Property Report – December 2012
What is in store for 2013?
by Terry Ryder.
creator of hotspotting.com.au
2012 has been the year of recovery – what’s in store for 2013?
The 2012 calendar year has seen the price decline in the capital cities arrested and price growth resume, in some cases alongside significant increases in rentals.
Affordability has improved quarter-by-quarter, loans to home-buyers have increased 6% over 2011, auction clearance rates have improved (an overrated market barometer but nevertheless another positive indicator) and consumer sentiment has risen.
Some of the key regional centres have been national market leaders, headed by Gladstone, Mackay and other regional cities which enjoy some impact from the resources sector.
Against that background, we now look ahead to 2013, a year that will feature a federal election.
I expect it to be a time of improving prospects for our major property markets. We are unlikely to see boom markets in many places – there will be some – but we will see more growth than in 2012.
For analysis of markets nationwide, click on the topics below …
|National Overview||There are thousands of markets – understand that and you’ll prosper.|
|Adelaide||Good prospects for a better 2013.|
|Brisbane||The only thing holding back Qld is its state government.|
|Canberra||Canberra market facing a rare period of uncertainty.|
|Darwin||One of the two strongest economies – and the No.1 property market.|
|Hobart||It’s difficult to say anything positive about Tasmania.|
|Melbourne||Melbourne has issues but plenty of growth prospects elsewhere.|
|Perth||Gas-led growth will drive Perth prices.|
|Sydney||Growth is overdue and 2013 will deliver.|
|Conclusion||The key factors to consider in 2013.|
There are thousands of different markets: understand that and you can prosper
Too often media speaks about “the property market”. In Australia, there are thousands of markets and they’re not all moving in the same direction nor at the same speed.
This simple truth is fundamental to understanding real estate and it’s opportunities.
Some newspapers, early in November, declared that ” the property market recovery is over”. To an experienced observer this was an absurd statement but many consumers undoubtedly filed it away with all the other misinformation in their heads.
The media reports were prompted by a press release from RP Data stating that the average result across the eight capital cities in October was a small decline in house prices, after four consecutive monthly rises. This created headlines declaring that the recovery in “the Australian property market” was over.
To make that categorical statement based on one month’s data from just one source was unreasonable. But the greatest mistake was to speak in terms of Australia as one market.
Prices rose strongly in Perth and Darwin in October but the property recovery was over, apparently. Out in the regions, key cities like Gladstone, Mackay, Dubbo and Ballarat were still in the ascendancy but newspapers still declared the property market recovery was over.
My view is that because Australia is such a large nation with so many diverse markets, there are always opportunities for investors to buy well in location’s likely to show good future growth.
The key to finding the best buys is understanding what to look for.
Too many investors target a market after they read in a newspaper or magazine that the location is booming. By then it is too late.
Many investors have piled into the Gladstone market after reading about its strong growth in prices. They are at least one year too late to invest wisely because there has already been big growth.
Investors ask me: how could I have known two years ago that this was the place to buy? I tell them it was a no-brainer – if you knew what to look for.
If I can sum the key factors up in one word, it’s this: infrastructure.
Infrastructure includes transport links, industrial complexes and community service facilities. So it’s all about roads, rail links, power stations, wind farms, ports, mines, processing plants, hospitals, universities, factories – anything that creates jobs and adds to the economic mix of the city, town or suburb.
Two years ago infrastructure in the pipeline for Gladstone included four LNG processing plants, two port expansions, a steel mill, new rail links and other facilities – projects totalling $100 billion.
Six to seven years earlier, Gladstone had projects worth “only” $20 billion under way and it’s market recorded double-digit growth for four consecutive years. Imagine what $100 billon would do.
Gladstone needed only one of those mega projects to go ahead to produce a boom property market. Three of the massive LNG facilities are now under construction and there is more to come. Tens of thousands of jobs have been created. Rentals grew massively and then prices followed. In the past year, median house prices have increased 17-18%.
There will still be more growth in the Gladstone market but the optimum time to buy there has passed.
