Quarterly Market Report No. #44 – September 2017
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.
- Adelaide/South Australia: Adelaide Stalled Until The SA Economy Finds Its Mojo.
- Brisbane/Queensland: Under-Achieving Brisbane May Improve On The Back Of Jobs.
- Canberra/ACT: Canberra Sparks To Life And Starts To Challenge The Price Leaders.
- Darwin/Northern Territory: Darwin Still In Downturn, Despite Efforts To Talks Things Up.
- Hobart/Tasmania: Hobart Is Hot, With Rapid Sales And Strongly Rising Prices.
- Melbourne/Victoria: Melbourne Vibrant, Boosted By Economy, Population Growth.
- Perth/Western Australia: Clear Signs Of Revival As Perth Moves Past The Bottom.
- Sydney/NSW: Sydney Not As Strong As The Media Numbers Would Suggest.
- Conclusion: Forget Sydney/Melbourne: Focus On The Smaller Capital Cities.
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.
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.