metro area with rising activity. Media will continue to shout about the boom and to publish inflated data on clearance rates, but the reality is that the party is over and markets are gradually winding back to more normal times. The key factor buyers need to be aware of is the growing number of “danger markets” in Sydney. These are largely apartment markets where supply is rising at a time when demand is weakening. There are numerous locations in metropolitan Sydney where sales volumes have dropped markedly. While Sydney generally has quite low vacancy rates, some of these apartment markets are exceptions, with rising vacancy rates. The markets to avoid include the precincts around Parramatta and Sydney Olympic Park, as well as some of the apartment-oriented suburbs between the Sydney CBD and the airport. I’m not alone in thinking so. A number of major lenders (including AMP Capital, NAB and Citi) have published lists of locations where they are reluctant to lend and require buyer deposits that are well above average. Recently Citi announced a list of areas across Sydney where property buyers will need a 35% deposit to obtain finance to buy apartments. Citi’s list of “blackspots” included 34 Sydney postcodes – such as the area around Sydney Airport, Parramatta, Chatswood, Zetland and Sydney Olympic Park. These are all locations discussed in recent editions of the No Go Zones report published by Hotspotting. Other prominent Sydney regions on the list were Haymarket and Ultimo in the Inner City, parts of the Hills District, Ryde and Strathfield. Sydney currently doesn’t have high vacancy rates but that could change in the some of these apartment zones. Sydney has by far the longest pipeline of new unit projects along the major cities. Charter Keck Cramer forecasts 25,500 apartments will be completed in Sydney this year, compared to 17,090 in Melbourne and 10,300 in Brisbane. Outside of Sydney, there’s lots of life in markets across regional NSW. Cities close to Sydney – such as Newcastle and Wollongong – continue to have busy sales activity, but there are growth markets stretching from Wagga Wagga in the far south to the Tweed region in the far north, and out west to regional centres such as Orange, Dubbo, Tamworth and Armidale.
Indeed, there are now more growth markets in regional NSW than there are in Sydney.
The common factor of the regional centres mentioned are strong and diverse economies, growing populations and good spending on infrastructure.

In Conclusion

Forget Sydney and Melbourne: Focus On Some Of The Smaller Capital Cities

The general theme of this edition of the Quarterly Market Report is that major property markets are tied to local economic performance – and the landscape is changing. So where should real estate investors be focusing their attention?
The answer is: much less on Sydney and Melbourne, and considerably more on Hobart, Canberra, Brisbane and Perth.
Both the ACT and Tasmania have improving economies - and Canberra and Hobart are showing increasing signs of growth in their real estate markets. The two major resources states, Queensland and Western Australia, are also showing strong signs of improvement. Since the start of 2017, Queensland has created more jobs than any other state or territory, and WA has also lifted its game on jobs creation. For those and other reasons, I expect better real estate performance to emerge in both Brisbane and Perth. Just steer clear of the inner-city apartment markets in both places. [post_title] => Property Market Report - September 2017 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => property-market-report-september-2017 [to_ping] => [pinged] => [post_modified] => 2017-12-06 16:19:42 [post_modified_gmt] => 2017-12-06 05:19:42 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=225 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 271 [post_author] => 1 [post_date] => 2017-06-01 17:24:22 [post_date_gmt] => 2017-06-01 07:24:22 [post_content] => By Terry Ryder, creator of hotspotting.com.au

Introduction: As We Approach A New Financial Year, Where To From Here?

Property markets undergo change, waxing and waning depending on local economic and political conditions. The change is not rapid, but develops gradually over years. As we approach the end of the 2016-17 financial year, it’s clear that major markets are evolving. Those that have been strongest are showing signs of moderating. Some that struggled in recent years appear to be through the worst of their down cycles, with hope for upswing. And others which have been moderate performers in recent years are starting to surge. It all reinforces a key factor that real estate consumers need to keep in mind: that we do not have a single, homogenous real estate market in Australia. We have many individual markets, which behave according to local (rather than national) conditions. Genuine nationwide property booms are quite rare in Australia – and, while economists would have us believe otherwise, we have not had a national boom in recent years. While Sydney has been raging and Melbourne has recently joined in, both Perth and Darwin have been going backwards and most other capital cities have been lukewarm in their performance. Now, as there are growing signs that Sydney and Melbourne will slow down, both Hobart and Canberra are rising, and Perth and Darwin appear to have touched bottom, with hope of recovery. There are similar evolutions happening in regional markets across the nation. Read on to learn more. For analysis of markets nationwide, click on the topics below…

National Overview

How To Avoid Being Misled By The Constant Media Misinformation

I fear for Australians trying to make their way in real estate. In any field of endeavour people can't make good decisions unless they have quality information. And when it comes to residential real estate, that's difficult to achieve. In the real estate industry, most of what purports to be information is in fact misinformation. It's difficult to imagine an industry where there's more dodgy data and bad analysis than residential real estate. In simple terms, this is caused by the state of journalism. Whenever major media organisations like News Ltd and Fairfax feel a need to cut costs, they sack journalists. They've been doing that for years, because they can't figure out how to make money from news in an increasingly digital world. The constant reduction in journalist numbers has meant a steady decrease in the quality of news. The content keeps getting worse. The relatively few remaining journalists no longer have the resources to their jobs well - or even half well. When I was a real estate editor for publications like The Courier-Mail and the Australian Financial Review, publishing a press release (which is a piece of propaganda from someone) was a sacking offence. Now publishing press releases is the norm. Most - and I do mean most - of the news content about real estate in major newspapers and other media outlets today comprises recycled press releases. The checking and challenging that used to be standard procedure in journalism no longer occurs. Anyone seeking to achieve free publicity can exploit this by providing neatly-packaged material that makes the job of under-resourced journalists easy. If you can dress it up as "research" or as a "report", no one in media will ask any difficult questions - they'll just publish it as fact. The result is the great seething mass of misinformation that dominates coverage of residential real estate. This is exacerbated by the reality that most of the people writing real estate articles (or, more correctly, recycling press release material as news) know little about the subject. Sometimes the material they're recycling is nonsense, but they don't realise because they lack expertise.
All of the truly successful property investors I know have this in common: they treat investment as a business.
As a further escalation of the misinformation process, the few journalists who seek comment on a real estate subject often seek the views of non-experts - e.g. economists, who collectively have a staggeringly bad record on understanding residential property. Readers might imagine that material on real estate printed in major publications like The Australian or the Sydney Morning Herald has credibility, but the sad reality is that the big-name papers are among the worst disseminators of misinformation on real estate. So, what can you do, given the circumstances? Here are some tips on how to access real information and avoid the misinformation channels.
  • Stop reading newspapers. Just stop. Otherwise, you're filling your head with misinformation and negativity.
  • Stop searching for free media news feeds. Most of them (not all) are free because they're worthless. The news feeds from property media comprise mostly press releases from real estate agents and developers. The useful information content is usually zero.
  • Learn to distinguish real experts from pretenders. Economists are not real estate experts. I'm still waiting to meet an economist who understands residential property. The ratings agencies like Standard & Poor's and Moody's are not experts in Australian real estate either. Neither are television talking heads like Alan Kohler and Graham Richardson.
  • Ignore anyone who talks about "the Australian real estate market" or what's happening with "Australian property prices". Anyone who treats the nation as a single market, ignoring the vast regional differences, is a fraud.
  • Real experts are relatively few in number but they're out there and, when you find them, get on their mailing lists.
  • Genuine real estate experts include Louis Christopher, who runs the SQM Research website, which provides lots of useful information about prices, rents, vacancies, stock on the market and demographics.
  • Professional Property Advisory provides quality, research-based advice to real estate investors.
  • Brisbane-based Simon Pressley, who runs a business called Propertyology, does a lot of real estate research and is worth listening to.
  • Be willing to pay for quality information and advice. The proposition of many investors is that they're willing to pay $500,000 for real estate, but they won't pay $50 for a research report, or $500 for an independent valuation and they certainly won't pay $5000 for top-notch advice. If you think like that, you're in serious trouble.
All of the truly successful property investors I know have this in common: they treat investment as a business. They surround themselves with quality advisers, they pay for quality research information and they ignore the white noise in mainstream media.

Adelaide and South Australia

The Market That Not Even South Australians Want To Know About

It's hard to get anyone interested in Adelaide. Even South Australians don't want to invest there. At Hotspotting, we once published a South Australian Hotspots report but no one bought it, not even the locals. You can't blame them, I suppose, because the numbers are never flattering. We recently had official data published on unemployment which showed that, while the national jobless rate fell from 5.9% to 5.7%, the SA rate rose to 7.3% - the worst in the nation by a considerable margin. South Australia seldom ranks well in economic analysis reports like CommSec's State of the States quarterly report. In the latest edition, SA ranked seventh (second last) overall, with only the depressed Western Australian economy ranked lower. But there are areas in which the state does well. It led the nation on monthly retail trade, up 3.8% ahead of Queensland and NSW. And CommSec chief economist Craig James says the SA economy has the potential to lift over the coming year. Another quarterly report released recently by Deloitte Access Economics singled out retail, hospitality, wine and agriculture as standout industries in SA. Conversely, it found housing construction and population growth to be key areas of particular concern. On the issue of energy, Deloitte described supply disruptions, measured in terms of the impact on the "average business", as "annoying rather than substantial".
So overall the prognosis for SA is lukewarm, but there is hope.
So overall the prognosis for SA is lukewarm, but there is hope. And, against that generally unflattering background, the Adelaide property market has been travelling quite well. There has been above-average sales activity over the past two years and some precincts have delivered good price growth (although the generalised figure that describes the whole city is usually just 3% or 4% growth in annual terms). When median price changes are examined on a suburb–by-suburb basis, there are quite a number which have recorded double-digit rises in the past 12 months, although 7-8% is more common. There is growth to be found in the Adelaide market, if you know where to look. There's not much to talk about in SA real estate outside of Adelaide, but there is (potentially) an exception emerging with Port Augusta. Recently I wrote this about the regional town: "Sometimes the locations we recommend surprise some people. Often this is because the suggested markets are currently in a slump and the statistics that chart prices or vacancies are poor. But at Hotspotting we seek to nominate the future growth areas ahead of the market upturn. And we don't let the current situation deter us, if we see recovery and a stronger situation in a location's future. The South Australian regional centre of Port Augusta is a good example. This town is currently in an economic slump and property prices have fallen. But the future looks much brighter, so we have included Port Augusta in the latest edition of our National Top 5 Boom Towns report. If just a third of the major energy projects targeted on this strategically-located town proceed to construction, Port Augusta will indeed become a boom town."

Brisbane and Queensland

Vacancy Rates Are A Worry, But Brisbane Deserves Plenty of Investor Focus

The predominant story about Brisbane real estate is the high vacancy rate and general oversupply in the inner-city areas. And this is true, as I noted in the previous edition of this report three months ago, when I wrote: "Independent vacancy data from SQM Research shows that vacancies continue to be extremely high. The Brisbane CBD and all the near-city suburbs, including South Brisbane, Fortitude Valley, Kangaroo Point and Woolloongabba, have vacancies in the 5-6% range. "They will inevitably worsen, with more high-rise projects coming out of the ground." And I also made this point: "Not only does central Brisbane have high vacancies but the disease has spread to some of the middle ring suburbs, with small and medium-sized developers building too many units and townhouses in locations such as Albion, Kevin Grove and Chermside. Investors are advised to check vacancy rates on the SQM website and also to check building approvals data, which can provide a clue to future oversupply." This situation means the overall vacancy rate for the Brisbane metropolitan area has risen from 2.8% a year ago to 3.3% now. This is not to say that people should stay out of the Brisbane market. Most precincts have moderate vacancies and Brisbane overall has good prospects for solid growth – it's just that those key (mostly inner-city) areas have inflated the overall figure.
There is also a rising tide in some of the regional Queensland economies.
Indeed I believe Brisbane is one of the markets to consider most strongly, with Sydney and Melbourne beyond their peaks. I expect to see steady improvement. This is based on emerging evidence of impending improvements in the Queensland economy and a growing list of major Brisbane infrastructure projects soon to start. The more affordable areas in the outer ring suburbs are the ones with the greatest momentum, including the Moreton Region in the far south, Logan City in the far south, and Ipswich City in the south-west. There are also busy markets in the Redlands LGA in the east. There is also a rising tide in some of the regional Queensland economies. The resources sector has renewed confidence and previously-mothballed projects have been revived. There is a growing number of alternative energy projects in the pipeline, including wind farms and solar power plants. Regional centres that have struggled in recent years are on the way back, headed by Townsville and including also Rockhampton and Mackay. Boom-bust city Gladstone has some prospects of recovery, after 3-4 tough years. Meanwhile, the Gold Coast and the Sunshine Coast continue to thrive, boosted by vibrant economies and major spending on infrastructure and other construction projects. But if you're attracted to the Gold Coast be very cautious. I've written this many times, but it's worth repeating: the Gold Coast market is a tale of two cities – the coastal highrise market (to be avoided at all costs) and the inland housing market (the genuine residential market where real people live and work in the region, creating a market that often shows growth).

Canberra and the ACT

Canberra Market Scores Highly On Vacancies, Rents and Price Growth

Canberra's housing market is travelling well at present, after bursting to life quite recently. For most of the past four years Canberra has been oblivious to the boom in Sydney just up the road, with very moderate performance in sales activity and prices. But recently there has been an uplift. The city took time to deal with a couple of issues: downsizing of the public service by the Federal Government and an oversupply of apartments. Those matters appear to be now out of the system and vacancies are low – indeed, among the capital cities, only Hobart has a lower vacancy rate. According to the latest report from SQM Research, the vacancy rate for Canberra is now around 1%, having been below 1.5% for the past year. And SQM also accredits Canberra with the best growth in residential rentals. According to the Weekly Rents Index, rents in the past year have increased 9% for houses and 6% for apartments, which is the best overall performance by any capital city.
Generally, the Canberra market is one of the steadiest in the nation.
The city is also delivering a solid performance on prices. It's taken a while for Canberra prices to respond to improved local conditions, but the latest figures for annual growth in house prices include 10.7% (SQM), 10.4% (Domain) and 8.7% (CoreLogic) – so there is general agreement among the major research sources that the Canberra market is chugging along quite nicely. Generally, the Canberra market is one of the steadiest in the nation. It's a government city so unemployment is usually very low and average incomes are high. And land supply is closely controlled by the ACT Government. All those factors tend to keep property values high. The Government drip-feeds residential land to the market (demand for each meagre land release always exceeds supply), which means people are paying very high prices for tiny blocks of land. This maximises revenue for the Territory Government, which clearly doesn't care too much about affordability issues.

Darwin and the Northern Territory

Still Waiting For A Catalyst To Re-ignite Growth In The Darwin Market

There's not a lot to say about the Darwin market that's new. The market has been in decline for the past four years, having previously been one of the strongest in the nation, boosted by the resources boom and especially the $30 billion Inpex project. During the up period, developers built too many apartments and that helped to drag down the market, once the resources boom subsided and the Inpex effect had worked it way through the economy and the property market. There's been several years of high vacancies, falling rents and declining prices. More recently there have been signs that the worst is over, giving rise to hope for recovery. Vacancies have contracted to almost acceptable levels and some research sources are publishing numbers that suggest the decline in prices and rents has slowed down.
there have been signs that the worst is over, giving rise to hope for recovery
Meanwhile, there is hope that the new Territory Government will inspire revival, with incentives for first-home buyers leading the way. The grants and stamp duty concessions are among the most generous in Australia. A recent report suggested that 90% of land sales in some residential estates are being made to first-time buyers. That will eventually ripple through the broader Darwin market. But, as I commented in this report three months ago, ultimately it's about the local economy. Something big needs to happen to re-generate economic activity, jobs and demand for real estate. Incentives to first-home buyers can't do all the heavy lifting.

Hobart and Tasmania

Hobart Homes Selling Faster Than Anywhere Else And Prices Are Rising

Where in Australia are homes selling the fastest? It might surprise many people to learn that the answer is not Sydney or Melbourne, but Hobart. According to one research source (and I stress this, as other sources often provide different results on all manner of statistics) various suburbs of Hobart are selling houses faster than anywhere else, although some of the Melbourne suburbs are close behind. CoreLogic figures for days on market suggest than homes in some Hobart suburbs are selling within 10 days, on average, including inner-city suburbs like New Town and South Hobart as well as more distant, cheaper locations like Moonah and Warrane.
Increasing numbers of investors are realising the value proposition presented by Hobart
This does not surprise me because all my research indicates a very strong market in Hobart and my regular discussions with professionals in the Tasmanian capital confirm that property is turning over rapidly. Increasing numbers of investors are realising the value proposition presented by Hobart: among the capital cities it has the lowest prices, tightest vacancies and highest rental yields. All you need to believe is that the market will deliver growth. And, if there's something that the various research sources generally agree on, it's the level of house price growth in Hobart: SQM and Domain both suggest it's around 12% in annual terms, while CoreLogic says 13%. This is happening on the back of greatly improved economic performance. In CommSec's first State of the States quarterly report for 2017, Tasmania - for so long the basket case economy among the states and territories - was elevated from 7th to the 4th-ranked economy in the nation - ahead of Queensland, WA, SA and the Northern Territory. It retained that ranking in the most recent report. There's more to Tasmania than just Hobart - and the Launceston market is even more affordable than Hobart. Launceston's solid local economy will be further boosted by the Launceston City Deal, signed by three levels of government in April 2017. The five-year plan of infrastructure spending includes a $260 million university campus project.

Melbourne and Victoria

Melbourne Currently Leads, But Its Days On Top May Be Numbered

Right now Melbourne is the hottest market in capital city Australia. I see it as more buoyant than Sydney and some research sources have its annual growth rate for house prices above Sydney's (although other sources out there in dodgy data land have Sydney still leading). Vacancies overall are low and it all looks strong. But, at Hotspotting, we're more interested in the future than the present or the recent past (that's what sets us apart from most other property research entities). And a number of indicators suggest that Melbourne's strong run of price rises may be nearing an end. Performance Property Advisory, a real estate company I respect because of their strong research-based approach to what they do, says in a new analysis that the key indicators suggest that Melbourne is now coming to the end of its growth cycle. Indicators which point to a moderation in price growth include the firm's affordability index, the level of rental yields, the high price growth in the past three years relative to longer-term trends and a decline in the influence of foreign investors. Director David McMillan says: "From an investment point of view, Melbourne is showing all the signs of a market running out of steam." He says the firm's Affordability Index (AI) is currently sitting at 43% and historically the Melbourne market has struggled to grow past this point. "Properties become unaffordable in Melbourne when the market's AI rises to around 45%," he says. "Melbourne's AI is hovering around the 43% mark, indicating that properties are approaching a natural ceiling. The most likely outcome is a low-growth environment over the next 2-3 years."
From an investment point of view, Melbourne is showing all the signs of a market running out of steam.
McMillan says that from 2009 to 2016, incomes rose approximately 15% while house prices rose 79%. "The out-performance of house prices against incomes is, in our view, unsustainable and this is a negative for future price growth in Melbourne," he says. "It is clear that the three-year price movement is well above trend at 12.96% per annum. On that basis it could be said that the Melbourne market is likely to slow down in the short term." McMillan also notes that Melbourne has the second lowest yields among the major cities, with only Sydney lower. "Due to an out-performing median house price, we have seen yields progressively deteriorating, which is a negative for both investors and first-home buyers," he says. But price decline is not expected, as there are counter-balancing positives for the Melbourne market. They include a high level of proposed infrastructure spending by the federal and state governments, the low rate of unemployment, relatively low levels of stock for sale, a low "Days On Market" indicator, and strong levels of population growth (both existing and projected future rises). "Victoria has gone from being a loser from Net Interstate Migration in the 1990s, to a fairly neutral position during the 2000s, to being a winner since 2010, which has been a key factor of the price growth we have seen since 2009." Another factor observed by Hotspotting is that the strongest markets in the Melbourne metropolitan area are now all out on the fringes. Homes are selling fastest in the outer ring suburbs in local government areas like Casey in the far south-east and Melton in the far west. When the cycle has moved to the point where the fringe areas are the strongest markets, you know the upturn is nearing its end. So, with Melbourne expected to pass its peak soon and gradually wind down, where do investors turn for growth? As it happens, they don't have to travel very far from the city. Four local government areas worthy of mention are all within commuting distance of the capital city. I often speak about Geelong but it warrants further mention as currently it's the strongest market, boosted by a buoyant local economy which is un-fazed by the closure of the Ford motor plant. I have previously noted the upturn in activity and prices in Macedon Ranges Shire a little north of the Melbourne metropolitan area. Towns like Gisborne, Kyneton, Woodend and Romsey have all caught the wave from Melbourne, as buyers seek affordable lifestyle alternatives linked by road and rail to the big city. And I have also discussed Mitchell Shire, also on the northern fringes of Melbourne, where towns such as Kilmore, Wallan, Seymour and Broadford have become busy markets. Their median house prices range from $280,000 to $360,000 and rental yields above 5% are achievable, so they look attractive to city buyers. More recently, a key area just beyond Melbourne's urban area in the far south-east that has attracted my attention. Cardinia Shire now ranks in my National Top 10 Best Buys report, because most of its key towns have experienced a big upturn in sales activity, with prices starting to respond. The biggest population centres are Pakenham and Officer – and both have busy markets with steadily increasing sales activity. Locations like Pakenham and Koo Wee Rup have had 7-8% rises in median prices, but Officer is up 23% in the past 12 months (although we urge caution because median price figures can be rubbery). Rental yields are generally in the 4.5% to 5% range.