The question investors should asking is this: where is the next Gladstone? What city or town looks the way Gladstone did two to five years ago?
To find the answer to questions like that, investors need to be researchers. Most investors do no more than read newspapers and magazines, which are too often sources of misinformation.
All the information people need is out there and readily accessible via the Internet. but it takes a commitment of time.
The short-cut for people who are time poor (or lazy) is to use the resources available on the hotspotting.com.au website. We’ve done the research for you. But like many things worth having, it costs money.
If you’re not prepared to spend time or money, I would suggest you have a limited future as a property investor.
Poorly informed investors buy real estate in the wrong places, at the wrong prices or from the wrong people. Some investors do all three in the one transaction – like the countless people who have bought over-priced apartments from spruikers on the Gold Coast.
This is an almost-guaranteed path to wealth destruction.
Here are some clues as to what a well-researched investor might find:-
- Bowen in Queensland is poised to become a centre on considerable jobs growth. The export facilities at Abbot Point are expanding and are soon to undergo further multi-billion dollar upgrades. There will also be new rail facilities constructed to link the port to the emerging new coal mines in the Galilee Basin near Emerald.
- Whyalla in South Australia has the potential to become to SA what Gladstone is to Queensland – the state’s industrial muscle town. The deferral of BHP Billiton’s Olympic Dam expansion has removed two potential projects from the pipeline but there are other major infrastructure developments worth $7 billion in planning.
- Geraldton in Western Australia has most of the qualities I look for in a worthy investment location. It has a diversified economy, with strong elements of agriculture, fishing, tourism and resources. It benefits from the mining sector but does not depend on it. Its real estate is affordable, unlike most regional centres north of Perth. The $3 billion Square Kilometre Array projects has been awarded to Geraldton and this alone will keep the city buzzing.
- Albury-Wodonga at the NSW-Victoria border epitomizes the kind of place that never attracts attention but deserves to be considered by property investors. It has a strategic location, a growing population, ambitious councils, a multi-faceted economy and plenty of infrastructure development. It doesn’t draw media focus because there are no mega projects there, but there are dozens of commercial, retail and residential projects in the pipeline.
Ipswich City in the south-west of the Brisbane metropolitan area is the capital growth king of Brisbane. Eight of the top 10 Brisbane suburbs for long-term growth are in Ipswich City. And its status is unlikely to change. There are massive infrastructure projects happenings, there are multiple jobs nodes, its council is committed to growing the place, its real estate is affordable and there are excellent transport links to central Brisbane.
There are many dozens of opportunities like this around Australia – because Australia has many different markets with their own special growth drivers.
The job of the property investor is to seek them out.
Adelaide and South Australia:
Adelaide has good prospects for a better year in 2013
The year just ending has not been the best for Adelaide. It produced little in the way of rental or price growth. But 2013 will be better.
Adelaide is a much better market than people realize. It’s always easier to earn a bad reputation than a good one, and eventually investors will realize what Adelaide offers: a solid well-rounded economy, affordable real estate (the cheapest of the mainland capital cities) and the prospects of superior growth as the state continues its emergence as the third big resources state in Australia.
For the past two years I’ve been telling people to watch South Australia as the dark horse of the Australian economies.
Firstly, most people don’t realize how important the defence economy is. Adelaide is currently building the Air Warfare Destroyer fleet, worth about $10 billion, and then will be building the new submarine fleet, worth between $20 billion and $30 billion.
Secondly, most people don’t realize how important the alternative energy economy will be. South Australia is the national leader in wind farm development, with projects worth billions of dollars under way or in planning.
Thirdly, Adelaide has a significant level of infrastructure projects under way or soon to start – considerably more than Sydney does, in fact. They include road upgrades, new rail links, a desalination plant and new hospitals.
Finally, few people appear to appreciate how big the SA resources sector already is and how big it is yet to become. Many people think the biggest thing – indeed the only thing – in the SA mining industry is the expansion of Olympic Dam. And therefore because that project has been deferred it’s all over for SA.
