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01 February 2015

Property Report – February 2015

Don’t rely on mainstream media for real estate information

by Terry Ryder.
creator of

Every year is different in Australian real estate. The year just ended was different in many ways to 2013, with new markets rising as others subsided – and next year will be different again.

This edition of the Quarterly Market Report focuses on considering the events of 2014 and looking ahead to the likely outcomes in 2015.

To set the scene for this analysis, let’s consider what I wrote at the same time 12 months ago (presented below in italics) and how things turned out.

The auction frenzy in the rich areas of Sydney and Melbourne will subside somewhat and we will see genuine activity and solid price growth in the more affordable suburbs of those cities. I think that’s pretty much how things have panned out in 2014. There’s been less frenzy at auctions in the millionaire suburbs, as growth in the Top End areas has gradually subsided. Instead, we’ve seen middle-ring and outer-ring suburbs emerge as growth leaders in both Sydney and Melbourne.

Brisbane’s recovery will gather pace and it will challenge as a leader on price growth. Perth will continue to show solid growth, but Darwin will be more moderate in its rental and price growth. Brisbane did indeed pick up and is now ranked third among the capital cities on annual price growth, close behind Melbourne. Perth did show price growth, but less than I expected, while Darwin’s growth was indeed more moderate, while remaining solid.

Adelaide will show its best growth since 2010, though it will be fairly moderate, as South Australia lacks economic and population impetus. Hobart will suffer in the same way, unless something changes dramatically in its economy. Adelaide and Hobart did both show some growth this year and it was, as expected, fairly moderate – around 4%.

Canberra, which had an ordinary 2013, will probably struggle even more next year, as the new Federal Government axes public service jobs and cuts spending programs. That one came true as well. Canberra’s prices barely moved this year – up 1% in the past year, according to RP Data.

So, having patted ourselves on the back for getting a lot right in our predictions for 2014, let’s examine prospects for 2015.

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


National Overview What to expect from 2015 in real estate.
Adelaide & SA Adelaide moving into a new growth phase.
Brisbane & QLD Brisbane gradually moving to the top of the heap.
Canberra & ACT Bottom of the capital city pack and likely to stay there.
Darwin & NT The great unknown of capital city real estate.
Melbourne & VIC Heading towards more moderate growth and city unit catastrophe.
Perth & WA Likely to remain moderate until iron ore prices rise.
Sydney & NSW Likely to slowly subside, after two strong years, but watch for regional growth.
Conclusion Don’t rely on mainstream media for real estate information.


National Overview:
What to expect from 2015 in real estate.

Media, being the poorly-informed creature that it is, has written much in 2014 about “the national property boom”. If you believe our major newspapers, and I sincerely hope you do not, prices have been “surging” across the nation.

In reality, there has been no national property boom. There has been a Sydney property boom, while the other capital cities have achieved growth ranging from low to moderate.

Another reality is that there is no “Australian property market”. Economists and journalists chatter about an Australian property market, but it does not exist. There are many thousands of different property markets across the nation, all doing their own thing, driven largely by local factors.

That is why the average annual growth rates for the eight capital cities (over the past decade) range from about 3% per year in Sydney and Hobart, to 9% per year in Perth and 10% per year in Darwin. This is why Sydney has boomed in 2013-2014 but Canberra, three hours away by car, has gone backwards. And it’s why Cairns has been a growth market in 2014 while North Queensland rival Townsville has not.

Another reality is that a “national property boom” is a rare thing. There are few instances where markets have risen in concert across the nation. The last time we had circumstances approximating a national boom was in 2003/2004.

And it’s no different now. Over the past two years we have seen individual cities rising, falling and stagnating for local reasons.

The first city to rise was Darwin. This occurred in 2012. Then Perth started to move.

At the beginning of 2013, price growth was being led by these two cities. But then Sydney started its charge. By the middle of 2013, Sydney had overtaken Darwin and Perth, and Melbourne was starting to move also.