Perth and Western Australia

The Land Of Opportunity, From A Long-term Perspective

Most investors are herd animals. They like to follow the pack, feeling safety in numbers, so they tend to buy in markets that have already risen a lot. The more enlightened approach is to buy in markets before they rise. Easier said than done, of course, but those who understand market forces can achieve it. The clients of Performance Property Advisory (to whom I have referred a number of times in this report, because they are researched-based people who give sensible advice to investors) were buying in Sydney in 2012 and 2013, ahead of the price boom. One possibility for investors is to buy in markets that have traditionally been strong performers but are currently on a downer. All markets have down phases, even the strongest. It's worth remembering that Sydney had 10 years of under-achievement before beginning its current strong run four years ago – and only the smartest observers knew it was about to take off in 2013. Equally worth remembering is that Perth was a national growth leader before lapsing into the current downturn. And that the Western Australian economy, currently ranked 8th and last by the CommSec State of the States report, has often in the past been No.1 in the nation. Perth has been a leader on population growth, though currently the statistics are weak.
Perth has been strong in the past and will be again.
In 2012 and early in 2013, Perth and Darwin were competing for the title of No.1 growth city on prices and rents. It's easy to forget all that, with Perth now four years into a market downturn, undercut by the sharp decline in the state economy since the resources investment boom waned. The moral of this story? Perth has been strong in the past and will be again. And right now, after four years of declining prices, there are opportunities to buy well in this market, ahead of recovery. Currently investors can buy at low prices without strong competition from other buyers. The optimum time to do that is near, I believe, as there is mounting evidence that the Perth market is at or near the bottom of this cycle. I would concentrate on areas likely to benefit from new infrastructure spending, especially locations that offer affordability. The Forrestfield precinct near the airport will benefit if the proposed rail link to the airport goes ahead. A key factor to observe is the decision-making of the newly-installed State Government. The status of some of the proposed infrastructure projects is uncertain and some proposed projects may be scrapped or deferred. Investors should be aware that finding a tenant at a decent rental is not so easy at the moment, because vacancies are high right across the metro area. Vacancies in the 5% to 7% range are common. Those seeking to buy well in Perth should avoid the inner-city apartment market, which has the highest vacancies – and they'll get worse because of major new unit developments now under construction, with more in the pipeline. Marketing people in some of the resources-related regional areas are starting to talk up their home markets - e.g. recovery is under way, buy now before prices rise, etc. While I see signs that the worst may be over for locations such as Port Hedland and Karratha, I would proceed with caution. It continues to be ugly for these regional centres. The REIWA recently reported the Port Hedland median house price as $262,000, which is a distant whimper from the days of $1.2 million. Karratha was given a median house price of $265,000, when it was around $800,000 in the glory days of the resources investment boom. Unless you enjoy volatility and risk I would stay out of these markets permanently.

Sydney and New South Wales

Now Is The Time To Switch Focus To Strong Regional Markets

I can't see any rationale for investing in Sydney now. Only the FOMO syndrome would compel investors to buy in a market that has shown strong price growth for four years. Many of the statistics published in media about the Sydney market are highly misleading. Auction clearance rates are arguably the most dodgy data in real estate and the house price growth figures most often published - those of CoreLogic - have been discredited by the Reserve Bank as being inflated, with other reputable sources producing much lower growth figures. The official data on sales volumes show that sales activity has been dropping steadily since 2014 and Sydney now has markets that I categorize as “danger” markets. These are mostly apartment markets where supply is rising at a time of diminishing sales activity. There are also many markets where sales volumes have dropped markedly from the peak levels of 2014/2015. Most of the key trends are heading in the wrong direction. However, I don't expect any major price decline. Most of the factors that inspired Sydney's boom - the strong state economy, the massive spending on infrastructure, strong population growth, the lack of ample supply in many markets, etc - are still in place.
It's time now to turn your attention to regional New South Wales.
The negative factors - the affordability equation, the reduction in sales activity, the clampdown on foreign buyers and investors generally - are not powerful enough to overpower the strengths underpinning Sydney property markets and cause price decline. The most likely scenario is a wind-down in the rate of price growth - similar to 2004/2005, following three years of strong price growth in 2001/2002/2003. Back then, we saw price growth come to a halt, but there was no decline in values (as a general statement). It's time now to turn your attention to regional New South Wales. It's noteworthy that a recent list of the top 10 places in each state/territory for TOM (Time On Market - how fast houses are selling on average) showed that all 10 places in NSW that are turning over homes the fastest were in regional centres. There are many noteworthy markets out there in the regions. And they have appeal that can't be provided by Sydney, such as affordable prices and good rental yields. Many have delivered good capital growth in recent years as well, including Wollongong, Newcastle, Dubbo and Port Macquarie. Other regional markets with elevated activity likely to lead to price growth include Armidale, Coffs Harbour, Tweed Heads, Tamworth, the towns of the Hunter region, Goulburn, Orange and Wagga Wagga. Newcastle looks particularly strong at the moment. It presents as an affordable alternate to Sydney, with a strong local economy and significant investment in infrastructure and other developments. Wagga Wagga is another good possibility: a strong, growing regional centre with a diverse economy (including a strong military economy), big spending on infrastructure (including the RAAF Base, the Army base and the hospital) and attractively low prices.

In conclusion

The Same Misguided Economists Are Again Crying Wolf On House Prices

Among the misinformation that spews forth from mainstream media are the regular forecasts of catastrophe in "the Australian property market". We're currently going through another phase of economists predicting big decline in what they call "Australian property prices". As I commented in the National Overview, anyone who discusses Australian real estate as a single market is a charlatan and should be ignored. In addition, the individuals forecasting price decline – such as AMP's Shane Oliver – have terrible track records on calling real estate trends and are likely to be wrong again. It's almost comforting when Oliver predicts negative outcomes, because you can be sure the opposite will occur. Recently I did a research exercise for a client who wanted to compare media forecasts on property with actual outcomes. The exercise revealed that since the start of this century there has been a constant stream of commentators forecasting major decreases in property prices within specific time frames. All have been wrong. Many have predicted drops as big of 40% or 50% in the following year - and one US spruiker was silly enough to forecast a 90% "bloodbath" with Australian property values. That was in 2012 and clearly he got it very wrong. The reason all those forecasters have been proven wrong is that Australian does not have the conditions for major decline. After the GFC, a small number of countries did experience a big drop in property values (including the US) and they all had similar conditions: an economic recession, high unemployment, massive oversupply and bad lending practices. Australia doesn't have any of those conditions in place, much less all of them. This is why our property values remain solid (except in isolated locations with specific local circumstances). Stephen Halmarick, a senior executive at Colonial First State Global Asset Management (Australia's biggest fund manager), says the risks of a property crash are being exaggerated. He says he has heard stories of impending doom in the property market for most of his 30-year career, but he does not see any more risk of a crash this time. "I've seen so-called experts from overseas — usually Americans — saying that the housing market in Australia is a bubble that's going to burst and take the banking system with it," he says. "They've been telling me that for 25 years and they're still wrong." While he concedes that there are pockets of concern, Halmarick says the Australian housing market "isn't as vulnerable as some of the headlines would lead you to believe". And he does not see much risk to the financial system from the property market. "People just look at gross debt to income, which is high, at 190%," he says. "But if you look at net debt to income — taking account of the redraw facilities — household debt has been roughly flat since 2006 because people have used the lower interest rates to repay their mortgages faster. "So the value of housing assets has gone up a lot, as have super funds and other investments of households. So their net wealth continues to rise and is actually close to record highs." My point exactly. [post_title] => Property Report – June 2017 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => property-report-june-2017 [to_ping] => [pinged] => [post_modified] => 2017-12-04 17:26:28 [post_modified_gmt] => 2017-12-04 06:26:28 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=271 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 273 [post_author] => 1 [post_date] => 2017-03-01 17:27:07 [post_date_gmt] => 2017-03-01 06:27:07 [post_content] => By Terry Ryder, creator of hotspotting.com.au Introduction: You Just Can’t Believe What You Read About Real Estate I fear for Australian real estate consumers. Seeking information to underpin investment decisions is like walking blindfold through a minefield - in this case a minefield of misinformation. The standard of reporting of property issues has deteriorated to the lowest levels I have seen in my 35 years as a real estate researcher and writer. Much of the real estate content of media outletsis nothing more than recycled press releases from developers, agents and other industry spruikers. Recently I wrote an editorial with this headline: “It’s dangerous to be a newspaper reader in Australia in 2017.” It’s apparent from my communications with many thousands of consumers over time that most people think reading newspapers and magazines constitutes research. In my view, it’s the opposite - it’s anti-research. The wrong information is worse than no information at all and much of what is published in mainstream media about residential real estate is misinformation. That sounds like a sweeping statement but it’s one that’s substantiated by the analysis I present in this report. In this edition of the Quarterly Market Report, I analyse the major markets around Australia by presenting the conflicting data that’s published by research sources via the media and seeking to make sense of it.This is something that should happen in major media, but sadly no longer occurs in modern Australia.   For analysis of markets nationwide, click on the topics below ... National Overview:Journalism Is Dead As Media Massacres Sensible Debate. Adelaide/South Australia: Published Numbers Tell Us Nothing Useful About Adelaide. Brisbane/Queensland:REIQ Vacancy Data Tops Brisbane’s Pile of Misinformation. Canberra/ACT:Is Canberra Booming Or Is It Merely Doing Okay? Darwin/Northern Territory: You Can Tell Myriad Different Stories From Data For Darwin. Hobart/Tasmania:Hobart Is Undoubtedly Rising, But By How Much? Melbourne/Victoria: Melbourne Is Moderate Or Booming, Depending On The Source. Perth/Western Australia:If Can Believe Local Media, Perth Is Recovering Fast. Sydney/NSW: You Will Be Misinformed If You Believe Media About Sydney Prices. Conclusion: Be Willing To Do Your Own Research Or Pay For Data.  

National Overview

Journalism Is Dead As Media Massacres Sensible Debate On Property Issues

Conversations I had recently with noted property researchers Louis Christopher and Andrew Wilson confirm my views about the state of Australia media, especially when it comes to reporting real estate issues. Christopher is probably Australia’s most experienced property researcher and currently runs the respected research firm SQM Research, a valuable resource for property investors. Wilson is the chief economist for Domain, which competes with CoreLogic as the nation’s biggest provider of real estate data. CoreLogic has a higher profile, but Domain is a lot more professional and ethical in the way it processes and presents real estate price information. Wilson, Christopher and I have a number of things in common: we’re all experienced real estate researchers who are horrified as the way media presents property information and reports real estate issues. It’s difficult to imagine how it could be worse. We’ve all had conversations with journalists who know that CoreLogic figures are rubbery and have been discredited by the Reserve Bank, but continue to use them - indeed present them as fact - because it makes their jobs easier. There’s a steady flow of neatly packaged statistics that can be re-cycled as credible news, even though journalists know the figures are often unreliable. One of outcomes is that Sydney has been widely portrayed in media as continuing to have a prolonged house price boom. It simply isn’t true but that’s what media has indicated, based almost entirely on inflated price growth figures and even more rubbery auction clearance rates. Price growth figures from other sources, including the Australian Bureau of Statistics, Domain and Residex, are considerably lower. ABS and Domain calculations suggest a realistic growth figure for Sydney houses in 2016 was 3% or 4%, but CoreLogic claimed it was 16% - and that’s the number repeatedly quoted by media. There are also big discrepancies in the figures for apartments. Out of the illusion of soaring prices has flowed relentless outcry about bubbles, an affordability crisis and a blame game focused on foreign investors, negative gearing, immigrants and other scapegoats. The end result is a great seething mass of misinformation. Most of what is written about Sydney real estate is wildly distorted and inaccurate. The problem is compounded because much of our major media emanates from Sydney. Writers and commentators based in Sydney extrapolate their local situation to the nation, creating furphies such as “Australian house prices are soaring”, there’s a “national affordability crisis” and “the Great Australian Dream is Dead”. Media is obsessed with the storyline that no one can afford to buy any more and it’s become quite ridiculous. Much of this has been generated by data from CoreLogic which cares less about accuracy or fairness than about maximizing publicity. Most of the “debate” about national housing affordability is presented against the background of Sydney’s median house price (a figure that irrelevant to the discussion, even in Sydney). For these and many other reasons, I believe it’s dangerous for property investors to read newspapers and tune into mainstream media. Not only are the real estate statistics often distorted and misleading, but the people writing the articles or providing the commentary are not real estate experts. They’re often inexperienced writers with no specialist knowledge about the property market. Most of their work comprises re-writing press releases - i.e. they re-cycle propaganda as credible news. They compound this problem by often seeking analysis from professionals who are not real estate experts - e.g. economists with a wafer-thin veneer of understanding about the property market. Seeking expert analysis about real estate from an economist is like asking a hockey expert to provide commentary on the AFL grand final. There’s an important reason why all this matters. Investors and home-buyers make big financial decisions based on what they think they know about real estate. Their “knowledge” is based,far too often, on misinformation absorbed from headlines and media sound bytes. I’m frequently asked questions about real estate by consumers. It happens when I speak to live audiences and also daily via phone calls and emails. I would estimate that 90% of the questions I receive arise out of misinformation absorbed from mainstream media. The sad reality is you just cannot trust real estate statistics and you cannot believe most of what is published by newspapers and other forms of media. Information presented as fact is anything but credible information. Consumers need to exercise great care about where they source information and what they choose to believe. It can be the difference between a good financial decision and a bad one.  

Adelaide and South Australia

The Published Numbers Tell Us Nothing Useful About Adelaide’s Property Market

Adelaide has had some price growth in the past year, but the question is: how much? Domain says the rise was only 2.5%, while the Australian Bureau of Statistics says 3.9%. But CoreLogic reports 4.5% growth and Louis Christopher’s SQM Research records a more bullish 6.6%. The higher growth figures are more realistic, given the busy activity in the market. Of course, as is always the case, the custom of distilling growth within a city down to a single figure disguises all sorts of things happening within individual precincts. In Adelaide, some areas have had double-digit annual growth in the past two years, but you wouldn’t know it from media reports, which focus on the handouts from the publicity-hungry research firms. Adelaide has an active market, with sales activity rising steadily over the past two years. The state economy is not pumping the way it is in other states, but jobs are being created and there is solid demand for real estate. While the media highlights negative events in the Adelaide manufacturing industry, such as the car plant closure, the statistics show that more jobs are being created than are being lost in that industry. Manufacturing in Adelaide has switched from the old style to the modern, with more emphasis on IT products (this is a national transitional trend, which has been seen also in places like Wollongong and Geelong). Adelaide has the prospect of future boosts from the construction of marine vessels for the Navy and will be a beneficiary from revival in the nation’s resources sector. It will all take time, but the SA capital has a solid future. One of the most interesting phenomena I observe around Australia is the way in which a major adverse event for a city or regional centre ultimately becomes a major positive. When a significant business or industry shuts down, media portrays it as a disaster from which there is no way back, but political, civic and business leaders mobilize and create counter measures. The final outcome is usually a net positive. The closure of the car plant (and also the Coca Cola bottling plant) fit this phenomenon for Adelaide. Similarly, recent power supply problems, which gained national publicity and caused a lot of noisy and mostly dishonest posturing by politicians, will generate responses that create economic activity and jobs. It may well be the same for one of SA’s largest regional cities, Whyalla. It’s doing it tough at the moment, not helped by major employer Arrium going into receivership. Federal, state and local leaders have responded with measures that appear likely to rescue the situation and create a net positive for Whyalla, where fortunes tend to rise and fall with the cycles of the resources sector.  

Brisbane and Queensland

REIQ Vacancy Data Tops Brisbane’s Pile of Misinformation

If you can believe media reports, vacancies in central Brisbane have dropped and are now close to acceptable levels, not much higher than 3%. This is because media, sadly, recycles industry propaganda are credible news. The reality, as portrayed by independent research, is that Brisbane inner-city vacancies remain uncomfortably high and are likely to get bigger before they improve. The Real Estate Institute of Queensland, which lately has specialised in political game-playing, published research indicating vacancies down close to 3% in inner Brisbane, no doubt trying to counter constant negative publicity about oversupply in the apartment market. But independent vacancy data from SQM Research shows that vacancies continue to be extremely high. The Brisbane CBD and all the near-city suburbs, including South Brisbane, Fortitude Valley, Kangaroo Point and Woolloongabba, have vacancies in the 5-6% range. They will inevitably worsen, with more high-rise projects coming out of the ground. The big question is why journalists would publish the REIQ figures, which clearly conflicted with the prevailing view of things, without asking a few questions and seeking alternative information. The answer to this rhetorical question is that journalists no longer do journalism - they are conduits for industry press releases. Not only does central Brisbane have high vacancies but the disease has spread to some of the middle ring suburbs, with small and medium-sized developers building too many units and townhouses in locations such as Albion, Kevin Grove and Chermside. Investors are advised to check vacancy rates on the SQM website and also to check building approvals data, which can provide a clue to future oversupply. This is not to say that people should stay out of the Brisbane market. Most precincts have moderate vacancies and Brisbane overall has good prospects for solid growth. The key elements are economic growth and infrastructure spending, factors which have been strong in Sydney and weak in Brisbane in recent years, hence the relative differences in market performance. The Queensland economy is showing signs of improvement, especially in the growing confidence in the resources sector, while there are a number of big-ticket projects in the pipeline for Brisbane, including infrastructure projects and major tourism-related developments. The more affordable areas in the outer ring suburbs are the ones with the greatest momentum, including the Moreton Region in the far south, Logan City in the far south, and Ipswich City in the south-west. There are also busy markets in the Redlands LGA in the east. There is also a rising tide in some of the regional Queensland economies. The resources sector has renewed confidence and previously-mothballed projects have been revived. There is a growing number of alternative energy projects is the pipeline, including wind farms and solar power plants. Regional centres that have struggled in recent years are on the way back, headed by Townsville and including also Rockhampton and Mackay. Boom-bust city Gladstone has some prospects of recovery, after 3-4 tough years. Meanwhile, the Gold Coast and the Sunshine Coast continue to thrive, boosted by vibrant economies and major spending on infrastructure and other construction projects.  

Canberra and the ACT

Is Canberra Booming Or Is It Merely Doing Okay?

Everyone appears to agree that the Canberra is improving but the question is: how much? Canberra, traditionally the steadiest market in capital city Australia, has risen lately on the back of a steady local economy, very low vacancies and recovery from the previous situation whereby there was an oversupply of apartments and demand had been dented by downsizing of the public service. All appears to be humming along nicely now. All four research sources I examined record growth in house prices that ranges from solid to strong. The apartment market, still a bit fragile following previous oversupply, is less buoyant. Domain suggests Canberra house prices are up 5% in annual terms, while the ABS suggests it’s closer to 7% - but CoreLogic has it above 9% and SQM claims 12%. Again, there’s considerable difference, partly explained by different methodologies and parameters, but creating confusion among consumers. Some figures depict a solid market with moderate growth, but others suggest there may be a boom under way. I certainly don’t see Canberra as a boom market. It’s moderately strong. Sales volumes are good – not as strong in 2016 as the year before, but still very solid. Vacancies are low – the second lowest in capital city Australia, after Hobart, according to SQM Research – and some reports suggest solid rental growth. But the overall theme is “solid”, not “boom”. The most active markets are in the Districts of Belconnen and Gungahlin in the north, but there are growth markets to be found across the city.  

Darwin and the Northern Territory

You Can Tell Myriad Different Stories, Based On Published Data For Darwin

Darwin is on the cusp of recovery, or it’s still falling moderately or it’s dropping dramatically - depending on whose figures you choose to believe. In terms of the outcomes for Darwin house prices in 2016, CoreLogic essentially said there had been no change (it recorded an annual decrease of 0.2%) - which suggests that, after three years of falling prices, the market was leveling out and approaching recovery. But Louis Christopher’s SQM Research reported an annual drop in asking prices of 4.7%, while the Australian Bureau Statistics found that Darwin’s house price index was down 8.5%. Meanwhile, Domain reported a 10.5% decline in Darwin house prices for 2016. The question, as always, is: who to believe? In answering that question, firstly I disregard the CoreLogic figures as overly bullish, as they are for most locations. The SQM numbers are based on asking prices, so may be more positive than actual settled sales, so we are left to look at the ABS and Domain figures, which both suggest substantial price decline. Those numbers make sense, because the local economy is seriously in the doldrums and sales volumes are down substantially. Vacancies remain high, with large numbers of people leaving Darwin as job opportunities dry up. There is hope that a new Territory Government will inspire revival, with incentives for first-home buyers leading the way, but ultimately it’s about the local economy. The Darwin up-cycle in 2012 and 2013 was related largely to the stimulus created by the $30 billion Inpex gas project and something big needs to happen to re-generate economic activity, jobs and demand for real estate. Recently there was news of a major offshore gas find, one that allegedly is even bigger than the Inpex resource, and that’s the kind of event the Northern Territory needs to spark revival. But projects like that take a long time to progress from resource discovery to actual construction creating jobs.  

Hobart and Tasmania

Hobart Is Undoubtedly Rising, But By How Much?

There’s no doubt Hobart and other Tasmanian markets are rising. All the major research sources recorded growth in Hobart’s median house price in 2016, but the rate of growth varied from 6.4% to 11.7%. Some figures, therefore, depict a moderately rising market and others suggest a booming one. The bottom line for Hobart is that, after so long in the economic and real estate doldrums, it now has a pretty good situation when the lowest growth figure is 6.4%. This is supported by a vacancy rate which, according to Louis Christopher’s SQM Research, is consistently the lowest among the capital cities. It also has the highest rental yields. But the most important statistic for Hobart and Tasmanian is not a real estate one - it’s the latest ranking from CommSec in the State of the States quarterly report. Tasmanian, for so long the basket case economy among the states and territories, has been elevated from 7th to 4th - ahead of Queensland, WA, SA and the Northern Territory. Those are dizzy heights for humble Tasmania but it’s a result that has been brewing from consistent improvements over the past 2-3 years. As in NSW, it was a change in State Government that the catalyst for the turnaround in economic fortunes and a big lift in infrastructure spending, which is a pivotal factor. So as the boom in Sydney and the less-that-boom in Melbourne wind down, Hobart continues to rise and could be leading the nation on price growth before we’re very much older. It has the very attractive combination of the lowest prices, tightest vacancies and highest rental yields among the capital cities of Australia. Of course there’s more to Tasmania than just Hobart and indeed Launceston appears (based n the sales activity numbers) to have as much momentum as the state capital. With most suburbs having median house prices in the $200,000s or low $300,000s, it’s a market that may be targeted by mainland investors once Australia wakes up to the reality that there’s real estate beyond Sydney.  

