Property Report – April 2013
PROPERTY REPORT – April 2013
What is in store for 2013?
by Terry Ryder.
creator of hotspotting.com.au
Welcome to the Brave New World of 2013
Did someone flick a switch on 1 January?
Since the New Year there has been a different atmosphere in Australia’s real estate industry.
The hotspotting.com.au website, always a good barometer of public sentiment about real estate, had a record month in January (our best result since starting seven years ago) and February continued in similar fashion.
Is it just us? We have questioned property professionals around Australia at every opportunity and have found we’re not alone. Many people working in the real estate industry say they have never been busier.
So with real estate sure to be stronger in 2013 than in the previous two years, we devote this edition of the Quarterly Market Report to identifying the locations we think are worthy of serious consideration by property buyers.
For a detailed analysis of markets nationwide, click on the topics below …
|National Overview||Opportunities abound in 2013, the year of the property investor.|
|Adelaide||Where would we buy this year and why? Adelaide and South Australia.|
|Brisbane||Where would we buy this year and why? Brisbane and Queensland.|
|Canberra||Where would we buy this year and why? Canberra and the ACT.|
|Darwin||Where would we buy this year and why? Darwin and the Northern Territory.|
|Hobart||Where would we buy this year and why? Hobart and Tasmania.|
|Melbourne||Where would we buy this year and why? Melbourne and Victoria.|
|Perth||Where would we buy this year and why? Perth and Western Australia.|
|Sydney||Where would we buy this year and why? Sydney and New South Wales.|
|Conclusion||Look for locations where sales numbers have risen recently.|
Opportunities abound in 2013, the year of the property investor.
Australia is alive with opportunities for property investors to buy well in locations with strong prospects for future capital growth.
But investors must understand that they need to be selective. A decade ago, when markets everywhere seemed to be rising, people felt they could buy anywhere and experience good growth. That is no longer the case. There will be major differences in 2013 from one location to the next.
The point I make constantly is that Australia is not one property market: it is many thousands of different markets and they’re not all moving in the same direction, nor at the same speed.
This year some of the capital cities will grow strongly, some moderately, some will stagnate and a couple will decline.
The city leaders will be Darwin and Perth – and I expect both to have double-digit price growth in 2013. Sydney and Brisbane should show solid but more moderate growth, while I expect Canberra and Adelaide to show little movement in either direction. The declining markets will be Melbourne and Hobart.
There will be similar scenarios in the regions: markets that will thrive, those that will stand still and others that will go backwards.
The key elements to seek in a good investment location are multi-faceted economies, solid population growth, infrastructure development and affordable real estate. Any location that has economic activity that generates jobs in large numbers has the best chance of delivering real estate growth.
That doesn’t necessarily mean mega projects measured in the billions of dollars. Many regional centres have multiple small to medium sized developments happening, which collectively amount to hundreds of millions of dollars in investment.
Albury-Wodonga, for example, has no mega projects, but several dozen infrastructure and property developments which collectively represent well over $1 billion in investment.
Gladstone, on the other hand, has $50 billion being invested in just three projects, with much more to come. That generates a lot of real estate demand.
But Gladstone illustrates why demand is only half of the equation. Supply needs to be considered. For the past two years Gladstone has delivered strong rental and price growth, as tens of thousands of new workers came into the city. There was an accommodation shortage, because it takes time for developers to secure sites, gain approvals and build new dwellings.
But now, a lot of that pent-up supply has been unleashed on the market, and suddenly there are rising vacancies. Price and rental growth is grinding to a halt.
Investors, therefore, need to consider both sides of the equation. They need to check on the supply pipeline, as well as jobs-generating events that will create new demand.
Adelaide and South Australia:
Adelaide and South Australia.
The first place I’d look in Adelaide is down in the south. Infrastructure development is the biggest catalyst to growth in real estate and there are important pieces of transport infrastructure happening in the south.
Rail links are being extended to Seaford and, once that project has been completed, the State Government is talking about extending further towards Aldinga Beach and Port Willunga.
At the same time, the Southern Expressway is being upgraded. One major piece of transport infrastructure benefiting an area is big: two pieces is huge.