In fact the biggest thing happening it the SA sources sector is the decision, first announced in mid-2011 and confirmed in mid-2012, to allow mining in the previously-restricted Woomera Prohibited Area.
The mining potential in this precinct is considerably larger than the Olympic Dam expansion and as miners move from exploration into development and production, multiple locations will benefit, including Coober Pedy, Port Augusta and Whyalla – as well as Adelaide.
The Eyre Peninsula has multiple mining ventures in various stages of development, and these will most directly benefit Port Lincoln and Whyalla.
Brisbane and Queensland :
The only thing holding Queensland back
is its manic state government
Brisbane showed solid signs of recovery in the second half of 2012 and should have better year in 2013. Many of the state’s regional centres were strong this year and there are few reasons to believe it will be different next year.
The only thing that stops me being more bullish about Queensland’s prospects is the State Government. Campbell Newman and his motley crew have been on a slash-and-burn binge. To date they have destroyed a great deal, putting thousands out of work, but have created nothing.
It’s the primary reason why Queensland’s jobless rate has climbed when the national rate has been steady. WA’s jobless rate is 4.3% and the Northern Territory is 4.5%, but Queensland is now up to 6.2%. The only place with a worse situation is Tasmania. There has been no net gain in employment in Queensland in the past 12 months.
Confidence levels have a similar rank in the national scheme of things.
This should not be so, as Queensland still has strong population growth and has plenty of resources activity, particularly with major gas projects – while overseas investors are still keen to develop mega coal mines, focused largely on the emerging Galilee Basin near Emerald. One consequence of the ongoing expansion in the Queensland resources sector is demand for export facilities and new rail links, with many billions of dollars being invested.
Overall, real estate markets around Brisbane should be stronger, after two down years. The September Quarter figures showed the first glimmers of a recovery in prices. Brisbane will be led, once again, by Ipswich City in the south-west, which is the capital growth king of the Brisbane metropolitan area, followed by Logan City in the affordable southern suburbs.
In the regions, Gladstone has had two strong years and may taper in 2013 as new supply comes into the market. But other regional markets which are a little behind Gladstone in the cycle will show good growth, including Toowoomba, Mackay, Bowen, Emerald and Townsville.
Two seaside markets which have been poor for several years, the Whitsundays and Hervey Bay, are poised to make comebacks. Both need to diversify their economies to have sustained long-term strength, but they are being boosted by new developments, a revival of tourism and rising interest from buyers who are well-paid FIFO workers.
One reason for some optimism in 2013: loan commitments to investors in Queensland real estate have risen 15% in the past 12 months. Finance commitments to owner-occupiers have also increased 6% so that suggests improvement in markets generally in 2013.
Canberra and the ACT:
Canberra market facing a period of uncertainty and rare inconsistency
Canberra has always been the most consistent of the city markets, indeed so steady and constant as to be boring. But I suspect that may change in the short-term.
Federal Government moves to balance the Budget have brought cutbacks to public service numbers. The Government has also foreshadowed moves to encourage more public servants to work from home, which presumably will reduce demand in the national capital.
At the same time, work on a number of major Canberra projects has wound down, causing big declines for the construction industry. The ACT branch of Master Builders Australia says around 3,000 workers have lost their jobs in the past year, with most of them leaving Canberra in search of new work.
The Federal Government’s push for a Budget surplus is adversely impacting the ACT economy as the public sector is forced to further tighten its belt, according to Deloitte Access Economics’ Investment Monitor, released in November. It says that over the next five years the average annual rate of economic growth in the ACT is expected to be 1.8%, which is lower than the 3.2% projected Australia-wide. The report says that because more than half of the ACT’s workers are public servants, Canberra’s economy is more susceptible to the decisions of the public sector, and particularly the Federal Government, than any other jurisdiction in Australia.
”The government’s grip on Canberra’s economy extends far beyond its employees,” it says. ”To name a few examples, much of Canberra’s non-government white-collar workers are themselves dependent on government clients, with Canberra’s restaurateurs and hoteliers dependent on visitors flying in for meetings or events with federal departments; while the construction sector is dependent on steady growth in government employment.”