Melbourne and Victoria

Melbourne Is Moderate Or Booming, Depending On The Source You Prefer

Most of our major media comes out of the Sydney. Of the bits that do not, most of them emanate from Melbourne – where media obsesses over auction clearance rates and publishes anything sent out by the Real Estate Institute of Victoria, probably the least reliable of the real estate institutes in Australia, with the possible exception of Queensland. Journalists’ obsession with the auction scene – which, even in Melbourne, covers only a fraction of the market – means that what’s happening amid the hype and hyperbole of prestige property is presented as the reality for all of Melbourne. As one recent example, Fairfax media outlets ran an article which gushed over properties in suburbs such as Toorak selling for multi-million-dollar prices. But the article, rather bizarrely, began like this: For home buyers struggling to purchase the right property in Melbourne, life just got more challenging. Not only do well-heeled buyers have to contend with raging levels of competition for quality homes, those on tighter budgets also have to dig deeper to buy properties in their price range. Across the city at the weekend, several properties attracted large crowds of onlookers and feisty bidder competition. The relationship between homes selling for prices north of $4 million and the first-home-buyer market was not explained. But that’s media today: they’re obsessed with the “housing affordability crisis” storyline and they’ll bend any event to fit the pet theme. Beyond that, media creates the usual confusion about the Melbourne market by publishing, in isolation, each of the price growth numbers from the various research sources, without ever comparing them and making sense of the contradictions. So, how much have house prices grown in Melbourne, on average, in the past year? According to SQM Research and the Australian Bureau of Statistics, it’s around 8%. But Domain says it's10% and CoreLogic, with its tendency towards high price growth numbers, comes in with a 15% rise. There’s quite a difference there – a range from 8% to 15%. Either Melbourne is chugging along well or it’s having a boom to challenge Sydney. And then it raises the question of what’s happening in individual precincts. Each research entity delivers one figure to describe Melbourne, a city of four million, as a single market. Does it tell us anything about what’s happening in Melton in the far west, or Cranbourne in the far south-east or Epping up in the north? You wouldn’t know it from media coverage, based on their fascination with prestige auctions, but Melbourne’s market overall has slowed down a lot in the past year or so. Much of the activity is happening in the affordable areas on the fringes, which is an indication that the cycle is drawing to an end. The middle-ring suburbs which led the way previously have lost some of their heat and it’s the cheaper areas that are now the busiest – but largely ignored by the auction-focused media. Beyond Melbourne, Geelong (as I have noted in previous editions of this report) is the strongest market, boosted by a buoyant local economy which is un-fazed by the closure of the Ford motor plant. Ballarat and Bendigo are both chugging along nicely, but the place most likely to produce good price growth in regional Victoria is Geelong.  

Perth and Western Australia

If You Believe Local Media, Perth Is Recovering Fast – But They’re Premature

There’s one thing all sources of price data agree about: the Perth market has been in decline. The point of disagreement has been about how much. Another source of confusion and misinformation is the local media’s willingness to recycle industry propaganda as news. Four major sources all recorded decreases in Perth house prices last year but the degree of decline varied from 2.3% to 4.1% to 4.4% to 6.0%. This represented the third consecutive year of falling prices and was no surprise: vacancies are high, not only in the inner-city areas flooded with apartment overbuilding, but right across the Perth metropolitan area. Suburban postcode areas with 5% vacancy rates are common and rents have been falling as much as prices, with tenants able to drive hard bargains. The hardest task in hotspotting around Australia is trying to identify future hotspots in Perth - or indeed anywhere in Western Australia. Every precinct in Perth has a down market with high vacancies and falling prices. It requires long-term vision to see opportunities and future prospects. And of course there are plenty of those in Perth. When a market is down like this, there’s a tendency to forget historical factors, such as WA’s status as a strong economy and Perth’s frequent position as a leader on population growth. In 2012 and early 2013, Perth was vying with Darwin for the No.1 position on price growth among the capital cities. That was before Sydney started to boom - and ahead of the decline in the resources investment boom, which de-powered property markets right across the state. So investors with vision and a strategic mindset might see opportunities to buy bargains while the market is down and await the next up-cycle. Most people, of course, being herd animals, will await news that there’s a boom again and follow the pack into the next frenzy. Perth’s a bit like that - with sharp peaks and deep troughs, which reflects its dependence of the volatile resources sector. Right now the Perth property industry is working hard to talk up the market. The Real Estate Institute of WA, local developers and others with a vested interest are pumping out press releases that present interesting case studies of the old “lies, damned lies and statistics” syndrome. If you can believe the industry, a recovery is already under way and people should rush to buy before prices rise. It’s rubbish but some people might believe it because the local media is happy to print this shameless propaganda as credible news. Journalism is dead in Perth, as it is everywhere else in Australia. Meanwhile, it continues to be ugly for the regional centres reliant on the resources sector. The REIWA recently reported the Port Hedland median house price as $262,000, which is a distant whimper from the days of $1.2 million. Karratha was given a median house price of $265,000, when it was around $800,000 in the glory days of the resources investment boom. Some regional centres, notably those not closely connected to the resources sector, showed a glimmer of growth in the latest REIWA figures, including Albany, Bunbury and Busselton.  

Sydney and New South Wales

You Will Be Misinformed If You Believe Most Media About Sydney Prices

Media is obsessed with Sydney house prices. Most of Australia’s major media emanates from Sydney and Sydney-based journalists and commentators think nothing much matters in Australian real estate beyond Sydney prices. Worse, most reports take the Sydney situation and extrapolate it across the nation, turning Sydney’s boom into a national one, and Sydney’s affordability situation into a national crisis. To makes a bad situation worse, most of the figures reported about Sydney house prices are rubbish. Perhaps 90% of media reports on the Sydney market quote CoreLogic figures and this greatly distorts and misrepresents the situation. CoreLogic figures for price growth are inflated, especially for Sydney and Melbourne. The Reserve Bank had used CoreLogic price data to help it make decisions on interest rates, but announced in August 2016 that it had decided to no longer use the figures, because it believed them to be  inflated. CoreLogic, in response, admitted that it had recently changed its methodology and there were a few teething problems. Coupled with that were some serious problems associated with the CoreLogic mentality. The chief objective within the firm is always to maximise publicity - and that means being first to publish. CoreLogic, in my view, rushes out figures before a complete data set is available (e.g. price growth figures for February will be published on 1 March, even though most January sales have yet to settle and complete figures are not available). Despite all that, media continues to publish CoreLogic figures. These numbers are quoted as fact, without question, even though the Reserve Bank says they are inflated. On the basis of CoreLogic figures, most media reports declare that Sydney house prices rose 16% in  2016. This meant that the price boom was continuing and from that came other assumptions, such as a bubble, an affordability crisis and a market out of control, inflated by foreign investors and negatively-geared Australian investors. And, in simple terms, it’s all rubbish. The latest numbers from the Australian Bureau of Statistics suggest the annual growth rate for Sydney houses is 3.3%. Domain chief economist Andrew Wilson says that if you compare prices from all 2016 sales to all 2015 sales, the annual growth rate for Sydney houses is 4.4%. SQM Research and Residex have also published much smaller rates for Sydney than those published by CoreLogic. But because 90% of the figures quoted by media are CoreLogic’s, the overwhelming impression created is that the Sydney price boom continues. The other way in which media misinforms people about Sydney is through the compliant recycling of industry figures for auction clearance rates. These are the most rubbery figures of all and there should be a law against publishing them. Hotspotting’s quarterly surveys of sales volumes shows there was a massive drop-off in sales activity in 2016. The decline was quite dramatic in some markets, sufficient for Hotspotting to rate some Sydney suburbs as danger markets. But you would never know, if your sole source of knowledge was reading newspapers like The Australian and the Sydney Morning Herald. So what’s happening in New South Wales outside of Sydney? If you follow mainstream media you’d think nothing was happening in Regional NSW, because journalists are so fascinated by Sydney prices. But in reality there are many noteworthy markets out there in the regions. And they have appeal that can’t be provided by Sydney, such as affordable prices and good rental yields. Many have delivered good capital growth in recent years as well, including Wollongong, Newcastle, Dubbo, Port Macquarie and many other regional cities. Other regional markets with elevated activity likely to lead to price growth include Coffs Harbour, Tweed Heads, Tamworth, Armidale, the towns of the Hunter region, Goulburn, Orange and Wagga Wagga. It’s not feasible to discuss all these places in detail but, to provide an idea of the possibilities, let’s focus on Armidale. This important and strategic regional city has greater economic diversity than most regional centres, with a strong education sector based on the University of New England, in addition to agriculture and tourism. Soon it may add a strong government administration component with local Member (and Deputy Prime Minister) Barnaby Joyce announcing a major government department will move from Canberra to Armidale. There’s a big infrastructure spend happening, with upgrades to the hospital and the airport, plus plans for a major wind farm and a solar power facility in the offing. Armidale’s median house price is around$350,000, with units in the $200,000s. Typical rental yields around 5-6% look compared to the Sydney norm around 2.5%.  

In conclusion

Be Willing To Do Your Own Research Or Pay For Data From Credible Sources

In the previous edition of this quarterly report, I presented this simple three-step formula for success as property investors in 2017:-
  • Step One: stop reading newspapers.
  • Step Two: conduct genuine research.
  • Step Three: be willing to pay for good information and quality advice.
It’s worth repeating. Above all else, those seeking to invest in real estate must treat the process like a business. In any business venture, you must be willing to spend money to make money. Real estate investment is no different. The most successful investors I know - those with large portfolios of growth properties - behave in this way. They approach property investment as a business venture and understand the importance of seeking services and advice from qualified professionals, including research information. Most mum-and-dad investors don’t do that – and end up with ordinary results. All the information a consumer will ever need to make informed choices exists and most of it is readily available through Internet research. The problem is that often data from one source conflicts with figures from another. How to make sense of it? Seek advice from qualified businesses. And be willing to pay for it. [post_title] => Property Report - March 2017 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => property-report-march-2017 [to_ping] => [pinged] => [post_modified] => 2017-12-04 17:28:31 [post_modified_gmt] => 2017-12-04 06:28:31 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=273 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 275 [post_author] => 1 [post_date] => 2016-12-01 17:29:03 [post_date_gmt] => 2016-12-01 06:29:03 [post_content] => By Terry Ryder, creator of hotspotting.com.au Introduction: Expect Change And Surprising Outcomes In 2017 This time last year I suggested 2016 would be a year in which the smaller cities emerged, as the larger ones showed signs of fading. In many respects that has proven to be true. Sales activity has fallen markedly in both Sydney and Melbourne and most research sources have recorded a decline in the rate of price growth in Sydney. Meanwhile, Hobart has produced quite strong numbers for price and rental growth, as has Canberra. Sales activity has been solid also in Adelaide and Brisbane, and some precincts in those cities have delivered good price growth – although the average rate of growth has remained moderate. So now my thoughts turn to the New Year and speculation about what will occur in 2017. This report is devoted to discussing prospects in major markets around Australia in the year to come. In simple terms, we can expect very different scenarios to those in 2016, with outcomes that will surprise some people.   For analysis of markets nationwide, click on the topics below ... National Overview: Expect Major Change In Property Markets In 2017. Adelaide/South Australia: Adelaide Will Excel If The SA Economy Shows Improvement. Brisbane/Queensland: Queensland Will Have Several Standout Markets In 2017. Canberra/ACT: Capital Set To Rise In 2017, Supported By A Strong ACT Economy. Darwin/Northern Territory:  Expect This To Be The Best Year For Darwin Since 2013. Hobart/Tasmania: Investors Are Waking Up To The Potential in Hobart and Launceston. Melbourne/Victoria: City of Greater Geelong Set To Outpoint Melbourne On Growth. Perth/Western Australia: Perth’s 3yrs Of Struggle May Be Over (Except For Inner-city) Sydney/NSW: Lower Levels of Growth Likely But Sydney Market To Remain Solid Conclusion: Ignore Media And Conduct Genuine Research To Succeed In 2017  

National Overview

Expect Major Change In Property Markets In 2017

It’s noticeable that many commentators, when asked to forecast the year ahead, simply predict the recent past. They look at what they think is currently happening and extrapolate it forward. So most of what you will read in mainstream media about 2017 will be simply an extension of events in 2016. But I’m expecting big differences in major markets around Australia in the coming year. Some analysts are suggesting big price growth in Sydney. I think that is unlikely. The gradual decline in market performance around Sydney was evident throughout 2016, with sales activity down and all research sources, with one notable exception, recording a sharp reduction in the overall rate of price growth. The most deceptive of all market barometers, auction clearance rates, are still being misinterpreted by non-experts, such as finance expert (but property dunce) Alan Kohler, as a sign of a still-booming market. Most commentators, other than the genuine real estate specialists, are missing the rise of cities such as Adelaide and Hobart. In the same way, non-experts who look at those generalised single-figure descriptions of price growth or vacancy rates for entire metro areas, are misinterpreting the Brisbane market. So, here’s what I see in the year ahead:-
  • Sydney overall will be steady but price growth will be rare. It’s a big city and not just one market, so there will be differences from one area to the next. Some will still show solid price growth, driven by local events like new infrastructure, but in most precincts price growth will slow to a crawl.
  • Some Sydney locations which are dominated by apartments (Parramatta, for example) will have rising vacancies and declining values.
  • Melbourne will be busy in some areas, but overall sales activity will continue to reduce and only isolated pockets will show strong price growth across the whole year.
  • The oversupply situation in the inner-city Melbourne areas will become more apparent and some suburban areas will also experience high vacancies because of over-building by developers.
  • Meanwhile, just down the road, Geelong will be the strongest market in Victoria, regardless of the Ford plant closure.
  • The steady improvement in the state economy will boost some markets in Queensland, including Brisbane and South-east Queensland, where infrastructure spending will drive markets on the Gold Coast and the Sunshine Coast.
  • Brisbane, under-rated by many commentators, will have a strong year. Affordable outer-ring suburbs, such as those in the Moreton Bay Region in the north, will be good performers.
  • Resources-related regional centres, such as Gladstone and Emerald, will touch bottom and start to show improvement, helped by new mining and infrastructure projects. Rising commodity prices are a key factor, as are State Government moves to restrict the use of fly-in-fly-out workforces.
  • Vacancies in the Brisbane inner-city suburbs will rise and apartment values will fall.
  • More high-rise projects will be focused on the Gold Coast and smart investors will steer clear.
  • More people will realise that Tasmania has become a good-news story and will buy investment property in Hobart and Launceston.
  • There will be a similar boost to Adelaide for similar reasons – the South Australian economy is better than most realise and infrastructure spending is bigger than most realise.
  • Switched-on investors will buy in Perth, while prices are down, with an eye to the future, realising that Western Australia has been a strong growth economy in the past and Perth one of the national leaders on population growth and real estate performance – and will be again in the future.
  • Darwin will perform better than at any time in the past three years, helped by the recent change in government and the generous incentives for first-time byers.
  • Canberra will be one of the strongest performers among the capital cities, provided the Federal Government doesn’t trim the public service any further.
  • The ongoing strength of the NSW economy will help to drive markets in regional centres with rising populations, strategic locations and diversified economies. The Hunter Valley, which has been struggling recently, will be a standout recovery market.
All of those predictions are, to a certain degree, dependent on events, some of them unforeseen. But in other respects predicting events in the coming year is really easy. Here are some things I know for sure will happen in 2017:-
  • Politicians will squabble over solutions to the alleged affordability crisis but no one will actually do anything about it (other than make decisions that make the problem worse).
  • Federal Labor politicians will make spurious claims about investors, negative gearing and affordability to achieve political mileage.
  • There will be the usual pointless speculation about movements in interest rates, with economists and other commentators oblivious to the reality that small movements in rates are largely irrelevant to real estate market performance.
  • AMP chief economist Shane Oliver will make major predictions about “the Australian real estate market”, such as forecasting a big drop in prices – and will be proven wrong, as he always is.
  • Economists will continue to chatter about “the Australian property market”, thereby demonstrating their inherent lack of expertise and understanding.
  • Ratings agencies like Moody’s and Standard & Poor’s will latch on to small scraps of “research” information, mostly the dodgy data from CoreLogic, to issue dire warnings about bubbles in “the Australian real estate market”, thereby demonstrating their inherent lack of expertise and understanding.
  • CoreLogic will continue to be the exception among the research companies, recording price growth well above the figures published by its competitors. It will be, once again, wrong. But media will be, once again, oblivious.
  • The developer lobby will claim Australia has a housing shortage and that governments need to give them a wish list of benefits to address the “crisis”. The research, however, will show that oversupply, not shortage, is the big issue (specifically in key apartment markets).
 

Adelaide and South Australia

Adelaide Will Excel If The SA Economy Shows Improvement

Adelaide will be one of the better performers of 2017. It just needs to overcome the perception that it’s a non-growth city. The evidence is there that South Australia and Adelaide are better economic performers that most people think, but convincing investors is another matter. I see Adelaide as an under-rated market, which often surprises with the level of price growth achieved. In 2003-04 and again in 2007-08 annual price growth for Adelaide houses topped 20%. It’s overdue for another growth spurt. Currently the city is benefiting from significant spending on infrastructure and its economy is likely to prosper in the near future from Defence business. There was also the news, late in 2016, that the SA economy grew almost 2% in FY2016 and is now worth over $100 billion for the first time. In one respect the Adelaide property market is the strongest of the capital city markets. Adelaide has more suburbs with growing sales activity than any other city. While Sydney and Melbourne sales activity has dropped markedly in 2016, Adelaide sales volumes continue to rise. Adelaide is also showing the strongest investment value among the five biggest Australian cities, according to a report by Performance Property Advisory. It says Adelaide has under-performed in recent years but a range of indicators suggest the city is moving into a strong growth phase. “When comparing the pricing relationships in Adelaide and the other major cities, it shows value on every comparison,” says Performance Property director David McMillan. “The indicators, while slightly mixed, are pointing towards positive price movements in the Adelaide market.” Positive indicators of growth for Adelaide include …
  • housing affordability,
  • favourable demand and supply factors,
  • a major rise in infrastructure spending,
  • strong investment value, including attractive rental yields,
  • a rise in overseas migration, and
  • a significant lift in foreign investment in residential property.
“Affordability in Adelaide is the best it has been since 2003,” McMillan says. “We’ve had income growth outpacing price growth over the past seven years. The city’s Affordability Index is very attractive for first-home buyers and this is a key positive for future price rises.” Adelaide just needs more supportive data showing that its economy and population is growing. Investors are showing interest in Hobart because news has got through that the state economy has improved markedly and infrastructure spending has picked up. Adelaide, like Hobart, offers affordability and good rental yields, particularly when compared to Sydney and Melbourne. It just needs to produce some economic good news stories to get investors interested. There’s not a lot of excitement to be found in SA beyond Adelaide. Markets such as Port Lincoln and Whyalla have sparked to life in the past but currently there are few signs of growth. Investors who are comfortable with risk and have an eye for opportunity should maintain a watch over Whyalla and Port Augusta. Both of these regional centres have been hurt by detrimental economic events in recent years and real estate values have fallen. But both will grow again if plans in the pipeline come to fruition. In Whyalla, there’s a concerted effort involving state and federal governments to keep major employer Arrium alive and kicking – plus there are a number of resources-related projects in the pipeline. In Port Augusta major energy projects may fill the void created by the closure of a coal-fired power station which was a key jobs generator. Real estate is cheap in these towns and rental returns are good when their economies are firing. It’s risky investing but potentially lucrative if all goes well. If.  

Brisbane and Queensland

Queensland Will Have Several Standout Markets In 2017

There are many good reasons to believe that Queensland is the place to be for property investors in 2017. If not the place, then certainly one of the places. As we approached the end of 2016, there were signs of the following events emerging to positively influence Queensland property markets:-
  • A lift in the state’s population growth rate
  • An improvement in the state economy
  • Significant increases in key commodity prices, especially for coal
  • A rise in infrastructure spending
  • The bottom of the trough being reached in regional markets impacted by the resources sector.
In addition to that, there are signs of growing interest from property investors. A recent survey by PIPA asked investors, amongst other things, which market they now favoured for future growth. Half nominated Brisbane, while only 11% opted for Sydney. That result shows how much things are changing in major property markets around Australia. Brisbane markets have been cantering along for the past couple of years without ever breaking out into a sprint. But as the Queensland economy improves, boosted by rising commodity prices, a strong tourism industry and a revival in population growth, Brisbane may start to deliver more in the way of price growth. Investors need to be careful about the apartment markets in Brisbane, especially the inner-city sector, where vacancies are high and likely to get worse before they get better. There are also rising vacancies in some suburban markets because small to medium sized developers have been building lots of units and townhouses – too many – in suburbs like Albion and Chermside. Beyond that proviso, Brisbane is a busy market with the potential to produce more in the way of price growth in 2017, if some of those signals mentioned earlier prove accurate. We have also seen an uplift in sales activity on other key markets of South-east Queensland. The two most upwardly-mobile markets in Australia in the second half of 2016 have been Brisbane’s coastal book-ends: the Sunshine Coast and the Gold Coast. Both the coasts are being boosted by strong local economies, major spending on infrastructure and highly-active construction industries. The outcome is a big increase in jobs and, arising from that, rising demand for real estate accommodation. The Sunshine Coast rates more highly at present because, despite being a smaller city, it has more suburbs with growing sales activity than the Gold Coast does. The Sunshine Coast is being driven by over $20 billion in infrastructure and real estate developments and offers plenty of affordable real estate at good rental yields. The Gold Coast has a very busy real estate market, with infrastructure spending a big factor, as well as high-rise construction, which is creating lots of jobs. The 2018 Commonwealth Games is providing some of the momentum. Investors are urged, however, to avoid the high-rise markets which are heading for another bout of oversupply - and concentrate instead on the housing markets inland. Toowoomba has shown growth in recent years and passed its peak a year or two ago. But it remains a  strong regional economy and may surge again on the back of infrastructure spending. Regional centres which dived because developers over-built – and, in some cases, because the coal industry declined – may be at the bottom of their down cycle, or close to it. Reports from two different groups, SQM Research and Herron Todd White, have suggested that the worst may be over for locations like Gladstone, Mackay and Emerald. Certainly, if the rise in commodity prices continues, that will help their revival, because a number  of mothballed mining projects are being transferred from the backburner as a result of that news.  

Canberra and the ACT

Capital City Is Set To Rise In 2017, Supported By A Strong ACT Economy

The Canberra market undoubtedly improved in 2016. There’s evidence that rents are rising and that house prices have shown moderate growth. Expect bigger things in 2017 on the back of an improving economy – unless the Federal Government decides to give the public service another short back and sides. Three major research sources – Domain, SQM and Residex – all record annual growth in Canberra house prices in the 4-5% range. The only source suggesting it’s been more is CoreLogic, whose figures continue to be criticised for being inflated (including by the Reserve Bank). In terms of the Canberra apartment market, the various research entities suggest a small decline in values or a very small rise. This makes sense – the Canberra unit market recently went through a phase of over-supply and is just beginning to recover. A key positive for Canberra is its low vacancy rate, which provides further evidence that the previous oversupply of apartments has been absorbed. According to Louis Christopher’s SQM Research, just 1% of Canberra rental properties are vacant (only Hobart has a smaller vacancy rate among the capital cities) and it leads capital city Australia on rental growth, with the Asking Rents Index up 9% for houses and 8% for apartments. Property values in Canberra continue to be underpinned by the ACT Government’s close control on the release of land, which never keeps up with demand, which means prices are maintained at artificially high levels. So, now that previous oversupply has been soaked up and the earlier impact from public service downsizing has been absorbed also, we can expect Canberra to be a pretty solid performer in 2017, with growth a little higher than the moderate levels of 2016. Underpinning the property market is solid economy. ACT has been the No.3 ranked economy in the nation (behind NSW and Victoria) in recent years and the latest quarterly CommSec State of the States report has maintained that rating, helped by a strong rise in housing finance approvals. The ACT also had the second-strongest overall economic growth in the nation, at 23% higher than the decade average. Given that the underlying economy is a major influence on how real estate performs, it suggests a good year in 2017.  