Locations like Seaford and Aldinga Beach are seaside and they’re affordable. Affordable lifestyle with vastly improved transport links, both road and rail – it’s an enticing combination.
My next stop in Adelaide would be the inner southern suburban area I call the Tonsley Precinct. This features another big-ticket infrastructure combination – education and medical. A cluster of suburbs including Sturt, Clovelly Park and Seacombe Gardens sit next to Flinders University and Flinders medical precinct. Planning is well advanced for the $1 billion Tonsley Park education precinct.
Beyond Adelaide, I’m heading to the Eyre Peninsula, where Port Augusta, Whyalla and Port Lincoln all warrant consideration.
These are all places where the focus is very much on the future. They have solid growth records already, but buying there is a decision based on what is expected to happen in the future, coupled with the appeal of affordable house prices and above-average rental yields.
Port Augusta is one of the most strategically located regional centres in Australia and stands to benefit from the decision to open up the Woomera Prohibited Area for extensive mining, from the evolution of iron ore mining on the Eyre Peninsula and from the expansion of the Olympic Dam mine (when it eventually happens – the project has been deferred by BHP Billiton).
All of that applies also to Whyalla, just down the road from Port Augusta, but a lot more besides. Whyalla is the industrial muscle town for South Australia, with two export ports and lots of serious industry, led by Arrium (previously known as OneSteel) which is in an expansionary phase. A number of large projects are planned for Whyalla, headed by a $1 billion processing facility for a rare earths mining operation (which is well advanced in planning and looks likely to proceed).
Port Lincoln is a busy regional town with a growing economy based on its fishing industry, tourism and Eyre Peninsula mining. One of the biggest iron ore ventures now in planning proposes to build a new export port near Port Lincoln and that operation will generate plenty of jobs.
Brisbane and Queensland :
Brisbane and Queensland.
Queensland is bristling with places with prospects. Whenever people ask where they should buy in the various states and territories, the longest conversation is about Queensland because it has so many options. It’s the most diversified state, with a significant number of large regional cities and many of them are worthy of investor consideration.
As an investor I would be heading first to two locations that are “sleepers” – Toowoomba and Rockhampton. Most investors are aware of the buzz around Gladstone, Mackay and the towns of the Surat Basin, but Toowoomba and Rockhampton have slipped under the radar screen.
Both are large regional cities with diversified economies, strong growth factors and affordable real estate.
Toowoomba sits beside the Surat Basin, which has a number of towns that have attracted investor attention – including Roma, Miles and Chinchilla. They all delivered double-digit growth in median house prices in 2012, but Toowoomba is yet to take off. It’s the key entry point and commercial centre for all that resources activity in the Surat Basin and is overdue for price growth.
Rockhampton tends to be ignored because most of the focus in central Queensland goes to Gladstone and Mackay. Rockhampton, however, is the prime administration centre for the region and is a lot more affordable, as it has not yet had the growth spurt of the other two. Two new export ports are in planning near Rockhampton – if one or both go ahead there will be plenty of new jobs in this region.
Emerald is another regional town that has lots in prospect. It’s well-located with the established Bowen Basin mining province on one side and the emerging new Galilee Basin coal precinct on the other. It has one of the busiest airports in regional Australia and very low residential vacancies. As the mega coal projects in the Galilee Basin to the west crank up, Emerald is going to be even more in demand.
I would also give consideration to Townsville, which I rate as Australia’s strongest regional economy, and Mackay – but would avoid Gladstone now. The best time to buy in Gladstone was 2-3 years ago, and a lot of new supply has come into the market recently.
If I was comfortable with the risks of pure mining towns (I’m not, but plenty of investors are) I would be focusing on Mount Isa. This iconic mining centre of around 20,000 people has had major growth spurts in the past and looks set for another one. There are numerous new infrastructure projects related to mining in various stages of construction or planning, including new mines, expansions of existing ones and a new power station. Mount Isa had big rental growth last year and prices are starting to follow.
Longer-term, Mount Isa will be a key beneficiary of the State Government’s decision to lift the Queensland ban on mining uranium.