Recent cuts to federal government spending and a recent glut of office projects, the report says, mean that office vacancy rates in the ACT are currently high and likely to keep commercial construction in the slow lane for some time.
Canberra has long been a place with the lowest unemployment rate and the highest average incomes, leading to solid demand for dwellings at strong prices. Supply of new dwellings has seldom kept pace with the demand. This is likely to change with the new reality of staff cutbacks and changed working conditions.
While the ACT still has the lowest unemployment rate in the nation, it has risen significantly in the past six months and will rise further. The ACT no longer ranks as high as it did on other key economic indicators – and its property indicators are poor.
It ranks last in the nation for new home approvals (down 37% in the past 12 months) and there has been virtually no rise in home loans to owner-occupiers in the past 12 months (compared to the national average rise of 5.5%)
The median rents for both houses and apartments fell in the September Quarter. At the same time, the median house price declined, according to ABS data, while RP Data records a decline in the home value index compared to a year earlier. These figures have emerged at a time when most other capital cities have been recording growth in rentals and a small increase in house prices.
Darwin and the Northern Territory:
One of the two strongest economies – and the No.1 property market
The conventional view is that Western Australia is the runaway national leader on all matters economic, but a case can be made that the Northern Territory is a serious challenger. When I examine growth in the key economic indicators – as well as the leading real estate markers – Darwin and the Northern Territory is an absolute standout.
Based on the latest data from the ABS, the Territory is No.1 for economic growth, No.2 for growth in retail turnover and it has the third lowest unemployment rate, well below the national average.
The Territory is the only region to record growth in residential building approvals in the past 12 months – up 28%, while every other state and territory showed a decline. Loans to investors buying Territory real estate have grown 22%, the highest in the nation, and loans to owner-occupiers have increased 17%, the second highest.
Darwin is No.1 among the capital cities, by a considerable margin, on growth in rentals for both houses and apartments. It has the highest rents among the capital cities in both categories, again by a big margin.
Darwin has also led the major cities for growth in house price growth this year, although not by the same large numbers.
What does all this mean for 2013? I believe we will see big price increases in Darwin. The pattern for boom cities and towns in the past two years has been a big lift in rentals, with prices following perhaps 12 months later. Darwin is at the point where prices are just beginning to follow the pattern of rentals.
Darwin’s return to big growth is being driven largely by events in the resources sector. While media, which sees the world in black-or-white boom-or-bust terms, has declared the mining boom over, this simplistic non-analysis does not apply to the gas sector. The ten biggest resources projects in Australia are all LNG ventures – and the second biggest is focused on Darwin. The $34 billion Ichthys development is massive for a place the size of Darwin, which is essentially a medium-sized regional centre.
There are other resources projects driving the Darwin and Territory economies – and there is the growing influence of the military, with the US military presence starting to build up following the announcement by President Obama earlier this year.
Investors seeking to exploit this growth could do worse than explore Palmerston, the satellite city south of Darwin. This is where much of the new residential growth is happening and it’s well-situated close to the major infrastructure for the Ichthys project and other gas ventures. You’re also likely to find more affordable dwellings there, although nothing is really cheap in Darwin these days.
There’s more to the Territory than Darwin, although not much more (in terms of population centres). Alice Springs has been a good performer on capital growth and rental returns in recent years and continues to go forward. Tennant Creek has strategic importance beyond is relatively small size, playing a key role for the grazing, mining, tourism and government administration sectors. It’s the cheapest market in the Territory and well worth considering by investors.
Hobart and Tasmania:
It’s difficult to find anything positive to say about Tassie
The Hotspotting website has Top 10 reports for all the Australian states, except Tasmania. We would struggle to come up with even a Top 3 report for the island state – and it’s not for lack of trying.
Hotspots are places deemed likely to show superior growth in the near future. I can’t find anywhere that qualifies in Tasmania.
You can’t have real estate growth without a solid economic under-pinning. And therein lies the problem.