By mid-2014, Sydney was still in front, followed by Melbourne as a distant second. Perth and Darwin had faded. But now Brisbane, Adelaide and Hobart were moving. The only city not to factor in any way was Canberra, which was going slowly but steadily nowhere.

As at 1 November, according to RP Data, the annual rise in median dwelling prices was 1% in Canberra, 3% in Perth, 4% in Adelaide and Hobart, 5% in Darwin, 6% in Brisbane, 8% in Melbourne and 13% in Sydney.

It takes a vivid imagination to construct a national property boom from those figures – which broadly replicate those from other sources, including the Australian Bureau of Statistics and Australian Property Monitors.

And it’s a flight of fancy to engine those numbers into the “bubble” that some of the attention-seekers like to chatter about.

So, against that background, what can we expect of 2015?

The first thing is that the Reserve Bank has made it clear that interest rates are unlikely to change. Although this factor is over-rated by economists and journalists as a core factor in the behaviour of markets, discussion of interest rates is a constant presence in media. RBA Governor Glenn Stevens has said in a number of recent speeches that interest rates are likely to remain at their current low settings to encourage economic growth in sectors outside the mining industry.

The second thing to consider is that individual markets are doing their own thing and are gradually changing. It’s a certainty that the rankings of the capital cities will change in 2015.

The pecking order on house price growth in 2014 has been 1 Sydney, 2 Melbourne, 3 Brisbane, 4 Darwin, 5 Adelaide, 6 Hobart, 7 Perth and 8 Canberra.

I hesitate to suggest a pecking order 12 months from now, because it’s almost impossible to get it right, but I’ll take a leap and suggest this as the rankings on price growth in 2015: 1 Brisbane, 2 Adelaide, 3 Sydney, 4 Melbourne, 5 Hobart, 6 Darwin, 7 Perth and 8 Canberra.

Brisbane has been rising steadily in 2014 and the continued growth in sales volumes across the city suggest price growth in 2015. Adelaide tends to be overlooked by everyone but it is now one of the nation’s most strongly rising markets and will deliver good growth next year. Hobart is also stirring and there is improving economic news out of Tasmania to help push along property markets.

The up-cycles in Sydney and Melbourne started, as is normal, in the Top End suburbs and have gradually rippled out to the middle and outer ring suburbs. We are now seeing the greatest momentum in the cheaper areas and that will generally tend to pull down median price growth.

The only constant I see is the ongoing malaise in Canberra, where Federal Government policies are knocking the stuffing out of real estate demand.

The third major factor I see in 2015 is the ongoing emergence of regional markets. A number of Queensland regional centres started growth phases in 2014 and more will join in during 2015.

The same is true of New South Wales, where regional centres close to Sydney started to pick up on the capital city’s momentum this year and, as the end of the 2014 drew closer, more and more regional cities further out started to join the growth party.

There will also be growth centres in the regional areas of Victoria, South Australia and Western Australia during 2015.


Adelaide and South Australia:
Adelaide moving into a new growth phase, plus some of the regional centres

Adelaide and South Australia have some of the nation’s growth markets heading into 2015.

The state capital has rising sales activity, at a time when markets are subsiding in other capital cities. There was a steady increase, quarter by quarter, in sales volumes in 2014 and, as a consequence of that pattern of rising sales volumes, we saw the first signs of price growth in 2015.

I expect the pattern to be enhanced in 2015.

There are growth markets spread across the Adelaide metropolitan area. The Onkaparinga local government area (LGA) in the far south has been the No.1 location for sales activity, with suburbs such as Seaford and Aldinga Beach prominent.

But in 2014 a number of precincts in the north of the metropolitan area emerged as growth markets. The No.1 location was the Salisbury LGA, which is Adelaide’s most affordable precinct, with a cluster of suburbs with median house prices below $200,000. Growth suburbs include Parafield Gardens and Paralowie.

Neighbouring Playford is another of the northern growth markets, headed by suburbs such as Andrews Farm and Munno Para West.

Closer to the CBD, the municipalities of Campbelltown and Tea Tree Gully present a series of middle-market suburbs with growth patterns emerging strongly in the second half of 2014.