Not far from Mount Isa, the regional town of Cloncurry, which mostly serviced local farmers and some tourism as well, is set to grow on the back on new mining ventures.
Three coastal locations which have been poor performers over the four years, but appear poised for comebacks, are the Sunshine Coast, Hervey Bay and the Whitsundays. These locations recorded an uplift in sales volumes in the December Quarter of last year – and that, usually, is a precursor to price growth.
Canberra and the ACT:
Canberra and the ACT.
This will be the shortest chapter in the report. There is nowhere in Canberra that stands out as a great place to invest this year. The best opportunities are across the border in New South Wales.
As I commented in the previous edition of this report before Christmas, Canberra is no longer the steady and constant market it has been in the past.
Federal Government cuts to public service numbers and a big decline in the construction industry (causing thousands of workers to leave Canberra) means the ACT no longer has the lowest unemployment in the nation, having been overtaken by Western Australia and the Northern Territory. And if the Liberal Party wins the Federal Election, as appears likely, more jobs cuts will follow.
The ACT no longer ranks as high as it did on other key economic indicators – and its property indicators are poor.
Canberra is among the hardest places in Australia to gain approvals to do property developments and, increasingly, developers are seeking to service housing demand across the border in the Queanbeyan area. Homes are more affordable there as well.
Queanbeyan is where I’d be heading to find opportunities for Canberra-related demand. The regional town of Goulburn is another possibility. It’s affordable, has a bright future and is within commuting distance of the national capital.
Darwin and the Northern Territory:
Darwin and the Northern Territory.
Whereas Canberra presents few exciting options for investors at present, the Northern Territory is quite the opposite. Darwin is the national leader on price and rental growth among the eight state and territory capital cities – and is likely to remain so in 2013, challenged only by Perth.
Western Australia has been – and remains – the No.1 growth region of Australia, but the Northern Territory is mounting a serious challenge. The Territory now has the lowest unemployment rate at 3.9% (data from the ABS for January), well below the national average of 5.4%. It has also delivered the highest growth in State Final Demand, one of the measures of economic growth.
Darwin experienced major growth in residential rentals last year and prices are starting to follow. Loans to both owner-occupiers and investors have increased strongly.
Darwin is a small capital city – in essence, a large regional centre. A single major project can have an enormous impact on the economy, employment and demand for real estate. When a project that is the second largest ever undertaken in Australia comes along, the impact is massive.
This, of course, refers to the $34 billion Ichthys gas project, now under way. Not all that money will be spent in Darwin – the gas will be extracted off the Western Australian coast and piped to Darwin for processing and export – but the impact is nevertheless monumental.
So Darwin, already with very high dwelling prices and rents, is having another growth spurt. In 2012, it was the runaway leader among the capital cities for median house price growth.
In Darwin, I would be looking in the Palmerston City area, which is proximate to the Ichthys action and has prices that are a little more affordable. Returns are good too.
I would be looking for a small apartment because, while all Palmerston suburbs have median house prices above $400,000, units are generally in the $300,000s.
The suburb of Driver has a median house price of $465,000, typical rental yields around 5.5%, and a long-term capital growth rate of 11% per year. Apartments, in the other hand, have a median price of $325,000 and yields around 6%, with the same long-term capital growth rate.
Outside of the Darwin metropolitan area, I would show the most interest in Tennant Creek – a small regional town (about 4,000 people) but strategically very important for agriculture, tourism, government administration and mining.
The median house price is $250,000 (despite a long-term growth rate of 13% per year) and typical rental returns are above 8%.
Hobart and Tasmania:
Hobart and Tasmania.
Where would we buy in Tasmania? The short answer is: we wouldn’t.
The longer answer is that we would keep on eye on the place and watch for opportunities. Tasmania is the recession state at present but it has a track record of punching above its weight.
Isolation can be a strength as it tends to breed self-reliance and resilience. That has been so for Tasmania in the past. There are signs that Tasmania is fighting back.