Darwin and the Northern Territory

Expect This To Be The Best Year For Darwin Since 2013

I expect Darwin to have a much better year in 2017 than the previous two or three – for clearly defined reasons. Darwin appears to be nearing the bottom of the cycle, after three down years in which vacancies have been high and prices and rents have fallen. Some sources put the decline in Darwin house prices in the past year as high as 9% or 10%. The $30 billion Ichthys gas project which helped to ignite the Darwin market in 2012 and 2013 has been winding down its construction phase and workers have been leaving town. This process continues, but there is hope that other business and infrastructure events will generate economic activity and jobs, re-generating demand for real estate. Reasons for optimism for 2017 include the recent change in Territory government, which has lifted confidence; the generous incentives now available to first-home buyers; the possibility of growing economic impact from Defence projects; and the general vibe in the market that the worst has passed. When markets go through a down phase, it’s easy to forget that these are not normal times for markets like Darwin – which has often been a national leader on price and rental growth. The reality is that the city’s economic and real estate fortunes are greatly influenced by the resources sector, which is itself highly volatile and cyclical. Activity in the September 2016 Quarter hinted at better times for the Darwin market. The NT Real Estate Local Market report from the Real Estate Institute NT reported a rise in house sales for the first time in the year. REINT executive officer Quentin Kilian said: “Anecdotally our members are indicating sales activity is increasing slightly and certainly buyer activity - people at open homes - has increased a lot in the past month. We have also seen a small, but enthusiastic take-up of the new first-home owner incentives.” The RELM report said house sales for overall Darwin (Darwin, the northern suburbs and Palmerston) were up 6.6% for the quarter but still down 17% in annual terms. I await further data before getting too excited. There is also the suggestion that a change in government might provide a catalyst for brighter times in the Territory economy and Darwin property market. A recent report from valuers Herron Todd White supports that view. It says the change after the August election has improved market conditions in Darwin after 2-3 years of lower sales volumes and falling prices. “Since 1 September the market has sprung to life again as the new first-home owner incentives for existing properties came into play,” it says. First-home buyers are now eligible for up to $24,000 in stamp duty concessions, with the first $500,000 of the purchase being duty-free and the incentive being capped at $650,000. There’s a further incentive of $10,000 for renovations including up to $2,000 on household goods to further encourage people to buy existing properties. The incentive of $26,000 for building or buying a new property remains in place. "Many prospective purchasers were waiting to see the election results before making any serious offers and have been quick to take advantage of the new benefits, some fearing it might push prices back up, particularly at the entry level," the HTW report says. There’s not much to talk about in Northern Territory real estate outside of Darwin – the only population centres of any size, Alice Springs and Katherine, are usually fairly solid markets but seldom do anything to set pulses racing.  

Hobart and Tasmania

Investors Are Finally Waking Up To The Potential in Hobart and Launceston

The outlook for Hobart and other Tasmanian markets looks increasingly bullish. There has been a significant improvement in the state’s economy and it has received positive reviews from a range of analysts, including CommSec and Deloitte Access Economics. The state’s tourism industry is delivering record numbers and other sectors, such as agriculture and construction, are strong. Record amounts are being spent on infrastructure across the state. The Deloitte Access Economics Investment Monitor report says: “The value of Tasmanian engineering projects under way has stayed well above $1 billion and there’s just under $1 billion worth of planned projects in the pipeline.” The biggest under way is the $535 million Midland Hwy update. Work worth $239 million is ongoing on the freight rail revitalisation statewide and there is a $40 million extension of the Hobart Airport runway. The report says commercial building is also “coming along well,” with $1.5 billion worth of projects under way and a similar pipeline of planned work. “The $689 million Royal Hobart Hospital project is still the largest project,” it says. “Planned work has been boosted, with University of Tasmania plans to move its science-technology-engineering building to Hobart’s CBD, at a cost of $400 million.” The value of projects under way is up 27% to $2.9 billion. Adding planned projects, the total is $4.98 billion. On the back of better economic news, Hobart is starting to produce solid growth in prices – one source suggests prices are up at least 8% in the past 12 months. There is also evidence of good growth in rentals. Hobart’s great appeal is that it has the lowest prices, tightest vacancies and highest rental yields among the capital cities. Now, for the first time in a decade, all that is underpinned by a growth economy. One forecaster, Simon Pressley of Propertyology, has predicted that Hobart will lead the capital cities on capital growth in 2017. I wouldn’t be too surprised if he’s right. The latest figures from SQM Research indicate that Hobart continues to have the lowest residential vacancy rate in capital city Australia, at just 0.5%. SQM’s Weekly Asking Rents Index records a 7.5% annual rise for houses in Hobart and a 5% rise for apartments. Hobart, despite its tight market and recent increases in rents, is still the cheapest city for tenants. Typical rents are $355 a week for houses and $296 a week for apartments. A couple of other Tasmanian markets warrant consideration. Launceston is the state’s No.2 city and is a solid economy in its own right. Similar to Hobart, Launceston has experienced an uplift in sales activity in the past year and looks set for a strong performance in 2017. Not far from Launceston, the seaside town of Devonport is another busy market worthy of a look by investors seeking affordable prices and attractive rental yields in a location with potential for growth. Devonport is a key port-based economy for Tasmania’s north and is the state’s entry/exit point for the regular ferries to and from Melbourne.  

Melbourne and Victoria

City of Greater Geelong Set To Outpoint Melbourne On Growth

There’s often a tendency in these kinds of reports to focus on the major cities and ignore the regions. So I’m going to kick off Victoria by focusing initially outside Melbourne and feature the City of Greater Geelong. This is Victoria’s busiest and strongest market. The state capital has been thriving over the past two years or so, but is gradually fading – while Geelong continues to gather momentum. Consumers who equate research with reading newspapers will possibly have a negative perspective on Geelong, because media has focused on the closure of a couple of major businesses, most notably the Ford motor plant. The reality, however, is that positive events in the Geelong economy far out-weigh the impact of the Ford closure. The jobs to be lost at Ford are outnumbered by the ones being created in other ventures by at least 10 to one. There are major events still to come in the Geelong economic story, so I expect good performance in 2017. It’s a busy market, driven by its affordability relative to Melbourne, a strong local economy and a water-based lifestyle. Geelong currently ranks as one of the Top 5 markets in the nation, in terms of sales volumes and potential for price growth. Meanwhile, just up the road, Melbourne has overtaken Sydney as the leader on price growth, according to most research sources. This makes sense, because Sydney has undoubtedly passed the peak while Melbourne is a little behind it in the growth cycle and still has some forward momentum. The Melbourne market, in terms of sales volumes, has passed its peak too, but remains resilient and prices are still rising in many market sectors. But the greatest impetus is now being found in the outlying areas where affordability, jobs nodes and good infrastructure are the key factors. Typical locations where this is occurring include the Epping precinct in the north, the Sunshine precinct in the west and the Casey LGA in the far south-east. Unless you’ve been meditating in a cave in the Himalayas, you’ll know about the inner-city unit market and grim determination of developers to create a massive oversupply of apartments. If you value your money, stay well away from this market. Some suburban sectors are joining the insanity and building too many major apartment complexes. Check out vacancy rates – and also building approvals in local areas – to avoid becoming a victim of the Melbourne high-rise mania. Back to the regions, where Bendigo, Ballarat and some of the lifestyle towns north of Melbourne – including those in the municipalities of Mitchell and the Macedon Ranges - all have their merits, but Geelong is undoubtedly No.1 at the moment. One region that may struggle – but then again maybe not – is the Latrobe Valley, where the Hazelwood power station will be closed, with 450 direct employees and 300 contractors to lose their jobs. The closure will end five decades of cheap, brown-coal-fired electricity generation at the plant. Hazelwood's majority owner, French power giant Engie, will shut down the plant by March 2017. The Latrobe Valley is regarded as one of the most disadvantaged parts of Victoria. Unemployment is reportedly 19% in Morwell and 14% in Moe. Both the State and Federal Governments have announced support packages for the region but the measures put forward to date will only partially soften the economic and social impacts of this move. On the other hand, we have seen numerous examples around the nation of regional communities fighting back effectively in the wake of the closure of major businesses. Examples include Wollongong, Geelong and Newcastle.  

Perth and Western Australia

Perth’s Three Years Of Struggle May Be Almost Over (Except For Inner-city Units)

There are some emerging indicators that the Perth market may have touched bottom, after a tough three years in which prices and rents have dropped amid rising residential vacancies. I await further data to be sure, but I don’t expect Perth to fall much further. Recent improvements in commodity prices have added to optimism in Perth. The Western Australian economy is highly dependent on fortunes in the resources sector and rising prices for gold and iron ore are a promising sign that recovery may happen. But the evidence to date is uncertain and a tad erratic. But in the meantime most of the numbers portraying the Perth property market are negative. It continues to have the highest vacancies among the state and territory capital cities – by a wide margin. The 10%-plus decline in rents for both houses and apartments in Perth is by far the worst result of any of the capital cities. And all major research sources have recorded annual decreases in property prices - ranging from 3.7% to 5.2% for houses, and from 3.3% to 7.8% for apartments. The Real Estate Institute of WA is doing its best to generate optimism by putting a positive spin on whatever numbers emerge from the stuttering Perth market. It suggested recently that there’s good activity in Perth’s first-home buyer market, with half of all sales in the September Quarter occurring in the lower end of the market. REIWA president Hayden Groves said September Quarter house sales activity was up 12% in the price range below $500,000 when compared to the June Quarter. “First-home buyers recognise that now is a great time to buy in Perth and are taking advantage of more affordable prices and lower interest rates to secure their first property,” Groves says. There is undoubtedly an element of talking up the market in that comment, but it makes sense for first-time buyers to exploit the prevailing conditions: reduced prices, weak competition from other buyers and the low cost of finance. WA has often been Australia’s strongest state economy but it’s now ranked as the worst in CommSec's latest State of the States report. Better times may lie ahead, however. Signs are emerging that WA’s mining industry is shaking off its malaise, with exploration activity surging. WA minerals explorers are reacting to high gold and lithium prices and boosting drilling activity. Department of Mines and Petroleum figures show applications for prospecting licences rose from 359 in the June Quarter to 653 in the September Quarter. Increasing demand for prospecting licences is a positive sign but more important is the rise in “program of works” permits, which signal explorers are physically sampling areas. These applications rose 25% in the year to 30 September. Business leaders, politicians and economists have welcomed the news, saying the increase in exploration is the first step towards economic recovery. The gold industry says the foundations are there for the industry to double in size over the next decade. In the meantime, the resources-related towns in the north continue to suffer from dramatically falling prices and rents. The fall in values in locations such as Port Hedland, Karratha and Newman has been spectacular. Newman’s median house price went as high as $750,000 but is currently around $215,000, while Port Hedland has dropped from around $1.2 million three years ago to $415,000 today. Regional centres in the south, places not directly impacted by the mining industry, are proving to be more resilient, but there are no signs of growth anywhere in the WA property market.  

Sydney and New South Wales

Lower Levels of Growth Likely But Sydney Market To Remain Solid

A discussion about what will happen in Sydney real estate in 2017 needs this qualification up front: the metropolitan area of Sydney is a vast city of over 700 suburbs. It’s not one market – different scenarios will be played out in 2017. In 2016 we saw a general decline in sales volumes in Sydney. As a direct consequence of that, the rate of price growth slowed down. But, there are different things happening across this very big city. The tendency by media to distil market dynamics for a major city to a single growth figure is unhelpful and often misleading. Our latest analysis of sales data reveals there is still a small number of Sydney suburbs with growth markets, a much larger number which we classify as “plateau” markets (have levelled off a little below the peak), a few that show consistency of sales over time, and a small but growing number categorised as “danger” markets. That means various scenarios within the Greater Sydney Area. Some of the key factors that drove the boom – the strength of the Sydney/NSW economy and the high level of spending on infrastructure – are still in place. So many markets are showing resilience. But some of the other influences – the absence of major growth in the decade pre-2013 and the relative affordability it created – have passed into history. There’s no way that strong level of price growth could continue because, after three years, price becomes an issue for more and more people. Many areas are still making good sales and maintaining strong prices, just without the double-digit annual growth of the recent past. This is one of the reasons we do not expect any significant decline in Sydney prices in the near future. But there are exceptions. There are now suburbs classified as “danger” markets. They’re all locations dominated by apartments and where sales rates have dropped markedly, at a time when developers are bringing lots of new supply to the market. In some of those standout locations, like Parramatta, the rate of sale is a third of the levels of three years ago. Practitioners who claim Sydney can build unlimited numbers of new apartments because the city has a dwelling shortage are deluding themselves and others. There are specific markets in Sydney heading for major oversupply, regardless of the overall supply-demand situation for the metro area. The areas showing the most solidity in the face of the overall cooling of the market are headed by the City of Penrith. There’s still plenty of life in markets out in the far west – and this is typical of the Sydney places investors should consider to achieve growth in coming years. Sydney’s property boom was caused by a number of core factors, including the overall strength of the NSW economy and the lengthy period without strong growth pre-2013. But the biggest single factor is the high level of spending on infrastructure. Tens of billions of dollars are being invested and that’s generated economic activity and jobs, while improving the amenity and/or accessibility of locations. Transport and medical-educational facilities are the big ticket items. So the way forward for investors in Sydney is to follow the infrastructure trail – and, in general terms, that means looking west where the second airport is being built, as well as new motorways and rail links. Municipalities like Penrith, as well as Blacktown and Liverpool, are the most likely beneficiaries. Buying property that lies in the path of progress has always been a core method of making money in real estate – and that’s one of the keys for investors contemplating the inevitable wind-down in markets in Sydney. However, in 2017 I would rather be buying in regional NSW than in Sydney. Prices are much lower, rental returns usually much higher and – if the locational choice is good – there are fine prospects for future capital growth. And there are plenty of solid markets in regional NSW to choose from, including Dubbo, Orange, Wagga Wagga, Wollongong, Newcastle, Coffs Harbour and Tweed Heads. One location that stands out because it’s recovering from a difficult period is the Hunter Region outside Newcastle. This has been a boom economy in the recent past and developers (as they so often do) dived into the Hunter en masse and oversupplied the market just as the downturn in the resources sector was taking hold. The decline in the coal industry impacted the Hunter and high vacancies pushed down rents and prices. In 2016, however, there have been growing signs of recovery, with vacancies lower and towns like Muswellbrook and Singleton starting to fight back. Adding fuel to the revival is the recent sharp rise in coal prices. If this continues, 2017 should be a good year for the economy and real estate markets of the Hunter Region.  

In conclusion

Ignore Media And Conduct Genuine Research To Succeed In 2017

Whenever I speak to a live audience around Australia, as I often do, question time always reveals that consumers have their heads full of misinformation. Most of what people think they know about real estate comprises (mostly) myths and misconceptions. This happens because most people think “research” consists of reading newspapers and absorbing information from other “normal” media sources. In reality, the smartest thing a real estate consumer can do to be informed about investment is to switch off all forms of mainstream media. Few of the people writing about real estate are experts. Many are hack journalists with limited knowledge of the subject and most of what they publish is a shallow re-write of someone’s press release. They compound their ignorance by seeking analysis from non-experts such as economists. So here’s my simple three-step formula for success as property investors in 2017:-
  • Step One: stop reading newspapers.
  • Step Two: conduct genuine research.
  • Step Three: be willing to pay for good information and quality advice.
All the information a consumer will ever need to make informed choices exists and most of it is readily available through Internet research. The problem is that often data from one source conflicts with figures from another. How to make sense of it? Seek advice from qualified businesses. Be willing to pay for it. All the successful investors I know have this in common: they treat real estate investment as a business and understand that you have to spend money to make money. Most mum-and-dad investors don’t do that – and end up with ordinary results. [post_title] => Property Report - December 2016 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => property-report-december-2016 [to_ping] => [pinged] => [post_modified] => 2017-12-04 17:29:47 [post_modified_gmt] => 2017-12-04 06:29:47 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=275 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [5] => WP_Post Object ( [ID] => 277 [post_author] => 1 [post_date] => 2016-10-01 17:30:16 [post_date_gmt] => 2016-10-01 07:30:16 [post_content] => By Terry Ryder, creator of hotspotting.com.au Introduction: Desperately Seeking Clarity On Markets Around Australia If you’re not confused then you haven’t been paying attention. Any Australian who tries to keep up with real estate events by following media will have a head full of misinformation, conflicting figures and downright dodgy data. Journalists these days are under-resourced and poorly-skilled in the reporting of real estate issues. Most of the real estate content of newspapers and other forms of media is press release material submitted by organisations seeking to promote their businesses. When this propaganda is re-cycled as news, without proper scrutiny, it’s a recipe for misinformation and confusion. Anything presented as “research” will get a run in media, especially data on real estate prices. The problem is that statistics from different research sources seldom concur. It’s not uncommon for media to report a market is booming one day and that it’s declining the next, based on divergent data from two different research sources. In this edition of the Quarterly Market Report, I compare figures from four major sources, point out the discrepancies and attempt to make sense of the figures.   For analysis of markets nationwide, click on the topics below ... National Overview: Confusion Created By Rubbery Figures From Multiple Sources. Adelaide/South Australia: Under-Rated Adelaide Doing Better Than Most Realise. Brisbane/Queensland: Consumers Need To Look Beyond The Generalised Data. Canberra/ACT: Capital City Bouncing Back After Earlier Hit From Job Cuts. Darwin/Northern Territory: NT Capital Among The Weakest Of City Markets. Hobart/Tasmania: Definitely A Growth Market: Prices, Rents, Vacancies All Positive. Melbourne/Victoria: One Source Cries Boom, But Melbourne’s Cycle Is Fading. Perth/Western Australia: All Data Agrees Perth Is Last Among The Capital Cities. Sydney/NSW: The Most Misreported And Misunderstood Of The City Markets. Conclusion: A Single Price Growth Figure For A City Of 5 Million Is Ludicrous.  

National Overview

Confusion Created By Rubbery Figures From Multiple Research Companies

The price of apartments in Australia rose 6% in the past year, according to CoreLogic. No wait, they rose 3.8%, according to SQM Research. Hang on, they haven’t risen at all, according to Domain, which reports a 0.1% change (which, in essence, means no change). Did Sydney house prices rise 9% in the past 12 months? CoreLogic says they did. But SQM claims they’re up only 3.5% while Domain says annual price growth is just 1.2%.
HOUSES Residex SQM CoreLogic Domain
Adelaide 5.4 %  0.7 % 5.0 % 4.4 %
Brisbane 5.9 % 6.2 % 4.1 % 4.3 %
Canberra 6.1 % 5.3 % 3.1 % 4.8 %
Darwin    -5.2 % -6.6 % -5.9 %    -7.7 %
Hobart 0.9 %  4.4 %  5.6 %  2.6 %
Melbourne 8.9 % 15.5 % 8.0 %  7.4 %
Perth -3.6 % -4.8 % -5.6 %    -5.6 %
Sydney 8.0 %  3.5 % 9.0 %  1.2 %
CITY ave.  n/a  5.0 %   6.1 %  2.7 %
What are we meant to believe? Every one of these growth figures, and many more like them, have been reported by media as fact. Yet one set of figures contradicts the others. Two major research sources say Brisbane apartment prices have risen, while two others say they’ve fallen. Consumers are entitled to believe that the direction of prices in a market is a matter of fact, yet big-name research entities often can’t achieve any kind of consensus on the state of individual markets.
UNITS Residex SQM CoreLogic Domain
Adelaide 0.2 -1.4 2.6 0.1
Brisbane 3.2 -0.3 1.9 -3.2
Canberra -0.4 -1.7 -0.4 -4.4
Darwin -6.2 0.1 -14.6 -1.5
Hobart 3.0 10.4 12.9 10.4
Melbourne 6.1 6.0 3.2 2.7
Perth -7.5 -3.5 -5.8 -7.8
Sydney 7.3 6.4 9.4 0.4
CITY ave. n/a 3.8 6.0 0.1
Darwin apartment prices are either unchanged, or have dropped 15%, depending on whose figures you choose to believe. But, in reality, can you believe any of them? The most quoted and published research company, CoreLogic, recently suffered the embarrassment of having the Reserve Bank announce that it had disregarded CoreLogic price data because it believed the figures were wrong. The RBA said CoreLogic had exaggerated the level of price growth in the Sydney market in particular. And I wholeheartedly agree with the RBA. When those CoreLogic figures were published, I immediately declared that I believed they were wrong. They contradicted a substantial body of other evidence which showed that the Sydney market was rapidly losing momentum and that the boom was well past its peak. Yet, based on the CoreLogic figures, media published headlines declaring the boom was on again, that bubbles were about to burst and that young Sydneysiders were doomed to a lifetime of renting. A major international ratings agency rushed out a press release warning that Australian house prices were over-inflated, with dire national consequences - all based on a single month’s figures from one research source about just one Australian city, later discredited by credible sources including the Reserve Bank. This is what passes for analysis in Australian real estate these days. The sad reality is that so many headlines about our housing markets are based on dodgy data, a problem exacerbated by journalists who lack expertise and don’t question anything – they simply publish press releases as fact. Look at the numbers in the two tables of figures above. One has the latest annual price growth data on houses from four major research sources, while the other features annual price growth figures for apartments. In some cases there is broad agreement on the direction of markets. But in many instances, there is no commonality at all. One source says a particular market is rising while another indicates it’s falling. In some instances all four sources agree on the general direction of a market but there major disagreement on the rate of growth or decline. How can one source find that a market is rising at the rate of only 3% a year while another says the rate of growth is 13%? Such disparities are all too common. The message for consumers is that they must treat real estate statistics with considerable skepticism. A wise investor will never base an important financial decision on the price data published in media.  