One of the standout features of Adelaide is the strong evolution of the inner-city apartment market. Sales volumes in the CBD have been rising steadily, with encouragement from the State Government for more people living in the City.

As with other capital cities, investors need to be watchful about vacancies. The national trend is towards massive building of high-rise apartments in capital city CBDs, headed by Melbourne. If Adelaide follows the example of Melbourne and Brisbane, there will be over-supply.

Outside the state capital, a number of regional centres have rising markets. These include Mount Gambier, Murray Bridge, Victor Harbor and Port Augusta.

Over the past two years, Port Lincoln has been the market leader for regional South Australia. This market has plateaued after a couple of strong growth years, but remains one of the most solid property markets in regional Australia.

Whyalla is one key regional centre of South Australia not firing at the moment. This market is greatly impacted by the resources sector, which has paused (temporarily, I believe). But I expect Whyalla to recover in 2015.

Looking further ahead, the city will benefit from mining in the Woomera Prohibited Area and from the expansion of the Olympic Dam mine, but it will take a couple of years for these projects to evolve.


Brisbane and Queensland :
Brisbane gradually moving to the top of the heap, while the two Coasts rise

The price data shows that, as 2014 wore on, Brisbane gradually rose up through the pack in terms of annual price growth. It ends 2014 challenging Melbourne for 2nd spot behind Sydney, among the capital cities.

Brisbane’s steadily rising price growth results from an uplift in sales activity. The city’s up-cycle began in the inner-city apartment market and in the housing markets of the inner and middle ring suburbs north of the CBD. But, as 2014 progressed, the uptick in sales spread throughout the Brisbane metropolitan area.

By year’s end, all precincts across the metropolitan area had rising sales activity, but particularly in the Brisbane Northside, Moreton Bay, Logan City, and Brisbane inner precincts. There was more momentum in Brisbane markets than any other capital city late in 2014, with the possible exception of Adelaide.

The process is expected to continue in 2015. As growth rates in Sydney and Melbourne begin to taper off, Brisbane is likely to become the price growth leader of capital city Australia – with the biggest challenge coming from Adelaide.

The rise of the Brisbane market – and in many of the regional Queensland cities as well – has been underpinned by improvement in the state economy. Towards the end of 2014 there was a growing number of analysts and commentators tipping Queensland to be the national economic growth leader over the next couple of years.

This was based on the impact of gas exports from the three massive LNG plants soon to be completed in Gladstone, on improvement in the tourism industry and on a strong home building sector. Queensland also continues to be an above-average performer on population growth.

Queensland, the most de-centralised of the states, has the strongest property sector in regional Australia. Many of the state’s regional cities have rising economies and property markets, headed by Cairns, Toowoomba, the Sunshine Coast and the Gold Coast. These four cities all delivered good price growth in 2014, with the promise of better to come in 2015.

Townsville is a little behind these locations in terms of upturn, but continues to have one of Australia’s strongest regional economies.

The exceptions to the generally bullish outlook for regional Queensland are the cities and towns adversely impacted by the decline in the resources sector and/or over-building by developers. This includes Gladstone, Mackay, Emerald, Bowen, Moranbah and the towns of the Surat Basin.

Some of these places have been hurt by the downturn in the coal industry and others, including Gladstone, primarily by over-supply created by over-zealous developers. In some cases, property markets have been absolutely destroyed by the reckless actions of property developers.


Canberra and the ACT: 
Bottom of the capital city pack – and likely to stay there

Canberra is the only state and territory capital city which has showed no signs of joining the real estate growth party.

It’s further evidence that the greatest influences on property markets are local ones. While Sydney has been booming, three hours away in Canberra markets have been going backwards. Cutbacks in the public service, with threats of more to come, as well as relocation of large numbers of public servants to other areas, have reduced demand and dented confidence.

Another negative factor is an over-supply of apartments in the inner-city areas of Canberra.

