Quarterly Market Report No. #45 – December 2017
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
- Adelaide/South Australia: Uplift Likely As State Economy May Have Found Its Mojo
- Brisbane/Queensland: Qld Shows Why It’s Dangerous To Generalise About “The Market”
- Canberra/ACT: Canberra Expected To Be Among The Market Leaders in 2018
- Darwin/Northern Territory: Signs Of Hope For Darwin But Big Growth Drivers Lacking
- Hobart/Tasmania: Hobart/Launceston Sizzling And Likely To Remain Hot In 2018
- Melbourne/Victoria: Melbourne To Follow Sydney But Regions Worth Watching
- Perth/Western Australia: Perth Is Where The Smart Money Will Head In 2018
- Sydney/NSW: Regions Will Take Over From Sydney – But Media Won’t Notice
- Conclusion: Often Forgotten Topic of Rental Growth And How Vacancies Influence
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.
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.