Adelaide and South Australia

Under-Rated Adelaide Is Doing Better Than Most Investors Realise

The Adelaide property market is perhaps the most under-rated in capital city Australia. According to one research source, it’s long-term growth rate for houses is above the national average; is better than the growth rates for Brisbane, Perth and Hobart; and is on a par with Canberra and Darwin. Only Sydney and Melbourne currently have better long-term capital growth rates for houses than Adelaide does. Right now, according to most major research sources, the Adelaide market is travelling quite well. But, as always with price growth statistics, it depends on whose figures you choose to believe. In terms of the housing market, SQM Research says Adelaide prices on average are growing at a rate of only 1%. But Domain, CoreLogic and Residex all record much better growth than that – ranging between 4.4% and 5.4% in the past year. That sounds about right to me – and I expect it to get better, because sales activity has been picking up steadily in Adelaide over the past 12-18 months. The apartment market, in terms of average price growth across Adelaide, is fairly static. Residex and Domain report no change in average prices in the past 12 months, while SQM Research records a slight decline and CoreLogic reports a small rise. If you take an average across the four research sources, a reasonable conclusion is that Adelaide unit prices are not going anywhere in a hurry. There’s quite a lot of new product coming into the city’s apartment market. The State Government is providing incentives for people to buy off-the-plan to encourage construction and therefore generate jobs. Previously these incentives related only to the inner city but the latest policy has broadened the impact to the whole metropolitan area. Developers are building lots of new projects, large and small, and that would tend to keep a lid on prices. Looking forward, I expect decent performance from Adelaide, especially in the housing markets. One of the reasons is the size of infrastructure spending under way and in planning, as this has a big impact on residential real estate. Another is the emerging impact of Defence contracts related to building vessels for the Navy. I also expect more investors across the nation to become aware of Adelaide’s general appeal as a place with attractively low prices, great value for money, better rental yields than the big cities and solid prospects for growth.  

Brisbane and Queensland

Consumers Need To Look Beyond The Generalised Data To Understand Brisbane

There’s general agreement about the state of the Brisbane house market but little consensus about the apartment market. It’s one of those instances when the generalised figures about price growth are quite misleading and deeper analysis is needed. All of the four major sources I examined attribute moderate growth to Brisbane house prices in the past year. CoreLogic says Brisbane house prices are up 4.1%, Domain says 4.3%, Residex says 5.9% and SQM claims 6.2%. There’s a broad consensus there but deeper delving reveals many markets have done better than the generalised figures which describe the entire Brisbane metropolitan area. Some precincts have recorded double-digit annual growth at times over the past 2-3 years, but the rise has not been uniform across the Greater Brisbane Area. In this regard Brisbane has been quite different to Sydney. Brisbane has lacked the strong impetus Sydney has received from a strong state economy, major infrastructure spending and big population growth.  So Brisbane has had elevated sales activity but not the level of price growth across the board that Sydney and, to a lesser extent, Melbourne has received. The Brisbane up-cycle started 2-3 years ago in the inner-city suburbs and then spread to the middle ring suburbs on the Northside. Later the middle ring areas on the Southside joined in and more recently the more affordable precincts in the outer reaches of metropolitan Brisbane got on board. Some suburbs have had periods of double-digit price growth, but it has not been as widespread or as sustained as in Sydney or Melbourne. Right now the best markets are affordable Logan City in the far south, bordering the Gold Coast, and its mirror image in the far north, the Moreton Bay Region. The most problematic part of the Brisbane market is the apartment sector. Domain and SQM both record small decreases in Brisbane apartment prices overall, while Residex and CoreLogic each report small increases. Obviously they can’t all be right and, at the end of the day, it’s irrelevant whose figures are most accurate. What matters is what other data tells us: that the Brisbane inner-city unit market is already oversupplied and it’s going to get worse because of the high level of new construction under way. Looking across the CBD and inner-city suburbs such as South Brisbane, Fortitude Valley and Kangaroo Point, vacancy rates are currently 5% or higher in most precincts. Vacancies will rise further when new projects are completed and investor buyers seek to find tenants. Research shows that most of the buyers of Brisbane inner-city apartments are investors and few of them are local – always a danger signal for any market. We’re now seeing the apartment building boom spreading beyond the inner-city to middle ring suburbs like Chermside on the Northside. Buyers should check local vacancy rates (try the SQM Research website for good information about vacancies in individual postcodes) but also go a step further and check out building approvals. Current vacancy rates may look okay but a big upturn in building approvals may provide a clue to future oversupply.  

Canberra and the ACT

Capital City Bouncing Back After Earlier Hit From Job Cuts

Canberra has a moderately strong housing market and a weak apartment market, according to the general theme contained in the figures from the four research sources. The annual rate of growth in Canberra house prices is 3.1% (CoreLogic), 4.8% (Domain), 5.3% (SQM) or 6.1% (Residex), depending on which figures you like. There has been a moderate upturn in sales activity in Canberra over the past 12-18 months, and this has translated into some price growth but certainly no boom to match the one in Sydney three hours up the road. Overall, it’s clear Canberra has broadly recovered from the downturn it suffered when the Federal Government started cutting back public service numbers a couple of years ago. The house market in Canberra in underpinned and frequently propped up by the ACT Government’s control of land supply. The Government drip-feeds new land to the market in a way that keeps prices high. A limited release of new housing lots which attract demand well in excess of supply and auction bidding will result in people paying half a million dollars for a 300m2 block of land. The industry frequently complains about this but the ACT Government has a vested interest in doing things this way. It’s just one of many ways in which politicians around the nation are the single biggest cause of housing affordability issues. The flipside of that is the apartment market, which has been weakened in recent years by too much building of new stock at a time when demand was weak in the national capital because of public service cutbacks. All four research sources record an annual decline in Canberra apartment prices overall, with the rate of decline varying from 0.4% (Residex) to 4.4% (Domain). This broadly reflects Hotspotting’s research into sales volumes, which shows the housing market fairly solid but the apartment market declining. The published data on vacancy rates is also positive for Canberra. Only Hobart among the capital cities has lower vacancies and Canberra appears to be seeing some growth in its residential rentals – but, again, there are widespread variances in the rate of rental growth published by different sources.  

Darwin and the Northern Territory

The NT Capital Is Clearly Among The Weakest Of The City Markets

There is little doubt that the Darwin market is in the depths of a downturn – the only question is the extent of the decline in the city’s apartment market. Residex, SQM Research, Domain and CoreLogic all record substantial annual decreases in Darwin house prices. The annual rate of decline recorded by the four research sources ranges from 5.2% to 7.7%. All four also report a depressed apartment market, but there is considerable divergence in the annual rate of decrease in unit prices. Domain says just 1.5%, but Residex reports 6.2% and CoreLogic a whopping 14.6%. I tend to think the CoreLogic figure is over the top, especially given the doubt cast on the data from this source by the Reserve Bank and others. It’s well out of line with the other sources and also does not correlate with anecdotal evidence. It is certain, however, that recent oversupply and a decrease in buyer demand has led to weakness in the apartment market and a decrease in price levels. Anecdotal evidence suggests investors are now bargain-hunting in the Darwin unit market, so this may eventually help recovery. Other research data supports the overall impression of Darwin as one of the weakest of the capital city property markets, challenged only by Perth. It has the second highest vacancy rate (after Perth) and there have been big decreases in rental levels. SQM Research reports that apartment rents overall are down 5.5% in annual terms, while house rents are down 2.1%. Those are fairly moderate declines, but the CoreLogic Rental Index records a 12% annual decline in Darwin house rents and a 29% drop in apartment rents - but, yet again, we’re suspicious of the extreme nature of the figures from this source. The Darwin market is struggling but it’s certainly not as desperate as those CoreLogic figures imply. The problem for Darwin is that there’s really nothing in the immediate development pipeline to generate an economic resurgence. There are a number of big proposals in planning or under discussion, but nothing likely to get under way in the near future. The biggest hope for revival in Darwin and the Northern Territory is the landslide election result and the possibility that the newly-elected Territory Government may initiate a revival in confidence. Time will tell.  

Hobart and Tasmania

Hobart Is Definitely A Growth Market: Volumes, Prices, Rents, Vacancies All Positive

Hobart is a growth market. Residex, SQM Research, Domain and CoreLogic all concur on that – but to what extent is a topic of considerable disagreement. Hobart, indeed, is a fine example of how confused people can become when looking at the published price data. Residex says that Hobart house prices overall have risen in the past 12 months, but only around 1%. Domain says the increase is 2.6%, but SQM Research reports 4.4% and CoreLogic 5.6%. So the market is showing little growth worth mentioning or it’s growing at moderate to good rates, depending on which figures you believe. The apartment market is even more confusing. Again, all four sources have published growth figures for the past 12 months, but while Residex reports a growth rate of 3%, both SQM and Domain report 10.4%. And CoreLogic claims Hobart apartment prices are up almost 13% in annual terms. Once again, I would discount the CoreLogic figure as being out of whack with the other sources and with cold logic. There’s no evidence supporting the notion that Hobart has the fastest-growing apartment market in capital city Australia. Hobart’s apartment market is very small, with low sales volumes and little in the way of major new development that might drive prices to those reported levels. One statistic that’s very consistent for Hobart is the one on vacancy rates. SQM has reported Hobart as the capital city with consistently the lowest vacancy rate throughout much of this year. Month after month its vacancy rate is recorded as being below 1% - well under the capital city average of 2.5%, according to SQM Research figures. SQM reports a 5% rise in Hobart rents, while the CoreLogic Rental Index records a 6.2% annual rise. So the overall prognosis for Hobart is positive: Hotspotting research shows solid rises in sales activity, all sources record growth in prices for houses and apartments, vacancies are consistently low and there is evidence of rental growth. Given the affordable nature of Hobart prices, it’s a location worth considering by investors.  

Melbourne and Victoria

One Source Cries Boom, But Melbourne’s Growth Cycle Is Fading

Melbourne is another leading example of how much divergence there is in the growth figures from different sources. It’s also an example of how, sometimes, price and other statistics are utterly useless in alerting consumers to important events in major markets. Is the Melbourne housing market booming or merely growing at solid rates? Is the apartment market spluttering along or growing moderately? It depends on whose figures you trust. And then it depends on how deep you want to dig beneath those generalised figures - which can often create a misleading impression of the state of play within markets. Domain claims Melbourne house prices overall are growing at an annual rate of about 7%. CoreLogic says 8% and Residex says 9%. But SQM Research reports an annual growth rate of 15.5%. Three sources depict moderate to strong growth, but the fourth describes a major boom. The Hotspotting barometer, which focuses on sales volumes, finds that sales activity has dropped markedly in 2016. The fall-off in sales has been quite sharp and, while there may be a Spring revival of sorts, it’s clear that the strong markets of 2014 and 2015 no longer exist in Melbourne. There are still some strong sales taking place (caused primarily by a shortage of quality housing stock on the market), according to anecdotal evidence, but the big price growth of 2015 is unlikely to be repeated in 2016, notwithstanding that big number from SQM. Before 2016 some sectors of the Melbourne market, especially some middle market suburbs, were recording median price growth above 20%. When we delve a little deeper, it’s clear that this is no longer happening. When the number of sales drops, prices always follow, but with a time lag. In the Melbourne apartment market, Domain records annual price growth of 2.7% and CoreLogic says 3.2%. But both SQM and Residex report annual growth around 6%. At the end of the day, it doesn’t matter who you believe – because essentially this is worthless information. What’s increasingly relevant is the supply situation. Melbourne has been building, and continues to build, massive numbers of new apartments, not only in the CBD and near-city markets but further afield now in the suburbs. This is not yet being reflected in the generalised data much loved by research companies and our compliant media. The overall vacancy rate for metropolitan Melbourne is just 2.1%, which suggests all is well in the city’s market. But this gives no hint of the oversupply storm that’s brewing. Individual markets already have high vacancies – such as 5% in Southbank and 6% in suburban Doncaster – and generally the situation will get considerably worse, with tens of thousands of new high-rise units in the construction pipeline. According to SQM figures, Melbourne rents overall are growing (house rents up 3.4% and apartment rents up 4.2%), while CoreLogic also reports small rental growth. If you looked at all those figures – price growth, vacancies and rent growth – you could be misled that all is well in the city’s markets. It’s evidence that the data published in media can be worse than useless. It can be downright dangerous. Investors should tread very carefully in the Melbourne market, especially if considering buying an apartment.   

Perth and Western Australia

All Data Agrees – Perth Is Clearly Last Among The Capital Cities

In contrast to Melbourne, where the statistics are misleading, there is no doubt about the state of play in Perth. The various figures from multiple sources paint a clear picture of a market in the serious doldrums – and that’s right on the mark. Perth is clearly the weakest market in capital city Australia, even below struggling Darwin. Domain, SQM, Residex and CoreLogic broadly agree that the Perth housing market is down and that the apartment market is even further down. In annual terms, the generalised figures for metropolitan Perth show that house prices are down 4% (Residex), 5% (SQM) or 5.6% (both Domain and CoreLogic). This correlates with most other data, including Hotspotting analysis of sales volumes, which have been dropping steadily for three years. The apartment market, which has suffered from oversupply at a time of diminishing demand, has reached a lower ebb than the housing market. CoreLogic, Domain and Residex all have Perth unit prices down 6% to 8% in annual terms. The Perth malaise is seen in other data as well. The city has by far the highest overall vacancy rate – 5.2% for metropolitan Perth, compared to the capital city average of 2.5% published by SQM. And the city’s rents have fallen further than anywhere else – the Rents Index for houses is down 8.4% in annual terms, while apartments are down almost 11%, according to SQM. CoreLogic’s Rental Index for Perth shows an annual decline of 9.2%. This correlates with anecdotal evidence, which depicts tenants exploiting their position of strength to negotiate rental reductions and other benefits. Vacancies are high not only in the inner-city apartment markets, but also in many suburban housing markets. The dissipation of the resources boom has seriously impacted markets right throughout metropolitan Perth.   

Sydney and New South Wales

The Most Misreported And Misunderstood Of The City Markets

If you’re trying to make sense of the various scraps of research information about the Sydney market, good luck to you. Media continues to obsess over Sydney real estate and equally it continues to constantly get it wrong. There’s mass confusion for consumers because everyone – economists, sharemarket analysts, media commentators, anyone with a voice on TV, radio or elsewhere – thinks they’re an expert and that they have the definitive analysis to impart. TV talking head Alan Kohler – very good when discussing finance but an idiot when he delves into real estate – made some big statements recently about Sydney’s ongoing boom, based on a single weekend’s auction clearance rates – rubbery figures at the best of times. Others got carried away when CoreLogic published dodgy data which suggested a revival in Sydney price growth – figures that were publicly discredited by the Reserve Bank. It was later revealed that CoreLogic had changed its methodology for computing price growth and it resulted in a couple of months of inflated price growth data. None of the major research sources can agree on what’s happening with Sydney prices. CoreLogic still has Sydney growing at 9% and Residex says 8%, but SQM claims it’s only 3.5% and Domain says it’s just 1.2%. I tend towards the lower end of that broad range of figures, because there has been a stark decline in sales activity in Sydney in 2016. In many suburbs that were previously booming, the number of sales has dropped alarmingly. You cannot have double-digit price growth rates when sales rates have halved or (in some cases) dropped to one-third of their former levels, which is the case in many suburbs across metropolitan Sydney. Hotspotting now classifies some Sydney suburban unit markets as “Danger” markets, because sales levels have dropped so alarmingly at a time of increased supply. Which leads us to the published price data for apartments. CoreLogic reports an annual rise of almost 10% in Sydney apartment prices, while Domain records a rise of 0.4% - which means, in essence, no change. In between those extremes are SQM (6%) and Residex (7%). And there’s the source of endless consumer confusion: when the CoreLogic figure is published, media reports a Sydney apartment boom. When the Domain figure shows up, media says the boom is over. Often both reports appear in the same week or on consecutive weeks, with no reference to the contradiction in the two sets of figures. Who is right? At the end of the day, it’s almost irrelevant. To understand why I think so, read the “In Conclusion” chapter on the next page.  

In conclusion

A Single Price Growth Figure For A City Of 5 Million Is Ludicrous

You know you’re listening to a charlatan when a commentator or writer is discussing “the Australian property market” as a single entity. Economists in particular speak about this mythical creature, the Australian housing market. They will predict that “Australian house prices” will rise 5% next year or observe that “Australian apartment prices” increased 7% last year. What actually does that mean? In reality, it means nothing of value to anyone. It’s utterly useless information. To distill all the sales across a nation as large as Australian down to a single growth figure is a ludicrous proposition. There are so many different and conflicting situations across the nation. According to CoreLogic, apartment prices in capital city Australia rose 6% in the past 12 months. That was the change in the median price for apartments across the eight capital cities. But, according to the same source, Perth unit prices fell 6% and Darwin dropped almost 15%. Canberra recorded a marginal decline. But Sydney was up 9.5%, Melbourne 3.2% and Brisbane a tad under 2%. Hobart, rather surprisingly, recorded a 13% rise in apartment prices. That single national growth figure disguises myriad different situations in the various cities. The single figure for Sydney – a rise of 9.5%, which has been disputed and discredited by the Reserve Bank – is also a nonsense. Sydney is a city of over 700 suburbs and 5 million people. Beneath that single rubbery disputed figure describing the whole metropolitan area lies multiple different situations – some where prices are rising strongly, others where prices are rising moderately, many where prices are stagnating and some where prices are falling, in some cases by a lot. Most serious researchers know this to be true. But their objective is not to inform consumers or to be helpful. Their goal is to generate publicity to advance their businesses. Some of them simply don’t care about accuracy or balance. So they continue to publish statistics which are meaningless, inaccurate and sometimes downright dangerous. [post_title] => Property Report - October 2016 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => property-report-october-2016 [to_ping] => [pinged] => [post_modified] => 2017-12-04 17:30:44 [post_modified_gmt] => 2017-12-04 06:30:44 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=277 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [6] => WP_Post Object ( [ID] => 166 [post_author] => 1 [post_date] => 2016-06-24 16:39:52 [post_date_gmt] => 2016-06-24 06:39:52 [post_content] => Home ownership, that great Australian Dream, is harder than ever before. Across the nation, tens of thousands of families are locked-out of homes they can never afford to buy. The rising cost of rent plus day-to-day living expenses makes it almost impossible for these families to save even a minimal deposit for even the most modest home. And the banks, well, they just won’t touch these battlers who, desperate and despondent, feel doomed to a lifetime of renting. Many would do almost anything for the slightest chance to own a home. It’s a national tragedy. And so, when they hear about a scheme called ‘Rent to Buy’, their hopes surge. It’s like offering water to someone dying of thirst. It sounds so simple, so alluring. Instead of renting a home you’ll never own, you can now rent a home that you will own. Surely that’s cause for celebration. Sadly, no. Here is a simple fact: ‘Rent to Buy’ schemes are dangerous scams. They are designed by predators who prey on the poor. They are a complete rip-off and should be outlawed. Like all slick scams, ‘Rent to Buy’ schemes are so seductive. The pitch goes like this: We are here to help you. We have a unique system. If the banks reject you, we can help you. And on and on and on it goes. One twisted truth after another. The straight truth, however, goes as follows. Victims of these scams (many of whom do not even realise they are victims until it’s too late) are ripped off in three ways. First, they are charged an exorbitant amount of rent. In just one typical example, a property offered by a mob called Rent 2 Buy Pty Ltd (run by a 35 year-old spiv called Troy Boldy) offers a home for rent in the Sydney suburb of Fairfield at $550 per week. The market rent is about half that amount. Astonishingly, Boldy himself openly admitted yesterday that his rents are “double” the market rent. Okay, so that’s the first part of the rip off. Buyers pay double the market rate for their rent. Second, as well as the exorbitant rent, the “buyers” (victims) pay an exorbitant price for the home. Sticking with the same example of Troy Boldy and the same home in Fairfield, the purchase price being asked for this home is $380,000. Yesterday, a local agent estimated its real value at between $250,000 and $270,000. So, on top of the double rent, the victims are also paying at least $100,000 too much for the home. From the moment they sign up with Rent 2 Buy Pty Ltd (or any similar company), they have instant negative equity (meaning they owe at least $100,000 more than their home is worth). The third rip-off with the ‘Rent to Buy’ schemes is that the buyers are not the owners of the homes they are buying. No, the homes remain in the name of the rogues running the scams. Quite simply, this means that if the buyers pay the rogues and the rogues go broke or their companies collapse (as many do) then the buyers – who have done nothing wrong – are instantly evicted. These schemes (sorry, scams) are just a variation of the notorious wrap schemes which were once promoted by get-rich-quick spruikers such as Henry Kaye, Steve McKnight and Rick Otton. Mr Otton still runs seminars – at thousands of dollars a ticket – where he teaches hundreds of wanna-be-property multi-millionaires how to set-up these predatory scams to exploit battlers. As the housing affordability crisis gets worse, more predators will be attracted to these scams. As the trusted finance commentator, Ross Greenwood said: “These could be the financial scandals of the next five years.” He’s right. Now, before the usual abuse from rogues spews forth at the author of this article, here’s a final message to any battlers who may be tempted by these schemes… Go and see an independent lawyer before you sign anything. Any lawyer with any intelligence or integrity will tell you to have nothing to do with these typical ‘Rent to Buy’ schemes. [post_title] => Rent to Buy Schemes [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => rent-to-buy-schemes [to_ping] => [pinged] => [post_modified] => 2017-11-30 09:57:35 [post_modified_gmt] => 2017-11-29 22:57:35 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=166 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [7] => WP_Post Object ( [ID] => 335 [post_author] => 1 [post_date] => 2016-06-06 13:42:06 [post_date_gmt] => 2016-06-06 03:42:06 [post_content] => by Neil Jenman. Anyone who gets involved in the property market - whether as a seller, a buyer, (and even an agent), has probably wondered why so many people tell so many lies. As one buyer recently (and typically) remarked, "Why do all agents lie to me?". The feeling is often mutual. There's a well-known saying among agents, "All buyers are liars." As for sellers, well, agents have a variety of common labels they pin on sellers which range from the derisive "greedy", "unrealistic" or "stupid" to the more polite, but no less common, "They are not prepared to meet the market. They're bloody time-wasters." As for sellers' opinions of agents, many think "all agents are nothing but a pack of liars." These are the sellers who have usually experienced the trauma of having agents quote a high selling price and then, once the sellers sign-up with the agents, things take a sudden and dramatic change. Good news becomes bad news. Positive features of the home are seldom mentioned any more; instead, the negatives are highlighted, all dressed up in what agents call "market feedback". Yes, agents tell the lies and then use "the market" like a criminal uses an alibi. So, first of all, let's ask the truth about all these lies.

Do agents lie to buyers?

Yes, every day. How else can agents get buyers interested enough to inspect properties or turn up at auctions? The truth, to buyers, can be a real turn-off. Here's another common saying among agents, "Quote 'em low and watch 'em go; quote 'em high and watch 'em die."