The short-term prospects, however, are bleak. As I recorded in the previous edition of this quarterly report, Tasmania ranks last in Australia for almost every economic and property indicator. It has the lowest population growth (virtually no growth at all in the past 12 months), the highest unemployment rate and its economy has gone backwards, the only state or territory to do so.
It’s also the only state or territory not to record a rise in retail turnover – and it’s the only place to record a decline in housing finance commitments by owner-occupiers. Loans fell 6% in Tasmania in the past year while they rose a similar amount nationally. Residential building approvals are down 29%, the second worst result in the nation.
Not surprisingly, the house price index for Hobart dropped 6% last year, the only capital city to record a significant decline in the ABS figures.
Tasmania needs an injection of economic hormones. The state does have a resources sector but currently there are no projects of sufficient magnitude to change property markets. This may change, as the recent decision to allow mining in the Tarkine wilderness area (an environmental tragedy, in my view) is already producing resources proposals in the state’s north-west.
I would watching Tasmania and awaiting the bottom of this depressing economic cycle, before showing any interest in buying real estate there.
Melbourne and Victoria:
Melbourne and Victoria.
Before discussing where I would head in 2013 for good investment opportunities in Victoria, let’s focus briefly on where I would avoid: Melbourne’s inner-city apartment market and some of the outer suburban house-and-land markets.
Inner-city areas like the CBD, Docklands and Southbank already have major over-supplies of apartments, with vacancy rates in the 9-11% range. But it’s going to get worse, as developers keep bringing on new high-rise projects, encouraged by a State Government that seems oblivious to the over-supply issues.
Developers aren’t looking for local buyers because locals know there’s already a surplus – they’re marketing them in distant locations (like China) where investors are unlikely to know Melbourne conditions. It’s a recipe for a market crash. Avoid it like the plague.
Melbourne markets generally will be dragged down by these issues and I would suggest adopting a watching brief: observe where prices fall and perhaps in 12 months buy cheaply in areas that have identifiable drivers of future growth.
Meanwhile, there are good opportunities to invest outside the state capital.
The Goldfields region presents possibilities, with the key regional cities Bendigo and Ballarat standouts, but also the smaller town of Maryborough.
Bendigo and Ballarat continue to be vibrant regional centres with everything property investors should be seeking: growing populations, infrastructure development, diversified economies forward-thinking councils, affordable housing. Both will benefit from the $5 billion Regional Rail Link.
If I was in the market for a “cheapie” (the Cheapies with Prospects reports, both the city and regional editions, are among the most popular on the Hotspotting website), Maryborough would be high on my list of prospects.
A strong community effort has transformed Maryborough into a thriving town with several major industries providing employment, in addition to a tourism sector based on the town’s historic fabric. A median price of $185,000, despite capital growth averaging 8.5% per year over the past decade, and yields above 6% add to Maryborough’s appeal.
Sale and the East Gippsland area have investor appeal, particularly with a $1.1 billion gas conditioning plant to be built by BHP Billiton and ExxonMobil to support their $4.4 billion Kipper Tuna Turrum project in Bass Strait.
The twin border cities of Albury and Wodonga have grown considerably stronger in recent times and look set for a good year in 2013. Albury-Wodonga has most of the qualities I have listed for Bendigo and Ballarat. It’s not a place with billion-dollar projects happening – but there are dozens of small to medium sized developments which depict a regional centre on the move.
Perth and Western Australia:
Perth and Western Australia.
Western Australia is one place where I would be concentrating most of my search on the capital city. Perth is moving into a growth phase, one I feel is overdue.
The Perth market last peaked around 2007, after several stellar growth years. Since then there has been little price growth and most locations have had their median prices trimmed.
But late in 2012, after a year of watching rents and sales volumes rise, Perth showed the first signs of solid price growth. By year’s end, there had been an annual rise of 6% in Perth’s median house price, according to the ABS House Price Indexes.
The revival of iron ore prices and ongoing progress on major gas ventures have confirmed that the obituary for the mining boom was somewhat exaggerated. Much of the economic activity and wealth generated by the resources sector – primarily LNG and iron ore in WA – is felt in Perth in the office, industrial and hotel markets.