The Price Predictor Index published by shows that there are few growth markets in Canberra. A handful of suburbs have rising sales volumes, primarily new growth suburbs in the far north where there are new housing estates.

Beyond that, the pattern for Canberra is stagnation or decline. The Federal Government’s cutbacks have seriously impacted on the local property market and there is little prospect for price growth in 2015.

In particular, buyers should avoid the Canberra apartment markets. Most of the Canberra markets with patterns of declining sales activity and weak price performance are apartment markets.

Kingston, which is usually the most active Canberra market for apartment sales, has been going steadily backwards in recent times.

So, following two poor years, I don’t expect much to change for Canberra in 2015 – which will mean three consecutive years of decline. This is unusual for the national capital, which has previously been a market characterised by solidity and consistency.


Darwin and the Northern Territory:
The great unknown of capital city real estate

Taking a long-term view, Darwin is the capital of capital growth in capital city Australia. It has recorded the highest average annual rise in prices over the past 10 years. Darwin’s capital growth rate has been three times that of Sydney.

Taking a narrower view, Darwin is unlikely to be among the leaders for price growth in 2015. Darwin was the first of the capital cities to begin the up-cycle, starting in 2012, long before Sydney got active.

In 2012 and early 2013, Darwin was the growth leader, closely followed by Perth. By mid 2013, Sydney had started to overtake them. And as we approach the end of 2014, Darwin has passed its peak.

Darwin started its growth phase earlier than other capital cities because of the influence of the massive Ichthys gas project, which generated a lot of economic activity and demand for real estate. But now the property consequences of the project have worked their way through the system and Darwin has reached a market plateau.

There have been some recent spikes in sales activity, caused by the release of new land in the City of Palmerston, where there are new suburbs under development, but generally growth in sales activity has subsided.

This has been generally true also for the regional centres of the Northern Territory – Alice Springs, Katherine and Tennant Creek.

Longer-term, I expect Katherine to be the regional centre with the most upside. A major expansion of the RAAF Base just outside Katherine, as part of the new squadron of fighter jets which will be shared between Katherine and Newcastle, will boost the local economy.

Impacts from the Ord River scheme across the border in Western Australia will be felt in Katherine, as product is trucked to Darwin via Katherine for export.


Melbourne and Victoria:
Heading towards more moderate growth – and a city unit catastrophe

Melbourne ends 2014 with considerable momentum remaining in residential property markets.

The chief movement results from the Ripple Effect. As is often the case, the up-cycle started in the Top End suburbs, which in Melbourne means the millionaire markets in the inner south-east. This has gradually shifted to the middle-ring and outer-ring areas.

There are now growth markets spread right across the Melbourne metropolitan area. They include some of the dependable middle market precincts, but most of the rising areas are on the outer reaches of the metropolitan area – places like the Whittlesea LGA in the north, Casey in the far south-east, Brimbank in the west and the Mornington Peninsula in the deep south.

I expect Melbourne to reach the peak of the current cycle in 2015, with good growth in the affordable areas on the fringe of the metropolitan area – and then start to gradually subside in terms of price growth.

The biggest concern about Melbourne remains its inner-city apartment market.

The oversupply in Melbourne’s inner-city apartment is starkly obvious. Also readily apparent is that it will get worse. It has the potential to cause a market crash.

Current vacancy rates include 5% in Docklands, 6% in the CBD and 7% in Southbank. That’s about 1,200 apartments sitting vacant and seeking tenants, without considering the thousands of apartments under construction or being marketed off-the-plan prior to construction.

The true level of vacancies may be higher, given a recent report which found that 17% of Docklands apartments consumed no water last year, which presumably means they were permanently vacant.

New high-rise projects are being approved by Planning Minister Matthew Guy at a frantic rate. Since coming to office four years ago, Guy has approved close to 100 buildings in Melbourne’s inner-city areas.

A recent study by RMIT, looking at additions to the supply of inner-city units from 2011 to 2021, found 85,000 apartments either built, under construction or in the pipeline.