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.
Gunns has finally gone belly up and the changes of the $2 billion pulp mill happening now seem remote. Forestry Tasmania reported a $27 million loss in FY2012, its third consecutive negative result.
The State Government has made matters worse with austerity policies, cutting spending and jobs rather than seeking to stimulate the economy.
Not surprisingly, ratings agencies Moody’s and Standard & Poor’s downgraded Tasmania recently.
Any light at the end of the tunnel? Tourism is solid, with cruise ships bringing lots of visitors to Tasmania and Qantas recently announcing 1,700 extra seats per week between Melbourne and Hobart.
Two $100 million property developments may bring some life to Hobart: the Myer re-development and the Parliament Square project.
But that’s it, really.
For anyone thinking of buying in Tasmania because it’s cheap and may improve some time in the future, I would suggest there are lots of affordable locations on the mainland with much better growth prospects.
Right now, Tasmania’s growth prospects are close to zero.
Melbourne and Victoria:
Melbourne has issues but plenty of growth prospects elsewhere in the state
The story for most of our capital cities is one of recovery and optimism for 2013 – but not so for Melbourne.
Melbourne has problems which relate to over-supply and a State Government which appears intent on making it worse.
Fortunately for the state, there’s more to Victoria than Melbourne. There are a number of regional centres that were solid in 2012 and look pretty good for 2013.
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.
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 just 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.
Geelong, as I have written often in the past, presents as an attractive and affordable alternative to Melbourne – lots of growth factors, plenty of infrastructure developments and big real estate projects are part of the mix in Geelong.
Other regional centres that continue to chug along in Victoria, without attracting much attention, are Warrnambool, Mildura and Sale.
Melbourne is another matter. There are way too many inner-city apartments and a similar situation with outer suburban house-and-land packages. This explains why there’s been no rental growth this year and prices are still down.
Unfortunately the State Government is behaving like there’s a shortage, energetically facilitating major new residential construction such as the Fisherman’s Bend urban renewal project. Long-term this may be a good idea, but right now the last thing Melbourne needs is more supply.
Perth and Western Australia:
Gas-led growth will drive Perth’s prices in 2013
The pattern we have seen in boom markets like Gladstone and Darwin is now being played out in Perth. First rents rise – a lot – and prices follow perhaps 12 months later.
The story for Perth’s residential markets in the past year or so has been strong demand for rental accommodation, leading to sharply rising rents. Australian Property Monitors’ figures suggest a 15% rise in the median house rent and a 12% rise for apartments. Only Darwin has had larger increases.
As 2012 draws to a close, we are seeing the first evidence of prices following the rental trend. The ABS House Price Indexes for the September Quarter recorded a 1.8% rise for Perth in the Quarter – the largest the eight state and territory capital cities – and a 4.4% rise for the year, the second highest behind Darwin.
Expect more in 2012. While the media has been declaring the end to the resources boom, they’re simply wrong. It’s far from over in Western Australia, where the biggest projects are LNG developments and they’re proceeding full steam ahead. The three biggest are collectively worth $100 billion.
Iron ore prices have dropped, causing problems for some mining ventures, but the big players like Rio Tinto, BHP Billion, Fortescue Metals and Hancock Prospecting (Gina Rinehart) are still spending billions in ventures in the Pilbara region.
The economic indicators show just how strong the WA economy. It ranks either No.1 or No.2 for population growth, low unemployment, retail growth, economic growth and housing finance growth.
Its current population growth rate is 3.1%, while the next beset is 1.9%. Its retail trade growth is three times the national average. Its growth in home loans for owner-occupiers is also three times the national average, while loans to investors have risen at double the national rate.
So Perth looks strong in 2013. The locales I particularly like are the Midland precinct in the north-east, the Murdoch precinct in the near south and Rockingham in the far south. Closer to the CBD, the Belmont precinct has plenty to offer, as does Fremantle.
Outside Perth, some caution is needed with the resources-related regional centres. Port Hedland and Karratha are hideously expensive and State Government moves to inject significant supply of affordable housing may compromise those high prices and rental levels.