Do buyers lie to agents?

Yes, of course they do, especially when it comes to making offers. The buyers want to buy for the lowest price possible. They often say to agents, "This is my best offer," when they know darned well that they are willing to pay more.

Do agents lie to sellers?

All the time; if agents didn't lie, they wouldn't be able to get properties for sale. Sellers often call three or four agents and fire a question at them, "What's my property worth?" The agent who tells the biggest lie often wins the business. The agent who tells the truth is shown the door. Agents know - the truth can send them broke. Tell the lie, sign-up the sellers and then start telling the truth. Once the sellers are signed-up, they are effectively locked-up. No matter how badly agents treat them, signed-up sellers can't sack the agents. It's easier to get out of a marriage than to get out of most real estate contracts. And, finally,

do sellers lie to agents?

Yes, definitely. If sellers tell the agents the lowest price they're prepared to accept, that's the highest price they'll probably get. Most sellers "load up" the asking price of their homes. And why shouldn't they? They're about to face a full frontal assault from both agents and buyers determined to talk them down in price. Lying is a matter of survival. So, in summary, what generally happens in the property world is this: Agents are lying to sellers and buyers in order to win their business. Buyers are lying to agents in order to buy at a lower price and sellers are lying to agents and buyers in order to protect the value of their properties. Everybody's lying to everybody. The property game is a game of lies. So, how do you survive the lying game? Well, understandably, the first instinct when everyone else is lying is to lie yourself. It's easy to think that the biggest liar gets the best deal. But, no, that's not necessarily so. Indeed, the more straight you play the property game, the more chance you have of coming out a winner. So how do you play a straight game if everyone else is crooked? What you should realise is that, in most cases, you are not dealing with crooks. Usually, you are dealing with good people who feel there is no option other than to play it crooked; or, at the very least, to bend the truth slightly, to be a little bit, shall we say, shifty. The buyers who give agents low-ball offers - and pretend it's their "highest price" - are only trying to get the best deal for their families. And if this means telling a white lie, so be it. The trouble is that these "white lies" often backfire badly on buyers. For example, a buyer inspects a home with an asking price of $700,000. The buyer loves the home (but tries hard not to display too much interest) and makes an offer of $650,000. Now, the buyer may be quite capable of paying more than $650,000, perhaps even of paying the asking price of $700,000. But, no, the buyer plays the lying game and says, "I'll give you $650,000 - that's the most I can afford." A few days go past and, having heard nothing from the agent, the frustrated buyer calls the agent to find out what's going on. "Oh, that place was sold yesterday," says the agent. "For how much?" asks the buyer. "Another buyer offered them $655,000 and they accepted," says the agent, barely able to conceal the smugness. "But why didn't you call me before you sold it?" shrieks the buyer. "Because you told me that $650,000 was your maximum," says the agent. Now, yes, in situations such as this, the agent has been incompetent but it doesn't help the buyer. The above scenario happens hundreds, perhaps thousands, of times every month in the property world. Bluffing (lying) buyers often lose out on the home they love because they told a lie about their maximum price. So, what should buyers do? How should they play the lying game? Answer: they shouldn't. If the buyers are in love with the home, they have to ask themselves the question: What's more important to them - the home or their wallet. If the answer is "the home", then tell the truth. Give the agent your best price as your first offer. Indeed, give them an offer in writing stating something such as, "This is the highest price I am able to pay and if it is not accepted, there is no need to contact me again." That'll get attention. Be truthful. Give your best price and then walk away knowing that, no matter what happens, you have told the truth and done your best. Yes, perhaps, if you tell a lie you might save a few thousand, but do you want to risk it? If you are buying with your heart, then work out the maximum you can afford, tell the truth and then hope for the best. It's better to pay a few extra thousand to win the home you love than to lose the home because you bluffed yourself out of the deal. And, what about the sellers? How should they play the lying game. Remember that the agent who quotes you the biggest price is possibly the biggest liar. And you'll never really know if the agent is lying unless you hire the agent. And then, once you hire the agent, you are stuck with the agent. No, you are not. You just have to know how to play the game. And here's what you do. When an agent quotes you a big price for your home and you are tempted to sign-up, ask the agent to put the quote in writing. And then say to the agent, "Well, you have told me the highest price you think you can get for my home, now please tell me the lowest price you think you can get for my home." You must insist that the agent answers this [lowest price] question. And then you say to the agent, "If you ever ask me to sell my property for less than the lowest price you quoted me, you must also be prepared to lower your commission - at least by the amount you will be asking me to lower my selling price. If not, then I am sorry, but I will not hire you as my agent." Now, you are about to hear the four most important words about selling your property. You must burn these words into your brain. These are the words that decide whether you get a good deal or a bad deal. They are the words that decide whether or not you will beat the lying game or whether you will allow the lying game to beat you. The four most important words when selling are these - You are the boss! And don't you ever forget it, not for a moment. It's your property. The agent must do what you say - not the other way around. Do not be bluffed. If the agent says to you, "But this is our policy," then you reply, "Well, we also have a policy and that policy is that we require the people with whom we do business to be truthful. If you are truthful, you have nothing to worry about." And, also, be sure that when you first sign-up with an agent, you do NOT sign-up for a long period of time. Repeat: You are the boss. You do not have to give the agent a three or four month contract. You can give the agent a three or four day contract if you like. Generally, you should sign-up with an agent for no more than six weeks. That's plenty of time. As for the price, don't make the mistake of being too greedy. Everyone thinks their property is better than other properties. Lots of sellers make the awful mistake of asking too much in the beginning which means they usually get too little in the end. Do you want to know what your property is really worth? With no lies, no games? Then don't ask an agent. Ask a valuer. Yes, before you call an agent, pay a few hundred dollars and make one of the best of all property investments - hire an independent valuer. Tell the valuer, "I am thinking of selling my property and I want to know the truth about its real value." Less than one in 50 (probably a hundred!) sellers make this wonderful investment. It's one of the best ways to beat the agents and the buyers in the lying game. Do it. You have a property worth several hundred thousand dollars, you are probably going to pay an agent several thousand dollars, so, at the very least, spend a few hundred dollars on a valuer. And, finally, for you agents, how do you win the lying game? Yes, it can be tough for you. You are dealing with sellers and buyers who don't trust you, who will usually think nothing of twisting the truth, of hiding important facts from you. So often, you will be the 'piggy in the middle' getting blamed by both the sellers and the buyers for the sins of the others. The best thing you can do, agents, is to start spending more time with both sellers and buyers before you do business with them. Sit down and tell the truth, the whole truth and nothing but the truth. When you go to the sellers' home to give them a price quote, tell them that you are in a dreadful position. Tell them that, by calling in three or four agents and asking for a "quote", they are giving all the agents, yourself included, an incentive to lie. Agents, why not recommend to sellers that they hire an independent valuer? Agents, why not offer to lower your commission if you ask the sellers to lower their price below the amount you quote them? Here's a final tip for all agents, all sellers and all buyers - from someone who has been watching the property industry for almost four decades: By far, the best way to win in the lying game of real estate is to refuse to have anything to do with it. Play it straight. Before you do business take time to understand the situation of other people - and then ask them to do the same for you. If you are a seller, understand that the agent wants (needs!) your business and that if you ask the agent to give you a quote, you are inviting the agent to lie to you. If you are a buyer, understand that the agent wants (needs!) you to get hooked on the home and that by hinting that you may get a lower price, the agent is going to get you interested. If you are an agent, then remember this: If you want sellers and buyers to treat you well, to give you their business, then start showing some genuine care for them. Be the friend they need - and, for sure, you'll make a lot more sales. Everyone can survive the lying game if everyone takes just a little bit of time to think about why the property game is riddled with lies. Once you understand the system, you'll know how to play it - straight and safe. ************** FOOTNOTE: If you are a seller or a buyer and you want any help, then you can contact us FREE OF CHARGE and with no obligation by calling 1800 1800 18. This article was written in May 2009 [post_title] => The Lying Game [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-lying-game [to_ping] => [pinged] => [post_modified] => 2017-12-06 13:43:04 [post_modified_gmt] => 2017-12-06 02:43:04 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=335 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [8] => WP_Post Object ( [ID] => 279 [post_author] => 1 [post_date] => 2016-06-01 17:31:26 [post_date_gmt] => 2016-06-01 07:31:26 [post_content] => by Terry Ryder. creator of hotspotting.com.au Introduction: The future of markets around Australia Here's the most important advice you may ever receive about real estate investment: it's the future that matters, not the present or the recent past. That may sound simplistic but the reality is that most Australians invest according to the present while being influenced by the past. They don't see the future because they lack the skills and their mindset is wrong. When it comes to buying an investment property, the only thing that matters is the future. But that's not how most investors behave. Most investors get into the market when media tells them there's a boom under way. By the time media reports rising prices in a market, the rise has been under way for 12 months or more and it's too late to buy well - much of the price growth that investors are seeking has already happened. Investors miss many of the best opportunities because they are put off by a poor track record. Sydney had achieved little growth in the previous 10 years prior to its rise in 2013. Most buyers got into that market too late, after substantial price rises had already occurred. Many buyers shunned the suburbs of Blacktown because of a poor track record and perceptions of being a problem market, but from 2013 to 2015 they achieved the best growth in the Sydney area. North of Sydney, many missed the spectacular rise in prices in the Gosford LGA because its track record over the previous 10 years had been extremely poor. There are many similar examples. In each case, Hotspotting predicted the rise in prices, because we identified growth factors likely to drive an increase in values. To be successful with property investment, investors need to tune into the events and circumstances that dictate future patterns - and not allow the present and the past to discourage them.

For analysis of markets nationwide, click on the topics below ...

National Overview Vision is needed to look beyond the present and see the future.
Adelaide & SA The 2 leading cities have better futures than many expect.
Brisbane & QLD Brisbane and the South-East will continue to grow strongly.
Canberra & ACT Planning changes to boost affordability and uplift the market.
Darwin & NT The NT capital is down, but it's never down for long.
Hobart & TAS Tasmania is one of the best buys in the nation.
Melbourne & VIC An enduring future from population and infrastructure growth.
Perth & WA Now is a good time to be bargain-hunting in Perth and WA.
Sydney & NSW Look for regional opportunities, follow the Sydney infrastructure trail.
Conclusion Success belongs to those who leave the herd, run in the other direction.
 

National Overview Vision is needed to look beyond the current conditions and see the future

The most common communication I receive from real estate consumers is this: I own real estate in (name of suburb or town) and the market has been going backwards. My partner thinks we should cut our losses and sell. What should we do? It's perhaps a natural reaction to feel a sense of foreboding when you've spent big on an investment and it appears to be performing poorly. Not matter how many times people are reminded that real estate is a long-term investment, there's a tendency to panic during a downturn. It's important to understand that every market, not matter the location, goes through down periods. There is no suburb, town or city in Australia where the market always rises. Every market will go through a period of rising fortunes, then a period of consolidation when values stop rising or may decline, and eventually another phase of growth. All markets have peaks and troughs. Those ups and downs are enhanced in markets with natural volatility, such as towns and regional centres strongly impacted by the resources sector. The greatest angst among property owners around Australia right now is coming from those who own property in mining towns and resources-related regional centres. Gladstone in Queensland is a classic example: from 2010 to 2012 rents and prices rose sharply, as Hotspotting predicted (while warning investors that this was a volatile market with a history of booms and busts) and investors piled en masse into that market, seeking a windfall. Some investors bought multiple properties in this one risky location (always a mistake). This happened in anticipation of a boom inspired by the three huge LNG processing plants being built in the Central Queensland city. But developers went overboard. They built far too many new dwellings, because they assumed all the gas industry workers would be renting local houses and apartments. But most of the workforce was accommodated in temporary workers camps and a major surplus of dwellings resulted. We warned investors to stay out of the Gladstone market or, if they already owned there, sell before the downturn struck or prepare for a period of poor performance while taking a long-term view. Vacancies rose, rents fell and property values followed. In the midst of an extraordinary economic boom, unprecedented in regional Australia, the Gladstone property market experienced a major downturn. Now investors who own Gladstone dwellings are in a lather because they can't see any light at the end of this dark investment tunnel. But Gladstone is a strong regional city with a massive future. Those with vision and patience will ultimately make money from owning real estate there. It's difficult, however, to imagine that future when prices and rents are falling. There are similar scenarios happening in Port Hedland and Karratha in Western Australia, some of the towns of the Hunter Valley in New South Wales, and the towns of the Surat Basin and the Bowen Basin in Queensland. But it's not just resources-related locations feeling the pain of downturn. Some of our major cities are going through difficult phases in their market cycles, notably Perth and Darwin. Investors are shunning the Perth market because it has been declining – not dramatically, but rents and prices have fallen – for the past three years. The relatively few with long-term vision are behaving differently. They recognise that this is the ideal time to be researching investment in this market – when the market is down, prices are low and there is little competition in the market from other buyers. You just need to believe Perth has a strong future. And of course it does. Western Australia has been one of the nation's leading growth economies and Perth has often been a national leader on population growth. Its property market has a very good track record of long-term growth in values, better than most Australian cities. But, like every market, it's going through a down phase. Most investors will avoid Perth until they read in media that it's booming again, by which time the best opportunities to buy well will have passed into history. The enlightened few will be looking for bargains while the market is down, getting into position for the next growth phase. This is the essence of good investing: understanding the cycles of real estate, identifying the markets with future growth drivers and buying when those markets are down and prices are low.  

Adelaide and South Australia The two leading cities have better futures than many expect

The problem for this market is that it has an enduring image as one that lacks strong pistons driving prices. Adelaide and South Australia is never a leader on economic or real estate growth. But Adelaide has been a solid performer over time. It's a capital city and it's growing – just not as prolifically as other major cities. It needs significant strong positive news to lift it to another level – and it appears to have got that with the announcement of the $50 billion deal to build submarines in Adelaide. This is just the boost the city's economy needs – even if the actual work in some years away. French company DCNS has won the contract but the 12 new submarines will be built in Adelaide, creating thousands of local jobs. PM Malcolm Turnbull announced the decision, saying: "Australian built, Australian jobs, Australian steel," That hopefully means something good for Whyalla, where the Arrium steel business is struggling to stay afloat. Industry Minister Christopher Pyne says all 12 Shortfin Barracuda subs will be constructed entirely in Adelaide. "This is definitely not a hybrid build, it is a local build," he says. New infrastructure will be needed at Techport, the shipbuilding facility in the Adelaide suburb of Osborne, where the new subs will be built. Meanwhile, Adelaide is a city spending relatively large sums on infrastructure - the single biggest driver of economic and real estate growth. In particular the State Government is spending a lot on the city's road network and also the commuter rail system. As long as that continues, Adelaide will have growth in its real estate market. Whyalla, SA's largest regional centre, has been struggling, because it is strongly linked to the resources sector and the downturn there has weakened the city's economy. Adding to its problems are the struggles of major employer Arrium. Arrium, formerly OneSteel, is in voluntary administration. But Whyalla has been attracting plenty of positive announcements in the recent weeks. Oz Minerals is advancing its $975 million Carrapateena copper mine expansion and it wants to build its $150 million Concentrate Treatment Plant at Whyalla. The mine expansion will create 800 jobs and it's hoped many of the workforce members will be sourced from Whyalla. BHP Billiton continues to work on its alternative plan for development of the Olympic Dam resource and said in April it hoped to include Whyalla in the new project plans (put together after the previous $30 billion scheme was shelved because it was too expensive). And there is hope for Arrium in the news that 15,000 tonnes of its steel will be used for a $620 million road project, the Darlington Upgrade Project, in Adelaide. The Federal Government has handed Arrium an $80 million contract to replace 1,200km of rail lines for federal agency ARTC. Arrium may also attract steel orders from the afore-mentioned plans to build submarines in Adelaide. I've had lots of emails from troubled real estate owners in Whyalla. I'd suggest those who panic and sell in the wake of recent negative headlines might regret it later.  

Brisbane and Queensland Brisbane and South-East Queensland will continue to grow strongly

It's difficult to imagine a time when there is no future for Queensland, especially Brisbane and the south-east corner of the state. Things change – and Queensland is not currently a dominant state for population growth and economic performance. But it has been in the past and I suspect it will be again in the future. Its natural assets, its resources, its lifestyle and its climate will remain persistent attractions for businesses and residents. Brisbane has had a solid property market over the past couple of years, without generating major price growth except in specific pockets. This relates to a lukewarm state economy, undermined by the weakness in the resources sector, and the relatively small activity in infrastructure spending. This is likely to change, as there are significant projects in the offing, including further upgrades to the Ipswich Motorway, the $5 billion Cross River Rail project, $1.5 billion in expansion at the Amberley RAAF Base and major construction projects in the dwelling industry. While the Gold Coast has issues with a looming surplus of high-rise units, it's a growth centre for multiple reasons, including infrastructure spending, other construction projects and high population growth. An ongoing light rail project, a major private hospital, facilities for the Commonwealth Games and expansions to retail and tourism infrastructure are boosting the economy. The latest ABS data shows the Gold Coast-Tweed region continues to add hugely to its population. The percentage growth rate is not as high as in the past (it's now increasing from a much larger base, so spectacular growth numbers aren't so easy), but it's still a headline growth centre. Gold Coast-Tweed grew 53,500 over the five years to 2015, a rise of almost 10%. It's the nation's sixth largest city, with 625,000 residents, well ahead of Newcastle-Maitland and Canberra-Queanbeyan. So why have Gold Coast prices done little in the past six years, amid all that population growth? Because developers oversupplied the market with high-rise units, yet again. Now the market is showing some growth, because the surplus has been soaked up and, more importantly, there's a big infrastructure spend. The Sunshine Coast is also a big growth centre: its growth rate over five years (9%) was almost as big as the Gold Coast's and 25,000 has been added to its population. The Sunshine Coast is the nation's 10th biggest city – larger than Wollongong and considerably larger than Hobart. Like the Gold Coast, the Sunshine Coast has become a growth property market because of significant spending on infrastructure and other construction projects. Other centres where growth is likely to be a regular fixture include Toowoomba, Gladstone, Townsville and Cairns. Two of these regional cities are places where investors are likely to be turned off by recent negative sentiment - but strategic investors would keep them on the radar screen. Gladstone has a boom-bust history because of its links to the resources sector. You need to keep that in mind when considering an investment there. It tends to have high peaks and deep troughs. Currently it's in a deep trough because developers grossly oversupplied the market, over-reacting to the LNG boom and misunderstanding the impact of temporary accommodation camps. But Gladstone ranks as Australia's No.1 industrial city, a status that has been enhanced by those three massive LNG processing plants now reaching the completion of their construction phases. Townsville provides another case study: the collapse of Clive Palmer's nickel refinery business has generated some hysterical headlines about the demise of the city economy. One declared the city a future "ghost town". Investors who own property there are in a panic as a result. But right now the positive events happening in and around Townsville greatly outweigh the negatives – it's just that media is less interested in reporting the good news. Here's a reality check: Townsville is a very resilient place. It has one of the most diverse economies in regional Australia, with strong elements of government administration, education, tourism, the military, the resources sector and manufacturing. And lots of positive news has emerged more recently. The economic and defence deal between Australia and Singapore is one example – it means $2.25 billion in new infrastructure will be built in Queensland, including in Townsville, which has a big military presence through its RAAF and Army bases.  

Canberra and the ACT Planning changes to boost affordability and uplift the city's market

Canberra suffered from downsizing of the public service but those impacts have worked through the system and there are solid indicators of a return to growth. Probably the biggest single recent event for the ACT is the change to planning provisions. An enduring problem for Canberra has been the way the ACT Government has controlled land supply, drip-feeding new residential allotments to the market in a way guaranteed to keep supply well below demand and therefore prices high. This increases government revenue, with small allotments selling for very high prices, but its does nothing for housing affordability. A recent auction of blocks in Throsby resulted in the buyers paying, on average, $108,000 above the reserve prices. One 540m2 block sold for $536,500. Nine blocks of just 315m2 each sold for between $340,000 and $356,000. The Canberra Times reported: "The Government's method of releasing small parcels of around 100 blocks has been strongly criticised by advocates of affordable housing who say it artificially inflates prices." The Federal Government is now pushing big changes to planning for the ACT. They will allow residential development in Tuggeranong, west of the Murrumbidgee River, while the parliamentary triangle's East and West Blocks will be opened up for use as hotels, offices, restaurants, cafes or retail spaces, while outdated Federal office buildings at Anzac Park East and West will be redeveloped. The first major review of the National Capital Plan will also allow the CSIRO to sell its 701-hectare Ginninderra field station, to be zoned urban. Changes to the plan give the ACT Government more control over planning while the National Capital Authority will maintain control over areas of "national character" including the parliamentary triangle and major roads into Canberra. ACT Liberal senator Zed Seselja says the changes will give the ACT the chance to "do the right thing for Tuggeranong" and to improve housing affordability. Territories Minister Paul Fletcher describes the "Amendment 86" changes as the most significant and comprehensive redrafting of the plan in ACT history, which would provide a clearer and simpler planning framework for the nation's capital. Senator Seselja said the changes were a big win for Canberra, particularly for housing affordability and local town centres. "The current lack of both housing and facilities in Canberra's outer suburbs is making it hard and unappealing for young Canberrans to enter the property market, particularly in Tuggeranong," he says. "The updated plan will ensure the viability of Tuggeranong's future growth and will not only provide for more affordable housing opportunities but also new and upgraded facilities for local residents." This happens at a time when Canberra's property market is showing solid signs of emerging from a period of stagnation.  