Guy has shown that he will approve anything and everything that comes across his desk. A report six weeks ago suggested there were applications for 42 more apartment buildings on his desk – and the record suggests they will all be approved. You have to wonder about his motivations.

It’s over-building on a grand and reckless scale. And it’s all being done, not to provide homes for Melbourne buyers, but for sale to Asian investors.

There is clearly no local demand to support the scale of new supply that’s being created. We will soon have vacancies above 10% throughout the inner-city suburbs, with rents falling and property values being dragged down with it.

Given the poor historic performance of inner-city apartments, the current high vacancies and the impending glut of new properties, I would strongly urge investors – and home-buyers – to steer well clear of this market.

Beyond Melbourne, Victoria doesn’t have the array of strong regional cities and towns that you find in New South Wales and Queensland. But it does have some good ones.

Bendigo and Ballarat lead the regional pack. Major infrastructure projects – such as the $5 billion Regional Rail Link and Bendigo’s new hospital – will soon be influencing these property markets, so these are places to watch.

Geelong continues to deliver solid property markets, despite negative media about factory closures. Other regional centres worth watching include Mildura, Warrnambool and Sale.


Perth and Western Australia:
Likely to remain moderate until iron ore prices rise

Perth followed Darwin as an early leader of the national property growth cycle. Perth was towards the top of the growth pack in 2012 and early in 2013, before Sydney stirred to life and overtook both Perth and Darwin.

After two years of solid price growth, it was clear that Perth’s market was moderating as we approached the end of 2014.

In terms of sales activity, the Perth market peaked in the first half of 2013 and we have seen both sales volumes and price growth taper off since then. But the falloff has been relatively minor.

The market continues to make steady sales and the major outcome of our recent Perth analysis for the Price Predictor Index is the number of Consistency markets – suburbs which deliver similar numbers of sales, quarter after quarter.

The Melville LGA, for example, has no rising markets but 12Consistency markets, bettered only by the Stirling LGA, which has 14Consistency markets, as well as some growth markets. Seaside Scarborough, in the Stirling LGA, has recorded sales totalling 125, 129, 128, 128 and 125 in the past five quarters.

Other municipalities with large numbers of Consistency markets include Wanneroo, Joondalup, Cockburn, Swan and Gosnells.

The strongest markets in Perth, according to our ranking system, are the Armadale, Wanneroo, Rockingham, Joondalup and Swan LGAs, in that order. The common thread is affordable lifestyle. The top end precincts of Perth do not feature among the ranked areas.

In the far south of the metropolitan area, Rockingham continues to attract good sales activity through its mix of affordability, seaside lifestyle, transport links and proximity to jobs nodes.

In the north, both Wanneroo (16 ranked markets) and Joondalup (15 ranked markets) stand out. In Wanneroo, the suburbs of Butler, Madeley, Banksia Grove, Tapping and Yanchep all have growth markets.

The Kalamunda LGA does not feature much in the Perth rankings, but one of its suburbs does: Forrestfield, where sales have risen from 74 to 81 to 106 to 112 in consecutive quarters. This suburb has a big future if plans for the Forrestfield-Airport rail link proceed.

Outside Perth, Busselton has been identified (by the Real Estate Institute of Western Australia) as the leading location in regional WA for price growth in the past 12 months. But Mandurah is the market most likely to provide growth in the near future.

With Bunbury also starting to move, it’s clear that the momentum in regional WA is now being concentrated on the communities south of Perth, whereas in recent years it has been focused on the resources-impacted centres in the north.

The Mandurah LGA has numerous growth suburbs. They include Dawesville, where sales have grown from 38 to 45 to 57 per quarter, and Halls Head, which is now consistently selling well over 100 properties per quarter.

The City of Busselton stands out more for markets that are characterised by consistency, such as Dunsborough, which has sold between 60 and 70 properties in five consecutive quarters.

Geraldton is the only market north of Perth to feature as a growth market. Sales in Geraldton have risen from 133 to 141 to 164 in consecutive quarters. Geraldton has more diversity to its economy, and is less reliant on the resources sector, than locations further north and has been a steady market through the recent downturn in the iron ore market.