And, now, also in the residential market. Perth is where miners source most of their fly-in-fly-out workers. These highly-paid people work thousands of kilometres from Perth but this is where many of them base their families and spend their wages.
Perth has many locations with good prospects. I continue to like the Midland precinct north-east of the Perth CBD: it has a cluster of affordable suburbs around a substantial “regional centre” of infrastructure and amenities, including health and education facilities. There are good rail and road links to central Perth and plenty of growth drivers. But, arguably, proximity to the very busy and expanding Perth Airport is the key feature.
There are many other precincts worthy of consideration: the Belmont precinct between the Airport and the CBD, the Joondalup “regional centre” in the north, the Rockingham City precinct in the south, Fremantle and neighbouring suburbs, and others.
Outside of the state capital, the very high prices in resources towns and regional centres, including Port Hedland, Karratha, Broome and Newman, make investment there not only out of reach for most people but also risky, given doubts about the sustainability of those high rents and prices (Port Hedland has a median house price above $1.1 million, for example).
Geraldton, however, is one centre touched by the resources sector which still has prices which make sense. You can readily buy in the $300,000s and, in the cheaper suburbs, in the $200,000s.
South of Perth, Bunbury continues to show signs of revival. It’s surrounded by significant industrial and infrastructure activity, has a busy and growing export port, and is overdue for some price growth.
Mandurah, which was a national population and price growth star before 2007, looks set to grow again after five down years.
Sydney and New South Wales:
Sydney and New South Wales.
If Sydney does indeed show meaningful price growth this year, as many commentators (including me) expect, it will a case of “about time!”
Sydney has been the under-achiever of the capital cities in the past decade and hasn’t shown any real form since 2004.
This is the year, I think. But where?
I’d be looking west. The diehards who think everything that matters in Australia resides between Bondi and Manly and no further west than Balmain will tell you about prime property being the expensive stuff close to the City but the research has always contradicted them.
Blacktown City has strong growth prospects. It is the population growth capital of Sydney and one of the top choices in the metropolitan area for first-home buyers. There are expanding medical and education facilities (which provide strong rental demand), good road and rail links, and proximity to major jobs nodes.
The south-western precinct featuring Liverpool and Cabramatta also has good growth prospects, as well as affordability. My recent suburb-by-suburb research of the Sydney metropolitan area revealed the three of the five top Sydney suburbs for long-term capital growth were in this general precinct.
Longer-term, the $8 billion North West Rail Link will boost prospects and prices in the Sydney precinct around Kellyville and Rouse Hill, where major community infrastructure is being created in master-planned residential developments.
But the most appealing prospects in NSW continue to be found outside Sydney. And there are many attractive options I would consider – regional centres which have in common strong diversified economies, growing populations, affordable housing, good growth records and, in many cases, extra growth drivers like mining enterprises and/or major infrastructure development.
Included on our list of suspects are Albury, Cessnock, Dubbo, Goulburn, Gunnedah, Mudgee, Muswellbrook, Narrabri, Newcastle, Orange, Singleton, Tamworth and Wagga Wagga. Wollongong has been through tough times lately but is fighting back and is worth watching as well.
Look for locations where sales volumes have risen recently.
One of the established patterns of real estate markets is that the number of sales taking place changes some time before prices react.
This happens both when markets are rising and when they are falling.
A significant uplift in the number of dwellings sales in a location will be followed, perhaps six months later, by a rise in prices. It takes time for the market to react to the new situation.
Similarly, prices will not react immediately when there is a sharp decline in sales numbers. Individual buyers, initially, will be unaware that the market is changing.
Investors can use this pattern in the current market climate to identify areas where prices will rise in the near future – and buy before they do.
Currently, in markets around Australia, sales volumes are rising significantly. In Queensland, for example, several markets which have been depressed over the past 3-4 years recorded marked rises in house sales volumes in the December Quarter: the Sunshine Coast rose 27%, Hervey Bay was up 37%, Ipswich City increased 18% and Cairns jumped 25%.
This phenomenon is not confined to Queensland. Our daily research is identifying rising markets around the nation. It’s a signal for investors to watch – and profit from.