The remote mining town of Newman is also very expensive, after big growth in 2012, with a median price around $830,000. There’s still lots of mining activity around Newman, where the $8 billion Roy Hill iron ore mine is cranking up alongside multiple other existing ventures, but I wouldn’t sleep at night if I bought a house in Newman at those prices.
Geraldton is one regional centre north of Perth that makes sense. Its prices are “normal” and its economy is diversified, getting plenty of oomph from the resources sector but not dependent on it. The $3 billion Square Kilometre Array space telescope project will provide an added boost – and one day they may get around to building the stalled $6 billion Oakajee port project.
South of Perth, Mandurah looks set for an overdue recovery, while Bunbury and Albany are solid regional centres.
Sydney and New South Wales:
Growth is long overdue and 2013 will deliver.
Sydney has been the worst of the capital cities for capital growth over the past 10 years. A comparison with Brisbane illustrates how bad Sydney has been: the top suburb in Brisbane has a long-term growth rate of 14% and most suburbs have double-digit growth rates. In Sydney, the best performer has averaged 7% and most have been between 4% and 5%.
There are 90 Sydney suburbs with median prices above $1 million – the ritzy suburbs that the media talks about breathlessly – and their collective average growth rate has been 4.7% a year. That means values doubling every 15 years.
The really upmarket suburbs have done considerably worse than that: Mosman, median price over $2 million, has averaged 3.6% a year; Longueville, median price $2.3 million, has averaged 3.8%; Vaucluse, median price $2.7 million, has averaged 3.2% a year (which means it takes 23 years for values to double).
The best growth rate across Sydney, by the way, has been achieved by humble Canley Vale (median house price $450,000) with a growth rate of 7% a year. Cabramatta ($427,000) and Canley Heights ($440,000) also made the top five. Five of the top seven had median prices below $460,000.
So why has Sydney been such an under-achiever? Because its economy has not performed, far too little infrastructure has been built and until recently it had the worst state government imaginable.
Things are improving. There’s a hint of leadership and the possibility of new infrastructure coming from the Liberal State Government.
Economic performance is improving. NSW is gradually rising through the pack, with below-average unemployment, solid economic growth and rising loan commitments by home-buyers. Property investors are again showing some interest in NSW, as well.
Recent figures show the first glimmers of recovery in Sydney, with moderate growth in average prices and rentals. I’m expecting to this to carry into 2013 and become stronger.
But the best prospects continue to be found beyond the state capital. NSW is blessed with many strong regional centres that are a lot more affordable than Sydney and have provided much better capital growth over recent years.
Ones I expect to continue achieving are Dubbo, Tamworth, Gunnedah, Mudgee, Orange, Goulburn, Albury and Wagga Wagga.
Dubbo’s median price grew 7% in the past 12 months, Orange was up 6% and Mudgee rose 9%,
Gunnedah grew a moderate 3% this year but has a long-term average of 12% a year, which puts Sydney in the shade.
The key factors to consider when seeking opportunities in 2013.
Investors seeking the best out of investing in 2013 can help the process by considering some key questions:-
- Where is the infrastructure being built? (Infrastructure development is the single biggest driver of capital growth).
- If the location being considered is in a capital city, are there commmuter train links? (Our research shows suburbs with rail links tend to grow faster than those without).
- What happened with rentals in this location recently? (The record shows that areas with big rental growth always deliver strong price growth later).
- If it’s a location impacted by the resources sector, which type of resources? (If it’s a gas-driven resources industry, it’s more likely to be prosperous than one based on iron ore and coal, although this may change in the future)
And, finally, here are some totally irrelevant questions which most will ponder but which really should not influence investment decisions:-
- What will happen with interest rates? (Anything thinking clearly will realise that a property purchase usually means a loan lasting at least 25 years, during which interest rates will rise and fall many times).
- What will happen with the Federal Election? (The result is irrelevant to property markets, just so long as one of the major parties wins a clear majority and can govern decisively).