Darwin and the Northern Territory The NT capital is down, but it's never down for long

Darwin is a prime example of a market that few will consider because it's in a down phase. But the history of the Darwin property market is one of high rents, strong yields and good capital growth. Before the resources boom ran out of puff, Darwin was a national leader on growth in prices and rentals. Darwin has an almost unique dynamic because it's essentially a regional centre which doubles as a capital city. It has big links to the resources sector (which creates volatility) and the military, and is usually strong in tourism and construction. CommSec's State of the States quarterly report continues to rank the Northern Territory highly – fourth in the latest report, ahead of Queensland and Western Australia. In 2011 and 2012, Darwin was a national market growth leader, alongside Perth. Both those cities had been pumped up by the resources boom. They both declined when the mining boom run out of puff. Darwin rents and prices have fallen since, with double-digit decreases in median rents in the past year. But Darwin is nearing the bottom of the market for houses and units, according to valuer Herron Todd White. It says prices are down and suggests the buying is attractive at current levels, with evidence that the market is "stabilizing". In a recent report HTW split the Darwin market into key areas and commented on the "fringe" suburbs in each. It said inner-city fringe suburbs like Stuart Park, Ludmilla and The Narrows were generally targeted by those who can't afford the pricier CBD, Larrakeyah, Parap or Fannie Bay options. "There has been little to no activity on sales for houses in these suburbs, with Stuart Park having only four house sales in the quarter," HTW says. "This is reflective of the Darwin market which is struggling, with overall vacancy rates up to 8.2%." It says the volume of unit sales in the inner-city fringe suburbs has fared better, with sales in Stuart Park rising 42% but with a median price drop of 10%. "This can be attributed to new developments being released to the market and investors jumping on a bargain," it says. HTW notes that since the end of the first-home buyer's grant for existing dwellings, new units have become attractive while demand (and prices) for existing units has dropped. "The market downturn has opened up the potential for good buying in the area," it says. And that, in a nutshell, is my message. With the market down and pricing at attractive levels, now is a great time to be looking in Darwin, to buy well in expectation of the next upturn.  

Hobart and Tasmania It's hard to convince anyone, but Tasmania is one of the best buys in the nation

Hobart is great example of the underlying theme of this report: if you're stuck in the events of the past, you'll never consider it for investment. But anyone with the vision to see the changes under way will take a different view. The problem for a long time has been the underlying economy. Tasmania has been the perennial weakest performer among the states and territories. It has been last on population growth and an enduring reputation as the "basket case" among the state and territory economies. Many people still believe this is the case. But much has changed. Part of Tasmania's problem in the recent past was a minority government. Now it has a much stronger and more proactive one. Part of the problem was a lack of economic growth. That has changed too. The Tasmanian economy is now performing well. Tourism is strong, helped by the low Australian dollar. Other sectors, including construction and agriculture, are rising. On some parameters, Tasmania is now leading the nation. After years of recording Tasmania as last or second last on every economic indicator, it's good to report positive changes. And the property markets of Tasmania are responding to those positive changes. In some ways, it feels like 2003. Back then, there was a major national property boom. Cities like Melbourne had had three years of massive price growth (much larger than we've seen recently in that city). Eventually the boom rippled across Bass Strait to Tasmania. Mainland investors noticed the cheap prices and the high rental yields - and Tasmania had two years of strong price growth. Similar conditions exist now. Melbourne has had 2-3 years of strong market activity and solid price growth. As that cycle peaks, investors are looking elsewhere. Hobart is attractive because (1) it has the lowest dwelling prices in capital city Australia; (2) it has the lowest vacancy rate among the capital cities; and (3) it has the highest rental yields among the capital cities. The median dwelling price for Sydney is $780,000 and Melbourne is $585,000. In Hobart, it's $330,000. The median rental yield for houses in Hobart is 5.6% - the next best is Brisbane's 4.8%, while both Melbourne and Sydney are below 3%. In those terms, Hobart starts to look attractive. Elsewhere in Tasmania, investors should also consider Launceston and Devonport in the northern part of the state, where affordable prices and high rental yields are now being underpinned by strengthening local economies. Here's another way in which thinking to the future makes Hobart and Launceston relevant. Imagine what will happen if Labor wins the Federal Election and implements its policy to scrap negative gearing. Where will investors buy? I would suggest they will reject expensive markets with low rental yields, like Sydney and Melbourne, and focus on cities with cheaper prices and rental returns sufficient to provide positive cashflow - cities like Hobart and Launceston.  

Melbourne and Victoria An enduring future from population growth and infrastructure spending

Melbourne has had a good run over the past 2-3 years. Overall, I wouldn't characterise it as a boom, because the annual price growth rate has been mostly in single digits. Individual markets sectors have excelled, but across the metropolitan area it's been an active market with good price growth, but not a boom (2002 and 2003 was a boom in Melbourne when prices rose ???INSERT FIGURES) Now the Melbourne has peaked - or is close to its peak, depending on how you measure it. In terms of sales volumes, Melbourne peaked around the middle of 2015. In terms of the annual price growth rate, it appears to be peaking now. One piece of evidence suggesting that Melbourne's run is close to being over is that the greatest momentum is now being seen in the outer ring suburbs. As is often the case, Melbourne's run started in the inner-city suburbs, rippled out to the Middle Ring areas (which excelled in 2015) and now is being felt in the outlying suburbs of the north (Epping), south-east (Cranbourne), west (Sunshine) and south-west (Wyndham Vale/Werribee). So where now for Melbourne? Three key factors stand out, two positive and one negative. The first positive is Melbourne's status as the national king of population growth. Largely through the influx of overseas migrants (but also boosted by interstate migration) Melbourne adds more to its population each year than any other city. Sydney is a bigger city, but Melbourne is adding greater numbers. This is a fundamental influence on the property market. The migrant influx has recently been an influence on price rises in the Middle Market in particular. The second positive is the prospect of major infrastructure spending. Nothing pumps up economies and property markets like big spending on infrastructure. This has been the biggest factor underpinning Sydney's recent boom. Melbourne's up-cycle has been less prolific than Sydney's because it has not matched it for spending on roads, rail and hospitals. That may be changing. A number of big ticket infrastructure items are in the pipeline, boosted by commitments in the May 2016 State Budget. Examples include funding for the $11 billion Melbourne Metro Project and upgrades to other rail links. The serious negative is the overbuilding in the inner-city apartment market. Even if developers decide to build no more unit towers, the product recently completed and under construction is sufficient to guarantee a big surplus leading to rising vacancies and falling rentals, with a consequent impact on property values. The State Government's decision to slug foreign investors with additional taxes makes the situation worse. Many of the current projects are being built primarily for sales to Asian investors. If the federal and state government crackdowns on foreign buyers deters them from investing in Australia,  Melbourne's high-rise market will suffer considerably. As has happened in New South Wales, the capital city's boom has produced a ripple effect for regional markets. In Victoria, Geelong has had a busy market and there has been significant price growth in the towns of the Macedon Ranges, where in some cases median house prices have risen 20% or more in the past 12 months. And, yes, Hotspotting did predict those rises. Other regional centres have been solid, without yet producing big growth. But cities like Bendigo, Ballarat, Warrnambool and Sale have strong futures.  

Perth and Western Australia Now is a good time to be bargain-hunting in Perth and WA

Perth is probably the best example among the major cities of the importance of looking beyond the present and seeing the future. Right now property buyers are shunning Perth because the market is down and prices and rents are in reverse. The herd mentality dictates that now is the time to avoid Perth - and the time to return will be heralded by newspaper reports declaring that the market is booming again. The relatively few who invest wisely will regard the current situation in Perth as a good reason to be house-hunting there. Perth peaked early in 2013. It is now more than three years into a down phase. Prices have decreased, although only moderately. Most statistics suggest an average decline of 4-5% in the past year. Vacancies are up across the metropolitan areas and rents have consequently fallen. There is plenty of property for sale, but few buyers. It's a great time to be looking to find good property at cheap prices, without competition from other buyers. You just have to believe that Perth and Western Australia have a future. And, of course, they do. WA is traditionally one of the strongest of the state and territory economies. Indeed, it's often a national leader on various economic indicators, including population growth. It's currently in a slump because the resources boom died - but it will rise again. When it does, real estate will recover. Based on what I'm reading, many analysts and commentators think the Perth market will hit bottom some time in 2017. I would suggest late 2016 or early 2017. So now is a good time to be looking -= researching the market without the pressure of having to act quickly, which are the best conditions for investors. Outside of Perth, the regional centres south the capital city are the ones with the best prospects. They include lifestyle markets like Mandurah, Busselton and Margaret River. Bunbury, more of an industrial city, also has a solid future. The centres to the north will take longer to recover. They're mostly resources-related centres where prices went way too high in the resources boom, with Port Hedland's median house price reaching $1.2 million and both Karratha and Newman reaching around $800,000. Those pricing levels were unsustainable and, in the wake of the mining downturn, the reduction in rents and prices has been quite startling, though also predictable. It will be a long time before prices return to these levels in the northern regions of Western Australia.  

Sydney and New South Wales Look for regional opportunities and follow the infrastructure trail in Sydney

If you didn't buy in Sydney in 2013 or 2014, you well and truly missed the boat. The party is over, not because anything changed in the underlying economy, but because prices got to levels where they could not realistically grow any more. This is why up-cycles generally run out of puff after three years. Price growth at those levels becomes unsustainable after three years. So where does the market go from here? I would suggest there will be a similar outcome to the post-boom period in the early part of this century. Sydney's median house price grew strongly in 2001, 2002 and 2003, including 22% in 2002 and a further 16% in 2003. Then the boom came to an end. In 2004 the median house price was unchanged and in 2005 it dropped marginally, around 2-3%. I expect a similar reaction this time. It's clear that Sydney reached its price peak in the middle of 2015, when the annual growth rate in the median house price was 15% to 17%, depending on whose figures you believe. The annual growth rate has been dropping, month by month, ever since. But Sydney is a big city and there are local situations which will create above-average outcomes. In particular, the development of new infrastructure will create sub-market situations investors should track. Transport infrastructure is the key item and a map of Sydney with all the current and planned projects is a mind-boggling thing to see. A lot of it is focused on western regions of the metropolitan area. Central to planning for future growth in Sydney is the North West Growth Zone and the South West Growth Zone. These are the places where much of the new population growth is expected to occur and major road, rail, education and medical facilities are under way or in planning. Some of it relates to the new Badgerys Creek Airport but most of does not. I could write a book on the projections and plans for areas like Rouse Hill in the far north-west, Penrith in the far west, Blacktown in the not so far west, Westmead in the mid-west, Liverpool in the mid south-west, and Campbelltown and Camden in the far south-west. Most of these places are, by Sydney standards, at the affordable end of the dwelling market and are destined by big changes through the creation of jobs nodes and the development of major new infrastructure. There is, of course, a lot more to NSW than Sydney. The state abounds with strong, vibrant regional cities and a switched-on investor would be seeking one with the following qualities: a major centre with a growing population; servicing a wider region with retail, commercial, medical, educational and other services; a strong and diverse economy; spending in new infrastructure; affordable prices with houses in the $200,000s or $300,000s; and yields around 6% to 6.5% easily attainable. Locations which answer those criteria include Wagga Wagga, Dubbo, Goulburn, Gunnedah, Orange and Tamworth. Newcastle, Port Macquarie and Wollongong fulfill many of the stated parameters, but prices tend to be higher.  

Conclusion: Success belongs to those who leave the herd and run in the opposite direction

Here's the hardest task I face when communicating with real estate consumers: it's convincing them that a location which happens to have a poor track record, or a bad image, really does have a bright future. People would rather buy in an area with a big growth record, but past its peak, than in an area with a poor recent record but a great future. Partly it's the herd mentality (do what the masses are doing because it must be right) and partly it's the need to see tangible evidence that growth is occurring before committing hard dollars. Sadly, by the time that evidence emerges, it's too late to buy at the best prices. Decisions by property investors should always be dictated by the future, not the past or the present. One of the key distinguishing behaviours of successful investors - in any field, including real estate - is that they buy counter-cyclically. Legendary US investor Warren Buffett, one of the wealthiest people on the planet, always preaches buying when others are selling and selling when others are buying. The simple philosophy has been the cornerstone of his success. And it's a philosophy all Australian investors should apart to the business of buying residential real estate. [post_title] => Property Report - June 2016 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => property-report-june-2016 [to_ping] => [pinged] => [post_modified] => 2017-12-04 17:32:26 [post_modified_gmt] => 2017-12-04 06:32:26 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=279 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [9] => WP_Post Object ( [ID] => 313 [post_author] => 1 [post_date] => 2016-04-06 11:03:47 [post_date_gmt] => 2016-04-06 01:03:47 [post_content] => Anyone who has ever borrowed money to buy a car knows the initial excitement. You take delivery and you feel you could drive forever. It’s exhilarating, almost intoxicating. But in our drunken desire for possessions it is easy to forget the debt hangover that follows. Within a few months, the glamour of the purchase is replaced by the grind of the payments. Delight turns to depression. And so too with home-buying. In the excitement of getting what you want, it’s hard to see any danger ahead. This is especially true if – as is happening at the moment – the people who make money when you buy, the real estate agents, are urging you to buy, patting you on the back and saying "You’ll be right." As any salesperson knows, it is easy to sell someone something they want. Everyone wants a nice home and every real estate agent wants to sell homes. And so, when the Reserve Bank issues a warning to homebuyers to be careful about overcommitting themselves, the real estate industry is quick to issue its own statements that all is well and that things have never been better. Out come all the old lines about it being the best time to buy because interest rates have never been lower. Yes, and prices have never been higher. Ten years ago, when interest rates were more than twice what they are today, most home prices were less than half what they are today.

Hard Questions

In our politically correct society, it’s getting harder to ask the hard questions, the questions we used to ask, the questions which would keep us safe in the future – questions such as what will happen to young couples who buy homes based on two incomes and then, when they have children, they lose one of their incomes? How will they make those payments? Okay, so they will delay starting a family. For how long? The standard answers to such unpopular questions are often vague, such as "someday" or "when we can afford it". Oh yes, and when will that be? How many couples these days have the discipline – let alone the desire – to make sure they get their financial life in order so that their personal lives are happy? There seems to be a feeling that the more money we can borrow, the better the home we can buy and the happier we will be. This is one of life’s most dangerous mistakes. As many buyers discover, after they have bought their homes, it’s not the size of the home that affects their happiness, it’s the size of their loan payments. As the playwright, Ibsen, once wrote, "Home life ceases to become free and beautiful when it is founded on debt."

The Most Important Rule

Granted, you can’t avoid debt if you want to buy a home today. But that debt should be as low as possible. It should be low enough to give you safety for the years ahead, no matter what happens to you. The real estate industry will often tell you – and the public loves to repeat it – that the most important rule when buying real estate is "location, location, location". This is nonsense. The most important rule is safety, safety, safety. Do not make the mistake that thousands of homebuyers are making today. They are buying to their absolute maximum. They go to the bank and discover the most they can borrow. And then they add this amount to their deposit (if any) which then gives them their stretched-to-their-limit maximum price. And then they go looking for a home in an area where their maximum price is the minimum price in their chosen area – if they are lucky. And they are just ripe to be sold by the people who make a profit when they buy, people who don’t care what happens to them after they buy.

Needs or Wants

It is easy to justify debt. There are so many reasons why we "must" have something, why we "need" to live in a certain area. But all these "must-haves" and "needs" are usually just a smoke-screen to hide an excess in desire which we rarely admit until it’s too late, until we are facing the grind and struggle caused by excess debt. Most people confuse "needs" with "wants". They say they need a four bedroom home. Even though there are only two people living in the home, they find a way to justify having four bedrooms. With young couples, they will say "children are coming". But they won’t consider the effect that the extra debt can have on their family. A hundred years ago, an average family numbered four people and an average home had two bedrooms. Today, it’s the opposite – four bedroom homes with an average of two people per home. Yes, you may need "space" in the future, but you also need "space" between the amount you earn and the amount you have to repay.

Safety

The secret to safety is to prepare for the future before it arrives. Here’s what to do: Buy below your maximum price. If this means looking in a cheaper area, do it. If it means looking for a lower style of home, do it. If it means giving up that fourth or even third bedroom, do it. Better to give up a bedroom today than to give up the home tomorrow because you can’t afford it. Most first-home buyers have no idea how many buyers before them would agree with this advice. If only they had not stretched themselves so far. If only they had been a little more careful. Maybe they would still have their homes – albeit smaller ones. Many would still have their marriages which began with dreams and desires and ended in nightmares of debt and despair. If you think this is too dramatic, take a look at the most expensive homes sold in our society. Many, if not most, are sold because of financial trouble or divorce. Check it out. And then check out your own desires and your ability to cope in the future. One of the best safety rules is this: Whatever interest rate you are being charged, add four percentage points to it. How does it look now? Can you afford it? If so, go ahead and buy. And then pay your loan as if it was four percentage points higher. On the average home loan, this will save you about $100,000. It will also wipe out the loan in about half the time.

Dangerous Times

These are dangerous times for homebuyers, much more dangerous than the real estate industry is saying. They want you to buy now, they want to "talk the market up", just as they always do. But has there ever been a time when the real estate industry has told consumers not to buy real estate? Has there ever been a time when they have warned people of the dangers of buying? And has there ever been a time when they have rushed to the aid of those who have been overcommitted by following their constant "buy now" advice? No. Most agents are always there to help you buy, but they won’t be there to help you make the repayments. If you get into financial trouble the next time you’ll see the agent is when you have to sell. And, of course, they’ll be eager to help you then. Don’t let it come to that. Buying a home is important. But the only time to buy a home is when you can comfortably afford it. If that’s today, buy today. If not, don’t buy. Or buy the cheapest home in the cheapest area. Better to have a cheap home you can afford than a dear one that you can’t afford. Real estate is wonderful if you remember the three rules of safety, safety, safety.

Stay safe.

[post_title] => Danger for first-home buyers [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => danger-for-first-home-buyers [to_ping] => [pinged] => [post_modified] => 2017-12-06 11:05:35 [post_modified_gmt] => 2017-12-06 00:05:35 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=313 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 10 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 355 [post_author] => 1 [post_date] => 2017-12-06 16:18:31 [post_date_gmt] => 2017-12-06 05:18:31 [post_content] => By Terry Ryder, creator of hotspotting.com.au

Introduction: What’s Coming Up For Real Estate in 2018?

The coverage of real estate in mainstream media is misleading and confusing at the best of times. But a bad situation is about to get worse. You’re going to be reading a lot about “the end of the Australian property boom” and the likely decline in “Australian property values”. If you do come across this kind of coverage, rest assured that you can ignore it. The problem is that most articles in our major media about the housing market are re-cycled press releases. And most of those media releases are brain farts from economists or attention-seeking businesses which lurk on the periphery of the real estate industry. Their understanding of the complexities of our many different real estate markets is wafer thin. Here’s a clue: anyone who discusses the Australian housing industry as a single market is a pretender. And that includes most economists. The reality is that, while the Sydney market is well past its peak and I expect Melbourne to be winding down soon, many other significant markets around the nation are just getting started on their growth paths. The secret to profiting from real estate will lie in understanding that Australia has many different property markets – and some of them will be rising strongly in 2018. For analysis of markets nationwide, click on the topics below ...

National Overview

Next Year We Will Be Talking Less About Sydney and Melbourne (Thankfully)

I keep seeing TV talking heads referring to the slowdown in “the Australian property market”. They’re Sydney-based boffins thinking about the Sydney scenario but transferring that nationwide. So much of our major media emanates from Sydney and far too many writers and commentators extrapolate Sydney’s situation to the rest of the nation – or rely on shallow data which portrays Australia as a single property market. The reality is quite different – and will remain so in 2018. Observe the different stories told by the latest Asking Prices Index for houses from SQM Research:
  • Melbourne’s index is up 20%, so that’s boom-time growth;
  • Canberra and Hobart are both up 14%, which is strong growth;
  • Sydney’s growth rate has dropped to 9%, so that market is moderating;
  • Adelaide and Brisbane are both up just a few percent, so those markets continue to stagnate; and
  • Perth and Darwin are still falling.
That’s a five-speed market scenario within the eight capital cities, without considering the multiple scenarios playing out across regional Australia. The message, for those slow on the uptake, is that we don’t have an Australian property market. We have many different markets, all influenced by local economic conditions. Even within one city, there are myriad different scenarios in play. Brisbane has rising markets, stagnant precincts and downturn markets that need to be avoided (notably the inner-city unit market). Expect more diversity of market performance in 2018, but with different growth stars. By this time next year we won’t be talking so much as Sydney or Melbourne. It’s more likely to be about Canberra and Perth, and possibly also Brisbane and Adelaide. I’ll be talking a lot about regional markets, but media probably won’t be because it’s so focused on the big cities. In simple terms, I’m expecting little price growth in Sydney but no major price decline, with the possible exception of individual unit markets weighed down by oversupply. Melbourne’s growth rates will reduce, with much of the action in the outer suburbs – and the inner-city unit markets will see some reduction in values. The price growth leaders among the capital cities are likely to be Canberra and Hobart. Brisbane should do more than it has in the past few years, but there will be significant discounting by those unfortunate enough to own an inner-city apartment. The nation may wake up to the possibilities of Adelaide’s under-rated property market, especially if early signs of better economic performance prove sustainable. Perth will become the comeback kid of the major city markets and there may be glimmers of hope for downtrodden Darwin. Regional Australia has myriad possibilities. NSW is full of strong regional centres and we will see good growth in some of them, in contrast to the trends in Sydney. Melbourne’s strong market has rippled out to regional centres within commuting distance. We’ll see more of that in 2018, led by Geelong and Ballarat. Queensland has lots of enticing prospects, headed by the Sunshine Coast and Townsville. But investors should beware of being seduced by the Commonwealth Games hype oozing out of the Gold Coast. Much of the impact created by jobs on construction projects leading up the Games has been felt already and developers are working hard on creating an oversupply of apartments. We’ve seen signs of recovery in regional towns and cities impacted by the resources sector, most notably in Queensland, Western Australia and New South Wales. The worst is over for many of these locations but, as always, I urge caution about buying in locations that are essentially one-industry towns. They will always be volatile and high-risk.