The major resources regional centres in the north of the state, Port Hedland and Karratha, both have patterns of declining sales levels, with high vacancies leading to falling rents and prices. Recent data suggests, however, that the worst of the decline may be over for these markets. We will await further information before making a judgment on that.

The Kalgoorlie-Boulder market may be reviving. Dwelling sales dropped from 289 in the September 2012 Quarter, to 192 in June 2013, and further to 126 in the March 2014 Quarter – but bounced back somewhat in the June and September Quarters this year, though still well short of those peak levels in 2012.

The same may be true of the Broome market, although the numbers are not yet definitive.


Sydney and New South Wales:
SLikely to slowly subside, after two strong years, but watch for regional growth

Many commentators with unsophisticated views of the real estate world have called the end of Sydney’s property boom. Indeed, the end of the boom has been announced at least four times in media since late in 2013. So far they’ve been wrong each time.

The reality is that Sydney has ended 2014 still with considerable activity in its property markets. The current boom started with the Top End suburbs early in 2013 and, almost two years later, the momentum has shifted to the cheaper areas.

The strongest pocket in the Sydney metropolitan area in the second half of 2014 was the one in the far south-west that includes the Camden and Campbelltown LGAs, where infrastructure is improving and prices are more palatable. The Blacktown City area in the west has already delivered very strong price growth but continues to provide growth markets.

The rising star of the year has been Penrith City in the far west, where multiple suburbs have recorded strong rises in sales activity, with prices following.

Otner affordable areas with strong markets include the municipalities of Liverpool and Blacktown.

But perhaps the most noteworthy event in New South Wales late in 2014 has been the steady emergence of more and more regional markets.

This started earlier in the year in locations close to Sydney, including Gosford, Newcastle, the Blue Mountains and Wollongong. Now we are seeing more distant markets stirring to life, including Tamworth, Port Macquarie, Albury, Orange  and Dubbo.

They include some locations (such as Port Macquarie and Gosford) which have been dismal performers on capital growth over the past 10 years, but are now recording significant upturns in market activity, with prices starting to follow.

The Gosford and Wyong areas, which were among the first to rise in regional NSW, continue to be among the strongest precincts.

The wider Newcastle area is still delivering growth markets and others marked by admirable consistency. The LGAs of Newcastle, Lake Macquarie and Port Stephens all have growth suburbs. There are also glimmers of life in some of the nearby Hunter Valley areas, which have been suppressed recently by developer oversupply and a reduction in coal-related demand. The Maitland LGA in particular appears to be mounting a revival.

Further north, the Coffs Harbour, Port Macquarie, Ballina and Tweed municipalities all have emerging markets.

The Blue Mountains area demonstrates the resilience in the face of natural disasters which is a characteristic of Australia. Devastated by bushfires a year ago, the region has bounced back strongly. Blackheath, Katoomba and Lithgow are among the growth markets in that region.

Inland regional centres with growth prospects include Dubbo, Albury, Bathurst, Orange, Tamworth and Goulburn. In Goulburn, near Canberra, quarterly sales have risen from 116 to 120 to 134 to 155 since late in 2013.

These are all markets where sales activity has risen, but many of them have not yet produced major price growth. That is expected to happen in the early part of 2015.


Don’t rely on mainstream media for real estate information

My first rule of successful property investing is: Stop Reading Newspapers. Anyone who uses mainstream media, particularly metropolitan newspapers, as the main source of information about residential real estate will inevitably make bad decisions as a buyer or seller.

Most of the articles published by media about real estate are re-cycled press releases.

This means most of what is presented as news is essentially propaganda from an individual or organisation with a vested interest in the views or “information” being presented. The “journalists” who re-cycle the propaganda are not property experts.

The outcome is a stream of misinformation. It helps to explain why so many Australians have a bad experience with property investment.

I urge anyone considering property investment in 2015 to shake the newspaper habit and start doing proper research before making purchase decisions.

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