Adelaide and South Australia

Adelaide Uplift Likely As State Economy May Have Found Its Missing Mojo

In the September edition of this report, the headline read: Adelaide Likely To Remain Stalled Until The State Economy Finds Its Mojo Well, South Australia may have found it. The latest quarterly edition of the State of the States report from CommSec elevated SA from No.6 to No.4 in the rankings of the various state and territory economies. SA now rates higher than Queensland, Tasmania, WA and the Northern Territory. The latest Business SA-Statewide Super survey of business expectations, which showed confidence and business conditions are on the rise (but there are still concerns about the direction in which the state is tracking). And the latest jobless data from the ABS shows the SA unemployment rates steady at 5.8% in seasonally-adjusted terms, a little above the national average of 5.4%. The trend data had the SA jobless rate dropping 0.2 to 5.6%, which was the lowest in five years. At the same time there has been a number of positive news items from a range of major projects:
  • The first major round of hiring for the construction of vessels for the Navy has started.
  • The stalled expansion of BHP’s Olympic Dam mine at Roxby Downs appears to be reviving, though at a smaller scale.
  • Multiple major energy projects have been announced, many of them targeted on Port Augusta, with an additional one focused on Whyalla.
  • Work on the ongoing re-development of the Tonsley precinct in Adelaide is creating large numbers of new jobs.
  • There is a raft of government and private enterprise measures designed to respond to the closure of the Holden car plant.
  • Arrium, the biggest employer in the key regional city of Whyalla, has been taken over by a new owner who appears to have expansion plans.
Given the correlation between the health of the state economy and the performance of the capital city property market, this series of positive outcomes bodes well for Adelaide real estate. I expect the SA capital will surprise property observers with its positive progress in 2018. Reinforcing my optimism is the solid results for Adelaide from my quarterly research into sales activity Australia-wide. I look for suburbs with rising sales momentum and Adelaide has more of those right now than any other capital city in Australia, ahead of both Melbourne and Brisbane. It’s a very solid and much under-rated market. The leading precinct throughout 2017 has been the Marion LGA in the south-west of the Adelaide metropolitan area. This is largely middle-market Adelaide, but its price levels look like the affordable lower end in Sydney and Melbourne. Outside Adelaide, there are plenty of solid regional centres – Port Lincoln, Mount Gambier, Goolwa, Victor Harbor, the towns of Barossa Valley – but none with compelling reasons to grow strongly in the foreseeable future. Port Augusta, where the median house price is below $200,000, has the potential to become a boom town if some of the many proposed energy projects come off. Whyalla, rather typically for a resources-reliant centre, has gone from boom to bust in spectacular fashion – and may revive if the Arrium rescue mission works out and some of the other resources-related projects come to fruition. But it seems doomed to a life of volatile boom-bust scenarios.

Brisbane and Queensland

Queensland Shows Why It’s Dangerous To Generalise About “The Property Market”

Queensland is the best example of my contention that there is no “Australian property market” but multiple individual markets, each doing its own thing, primarily influenced by local economic conditions. Regional Queensland has more locations with growth markets than anywhere else in Australia – and it also has the greatest number of “danger” markets, the ones that smart investors would avoid. Equally, the Brisbane metro area has several locations with good growth potential – as well as the market I regard as the weakest and most dangerous in the nation, the inner-city unit market. Generally speaking, there’s a growing list of reasons to like real estate prospects in Queensland. The state is creating more jobs than any other state or territory, it’s the biggest winner from inter-state migration, exports are booming and there major signs of revival in the resources sector. Each month when I write another of my quarterly documents, The Ryder Report, I include a summary of major project announcements in each state and territory. And every month Queensland has more significant action in this regard than any other part of the nation. Some massive enterprises have made big announcements in recent times, including mining, energy, transport infrastructure, retail, commercial and residential projects. The level of investment pouring into Queensland is impressive and it bodes well for real estate demand. This is partly responsible for bringing improvement in the prospects for Queensland regional centres impacted by the resources sector. We’ve seen a reduction in vacancy rates in locations such as Gladstone and a marked improvement in sales activity in several regional centres including Townsville, Mackay, Rockhampton and Emerald. The general improvement in the resources industry and the advancement of major mining projects is lifting both sentiment and activity in some of these cities. There is also a generally positive vibe in the recently-published QBE Housing Outlook Report about these markets, albeit with a note of caution. The report suggests price growth is likely to remain subdued for a number of years although there might be investors re-entering these markets. “The median house price in the Isaac Region has recovered slightly since bottoming out in March 2016, suggesting the worst is behind it,” the report says, referring to the region that includes the boom-bust coal town of Moranbah, plus others like Dysart. “The market in Mackay looks to have also bottomed out. Its median house price also increased between December 2016 and June 2017, while vacancy rates tightened from over 9% in 2015, to 4.5% in June 2017.” Beyond those resources-related locations now showing signs of improvement, the regional markets that stand out for me are the Sunshine Coast and Townsville. The Sunshine Coast is being transformed by major spending on infrastructure and other developments, while Townsville is recovering after a couple of difficult years and will be boosted in 2018 by new developments and the city’s links to the resources sector (including being the HQ for the $20 billion Carmichael mining project – if it happens). The Gold Coast will generate hype over the upcoming Commonwealth Games but much of the lift has already been felt by the property market, which was busy in 2015 and 2016 as construction projects related to the Games, directly and indirectly, brought workers into the region. The biggest impact felt by the Gold Coast property market may be a negative one: apartment over-supply as developers do what they always do, which is to over-react to a major event that might otherwise generate a property boom. Many investors have turned their attention from Sydney and Melbourne towards Brisbane because of its cheaper prices and better rental yields. And, according to a HIA report, Brisbane remains among the county’s most affordable capital cities for residential land. Brisbane’s median lot price is $239,500, behind Sydney ($470,000), Melbourne ($275,000) and Perth ($262,500). Over the year to June 2017, there was little change in Brisbane land prices, in contrast to Melbourne where prices rose 20% and Sydney which rose 10%. Despite Brisbane’s modest price result, it was Australia’s third most active land market based on sale volumes recorded over the June 2017 quarter. Affordable areas of the Brisbane metro area are expected to do well in 2018, headed by the Moreton Bay LGA on the northern fringes and Ipswich City in the far south-west. I’ve warned many times in the past few years about the Brisbane inner-city unit market and the evidence is clear right now – vacancies are high and values are falling, at a time when demand from buyers is dropping. Ignore the hype from developers and the REIQ, avoid this market – and focus on Brisbane’s affordable housing markets.

Canberra and the ACT

Canberra Expected To Be Among The Market Leaders in 2018

Canberra provides another fine example of the diversity of Australia’s many different property markets. Over most of the past four years while Sydney has been booming, Canberra has been largely dormant. And now, as Sydney winds down, Canberra is cranking up. Indeed, some predict that Canberra will lead the capital cities on price growth over the next few years. The QBE Housing Outlook Report has added weight to other forecasts of a strong market in Canberra next year and beyond. The report says: “Conditions in the house market are expected to remain largely positive, driven by population growth, an under-supply of houses and strong employment prospects.” I would add the consistent strength of the ACT economy (ranked No.3 in the State of the States report) as a key factor. The median house price in Canberra is forecast by QBE to rise 16% over the next three year, which means it’s predicting Canberra will have the strongest market of all the cities over this period. But I think its numbers are conservative. Earlier, there was a positive forecast for the Canberra market in The Housing Boom and Bust Report by SQM Research’s Louis Christopher. It suggested dwelling values in Canberra will increase by between 5% and 9% in 2018 – and I would suggest that might be conservative as well. The Canberra property market has been delivering some impressive statistics recently. It continues to record consistently low vacancy rates, its sales activity is persistently strong and its annual price growth rates are starting to challenge those in Sydney and Melbourne. But the real estate benchmark which really marks Canberra as a market to watch is rental growth. While some of the capital cities have delivered strong price growth, led by Sydney and Melbourne, few cities have recorded meaningful growth in rentals for houses and apartments. But Canberra is the stand-out exception. According to the Weekly Rents Index from SQM Research, house rents in Canberra are up 12.5% in annual terms and apartment rents have risen 5.2%. One of the things that underpins the Canberra market and puts a floor under values is the way the ACT Government controls supply. It drip-feeds the supply of new land to the market and demand is usually considerable higher than supply, which keeps values high (from which the ACT Government benefits). A report out of Australian National University recently claimed that Canberra had a serious over-supply of dwellings, but all other research makes nonsense of that. I would suggest their methodology was faulty because vacancies are extremely low in Canberra and rents have been rising strongly (something that cannot happen in an over-supplied market). Putting all those solid statistics together with forecasts of good growth in coming years suggests Canberra will be a leading property market in 2018. The strongest markets, in terms of forward movement in sales activity and the influence of infrastructure spending, are the northern precincts – the Belconnen District and the Gungahlin District.

Darwin and the Northern Territory

Signs Of Hope For Darwin - But Major Growth Drivers Are Lacking

While Perth has shown clear signs of recovery, the other downturn market among the capital cities, Darwin, is still mired in negativity – but with some hope for better things in 2018. One positive statistic pointing to the possibility of better things is the reduction in Darwin’s overall vacancy rate, although the inner-city apartment market is still over-supplied. There are also glimmers of hope from the Sensis Business Index and from the CommSec State of the States report. The latest Sensis index suggests that business confidence in the Territory has recovered to record its highest score since June 2016 - after dropping in the previous quarter to one of the lowest scores in nine years (however, NT business still remains the least confident nationally). Sensis chief executive John Allan says NT business confidence remains low by national standards but some individual businesses are positive. In the latest quarterly edition of the State of the States report published by CommSec, the Northern Territory remains stuck in its previous position as the No.7 (second last) ranked economy in the nation. But it topped the national charts on economic growth, while lagging on forward-looking indicators like population growth. The NT economy needs to keep improving - with new investment desperately needed - if Darwin is to rise out of its downturn. Louis Christopher’s SQM Research has forecast recovery for Darwin in the Housing Boom and Bust Report. It tips Darwin values to rise moderately in 2018 - between 1% and 4%. But QBE’s annual Housing Outlook Report has a less optimistic forecast for Darwin. It says: “With the decline in resource investment yet to bottom out, and an expected slow recovery, the outlook for Darwin is subdued. Further downward pressure on prices is expected in 2017-18 before the market bottoms. Few economic drivers will support population growth and demand will remain weak. The median price is expected to fall slightly in 2017-18, before recovering by 2019-20.” On the Darwin unit market it says: “Elevated unit construction will add further downwards pressure on unit prices as the current construction pipeline continues to deliver units to a weakening market.” So, some signs of hope, but nothing to suggest strong recovery. There’s not much to the Northern Territory, in terms of property markets, beyond the Darwin metropolitan area. There’s only Alice Springs, Katherine and Tennant Creek. Alice Springs has been a solid market and continues to chug along quite nicely, without doing anything special. Katherine might have a spurt of growth because there’s big dollars being poured into the Tindall RAAF Base near Katherine.

Hobart and Tasmania

Hobart and Launceston Have Been Sizzling - And Likely To Remain Hot In 2018

One of the core questions for 2018 is whether Hobart and Tasmania can maintain its status as the hottest market in Australia. I’m betting that it can – or go close. The strong recent performance of the Hobart property market has coincided with the strengthening of the Tasmanian economy. As Tasmania has risen in recent years to become the No.4 ranked economy in Australia, the Hobart market has followed suit and now, according to some research sources, is the leading capital city on annual growth in house prices (not all agree). The latest quarterly edition of the State of the States report from CommSec has seen Tasmania drop to the No.5 ranking, overtaken by South Australia. But No.5 is still well above Tasmania’s traditional place (last or second last) - and still above Queensland, WA and the Northern Territory. In the latest CommSec report, Tasmania ranked second on employment and third on population growth. So the underlying indicators remain solid for Tasmania and I expect the Hobart and Launceston markets to keep on pumping. Recently, Hobart has been dominating national lists of locations where homes are selling the fastest. One research report found that, of the suburbs around Australia where houses are selling in less than 10 years (on average), half were in Hobart. Mainland investors have targeted Tasmania, especially Hobart, because it’s so affordable compared to the biggest cities and offers much better rental yields. And, unlike the past, real estate performance is underpinned by a strong state economy and improved population numbers. Hobart continues to deliver the lowest vacancies in the capital city Australia. A recent report from Louis Christopher at SQM Research found a vacancy rate of 0.3%. It’s been like that for a long time and I wonder why developers are not flocking to Tasmania to build new dwellings, because clearly there’s lots of demand and a shortage of supply. It’s not all about Hobart. The state’s second city Launceston is also pumping strongly, partly driven by mainland investors who cannot believe that there worthwhile markets where you can still buy solid houses in the $200,000s. Plenty of smaller towns are also attracting strong demand because of their price levels, but I would urge investors to stick to the larger population centres, where there is a solid and diverse economy supporting real estate markets.

Melbourne and Victoria

Melbourne Will Follow Sydney Into Wind-down, But Regions Are Worth Watching

Melbourne gives the appearance that it’s still as hot as ever, but really it’s not. And, as we get into 2018, there will be growing signs that the Melbourne market is following Sydney into a steady wind-down phase. Melbourne has been one of the stand-out markets over the past couple of years. It got on its growth path later than Sydney did and so still has some time to run. But if you ignore the media hype and look at the important indicators, it’s clear Melbourne has already passed its peak. But there’s more to Victoria than its capital city – and there are some notable regional area that will be showing growth after Melbourne has run out of steam. The signals that Melbourne has passed the top of the cycle include these:-
  • Sales activity has declined in most parts of the metropolitan area
  • Price growth rates, while still strong, are gradually decreasing
  • The strongest markets for sales activity and price growth are the outer-ring areas
  • Auction clearances rates, not that you can ever believe them, are reducing
Melbourne’s real estate up-cycle started in the inner-city suburbs and then rippled out to the Middle Ring areas. Around two years ago the strongest market in Australia was Middle Melbourne. Now the ripple effect has taken the growth cycle to the affordable suburbs on the fringes on the metropolitan area, the Outer Ring areas. When that happens, you know the cycle is near its end. The strongest market in Melbourne now is Wyndham City in the far south-west heading towards Geelong. Suburbs like Werribee, Hoppers Crossing, Point Cook, Wyndham Vale and Tarneit are selling homes in record numbers – and most of these suburbs have had median price growth above 15% in the past 12 months. Here’s another indicator: The cost of residential land in Melbourne is risen sharply in the past 12 months. The HIA’s Residential Land Report finds that the median price for an Australian housing lot increased 8.5% to $256,683 in the past year and the Sydney median price rose 10% - but Melbourne surged almost 20%. Much of this Melbourne land sales activity is, of course, in the Outer Ring areas where the new housing estates and suburbs are occurring. The factors which have driven Melbourne’s boom – a strong state economy and the nation’s highest population growth, fuelled by overseas migrants – remain strongly in place. But there are powerful forces which can overpower the growth drivers – they include the affordability barrier, now a factor across most price sectors, and dwelling over-supply, which is a big influence on the inner-city apartment markets. So, in 2018, I’m expecting the growth to be seen in the regional cities and towns. Melbourne’s growth has rippled out into the regions of Victoria, especially towns and cities within commuting distance of the capital city. Geelong already has one of the hottest markets in the nation and will continue to pump strongly in 2018. Ballarat is starting to warm up as well and homes are selling fast there, thanks to the city’s lifestyle, affordability, strong economy and improved transport links to Melbourne. Other busy markets include Macedon Ranges Shire a little north of the Melbourne metropolitan area (towns like Gisborne, Kyneton, Woodend and Romsey); Mitchell Shire, also on the northern fringes of Melbourne (towns such as Kilmore, Wallan, Seymour and Broadford; and Cardinia Shire in the far south-east (including the towns of Pakenham and Officer).

Perth and Western Australia

Opportunity Alert: Perth Is Where The Smart Money Will Head In 2018

Some of the things I wrote in this report three months ago are worth repeating. Here’s a snapshot of my comments in September: “I’ve been watching the Perth market closely to determine the optimum time to buy there. The best time to buy in any market is when the market is at the bottom of the cycle ... I feel confident that the Perth market is over the worst and is beginning a long-awaited recovery ... Thanks to a weak state economy, Perth has had the weakest market among the capital cities … But Hotspotting is about identifying the opportunities for future growth, sometimes in defiance of the existing market situation.” There are now clear signs that the Perth market is recovering, after four tough years. And it presents opportunity to investors, because prices are down, there are few buyers in the market and you can set yourself up for capital growth by buying well. Here’s one of the indicators: The nation’s biggest improver in terms of jobs creation is the mining sector. According to the latest data from Seek, growth in mining sector jobs leads the nation. The figures for September show 60% annual growth in the number of jobs advertised in the Mining, Resource and Energy industry. Overall, national job ads grew 12% in the year to September and the next biggest growth (after mining) was recorded by the Science & Technology Sector, up 27% in annual terms. It’s the ninth consecutive month that Seek has recorded growth in the mining sector. Given the importance of the resources sector to WA, I see this as significant - and note also other research showing that large numbers of new jobs have been created in WA in 2017. This bodes well for the Perth property market, as it moves into a recovery phase. At Hotspotting we have detected a significant turnaround in sales activity in the various Perth real estate markets. For several years, sales volumes have been falling across Perth – a trend which pointed to a decline in property values. But in the June Quarter, for the first time since the downturn started in 2013, we saw many suburbs recording improved sales activity. The Real Estate Institute of WA keeps pumping out positive talk-up-the-market press releases to nudge things along, but of greater interest to me are the observations of independent, respected observers who are detecting the same trends that I am. People like Gavin Hegney, founder of the Hegney Property Group and one of the sharpest real estate analysts in Australia, have seen the improvement in activity and opportunities presented in this market. I particularly like the prospects of the Joondalup precinct in the north of the Perth metropolitan area. Joondalup is the regional centre for the northern suburbs and has impressive infrastructure, including education campuses, major medical services, government offices, a transport hub, good links to the Perth CBD, big retail facilities and plenty more. It’s been as solid as anywhere in the face of the recent downturn and one of the first to show signs of recovery. Many of the suburbs in this precinct are affordable. There are other precincts around Perth worthy of consideration, including Forrestfield in the east, Armadale in the far south-east, the Murdoch precinct in the south, the Wanneroo LGA in the far north and the coastal precinct around Rockingham in the far south. I’ve seen rumblings from investors that maybe they should be showing interest in the some of the resources-related towns in regional WA, because prices are a fraction of their peak levels at a time when the resources sector is recovering and hiring personnel again in large numbers. Popular targets, as in the boom times, are Port Hedland and Karratha. The buying there looks attractive now, but you need to be very cautious. Prices won’t return to those massive levels of the past any time soon and those markets will always be volatile because they’re essentially reliant on the health of the resources sector - which is notoriously fickle.

Sydney and New South Wales

Regional NSW Will Take Over From Sydney – But Don’t Expect Media To Notice

Mainstream media, the worst possible source of information about residential real estate, obsesses over cherished storylines. For several years, the Sydney boom and affordability issue has dominated everything. Media was talking up the boom long after it had passed its peak. Now journalists and commentators have got the message that the party is over – so they’ve switched their obsession to the downturn storyline. Now it’s all about decline: values plummeting, bubbles bursting and the end of life as we know it. Attention seekers have seized the opportunity for free publicity by pumping out material which “warns” of impending doom. Investment bank UBS, whose economists could write what they know about real estate on the back of postage stamp in crayon, has been a particular source of nonsense. One desperate grab for publicity shouted that if the RBA hikes interest rates too much too fast, it could cause a crash – notwithstanding the clear messages from the Reserve Bank that it’s not planning even one small rise in the official rate any time soon. There’s also no precedent to suggest that increases in interest rates cause property crashes – or even slow down property booms. The two most notable, genuinely national property booms of recent times – the late 1980s and the early part of this century – happened in times of high and rising interest rates. I’m not expecting anything dramatic to happen in Sydney markets this time around. The most likely scenario is the one we saw in 2004 after the boom of 2001-2002-2003. There was no dramatic decline in prices in Sydney (or anywhere else) – there was an end to the previous high growth. The annual growth rates for prices dropped from double-digits to around zero. Sydney now has high property values but they’re underpinned by all the factors that caused the rises in the first place: the nation’s strongest state economy, huge spending on infrastructure, strong population growth – and the reality that, prior to the boom starting in 2013, Sydney had endured a decade without meaningful price growth. The key thing that has brought the price rises to a halt is the affordability factor. Prices cannot keep rising indefinitely because the divide between prices and incomes becomes too great. So the growth stops. But the fundamentals that got prices to those levels remain, so they’re unlikely to fall. The exceptions to that general rule are the places where too many apartments have been built. The greatest killer of property markets across Australia is oversupply and there are sectors of the Sydney metropolitan area which already look precarious, such as Parramatta. It’s notable that developers are now deciding not to proceed with planned apartment projects or are converting to other types of use, such as offices or short-term accommodation. High-rise Harry (Triguboff) has stopped trying to talk up the Sydney unit market and is now admitting that things could go pear-shaped if he and others continue building apartment towers. So, is it all over for New South Wales? Well, no. As I commented for other areas, there’s more to this state than the capital city. And many regional centres in NSW are coming into good growth periods. Newcastle has already shown massive price growth – several of its suburbs have seen their median house prices rise more than 20%, with some as high as 30%, in the past 12 months. It’s too late to get into that market at a good price, but neighbouring areas have potential to catch a Ripple Effect from downtown Newcastle. Examples include the Lake Macquarie LGA, the Port Stephens area and the Hunter Region, which is moving into a solid recovery mode after a few tough years (caused by oversupply). Other NSW regional areas which have already had good growth, but are likely to stay strong, include Wollongong, the Central Coast, the Southern Highlands, Dubbo, Port Macquarie and Coffs Harbour. Further afield, locations less advanced in the cycle and coming into periods of growth include Queanbeyan, Armidale, Wagga Wagga and Tamworth. Queanbeyan will benefit from its links to Canberra. It’s in NSW but it’s essentially part of the Canberra metropolitan area – and more affordable than most ACT suburbs while being closer to central Canberra than many ACT suburbs are.

In conclusion

The Often Forgotten Topic of Rental Growth – And How Vacancies Influence It

Media obsesses over median prices and their growth - and seldom looks at other kinds of indicators about our major property markets. Another core factor is rentals – and figures from SQM Research, run by experienced analyst Louis Christopher, indicate that few of our major cities have delivered much in the way of rental growth. The cities which consistently have the lowest vacancy rates, Canberra and Hobart, are the only cities to deliver strong rental growth, while the capital with the highest vacancies, Perth, has the worst outcome with rentals. Hobart’s vacancy rate fell to a record low of 0.3%. Christopher says it’s now the lowest on record since SQM started recording data in 2005. In Canberra, the vacancy rate dropped to 0.8% in October from 1.0% in September. SQM’s Weekly Rents Index for Canberra is up 13% in annual terms for houses and 5% for apartments. In Hobart, house rents are up 5.4% and apartments rents more than 12%. “In Hobart, the shortage of rental accommodation is the most severe, with just 75 properties available for rent in October,” Christopher says. “This has prompted a record low vacancy rate of 0.3% and higher asking rents, especially for units which were up 7.9% over the month to 12 November.” None of the other cities have recorded rental growth as high as 5%, either for houses or for apartments. Perth, Darwin and Brisbane – the cities with the highest vacancy rates in recent times – all have negative figures on rentals. [post_title] => Property Market Report - December 2017 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => property-market-report-december-2017 [to_ping] => [pinged] => [post_modified] => 2017-12-07 12:22:11 [post_modified_gmt] => 2017-12-07 01:22:11 [post_content_filtered] => [post_parent] => 0 [guid] => https://jenman.com.au/?p=355 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 16 [max_num_pages] => 2 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => 1 [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => 1 [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 3f52d2414f7f04bb43b1bc68d741793e [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) )