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22 minutes

Published:

01 July 2014

Property Report – July 2014

Boom over? It’s really just beginning

by Terry Ryder.
creator of hotspotting.com.au and RyderSelect

Introduction:
There we all were, minding our own business, thinking things were chugging along quite nicely – and then along comes Joe Hockey with his Budget. Suddenly, we’re living in a different country.

I’ve long believed people over-rate political events like elections and budgets, in terms of their impact on the economy and on property markets.

Many businesses and individuals defer spending decisions in the period leading up to such events, because they perceive uncertainty in the likely aftermath. In reality, very little changes.

This Budget is different. It’s content is so startling that it has shocked people across the nation and caused consumer sentiment to fall.

While there was some minor tinkering with real estate issues (NRAS and first home buyer savings accounts), nothing in the Federal Budget directly impacted the property industry. But indirectly the consequences are major. Confidence is an intangible but essential ingredient of a healthy property market and that has taken a battering. The belt-tightening by households and by businesses that is an inevitable consequence of the Federal Budget may slow down real estate.

But here’s the thing: all situations present opportunities for investors. The question investors should always be asking is: where’s the opportunity in this?

And that’s the question I will be asking throughout this edition the Quarterly Market Report.

Amid all the angst about the Federal Budget (and some of the State Budgets also), where do the opportunities lie for real estate consumers?

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

 

National Overview Where’s the opportunity in this?
Adelaide & SA Opportunities to buy for growth as Adelaide rises.
Brisbane & QLD Regional cities as well as Brisbane moving forward in 2014.
Canberra & ACT Best to watch and wait while the ACT absorbs Abbott’s cutbacks.
Darwin & NT Darwin may be poised to surge again.
Hobart & TAS Tasmania is starting to look like a market of opportunity.
Melbourne & VIC Still plenty of momentum in Melbourne – and in regional Victoria..
Perth & WA Perth will continue to show price growth.
Sydney & NSW Sydney still upbeat but it’s time to look outside the city.
Conclusion Boom over? It’s really just beginning

 

National Overview:
Where’s the opportunity in this?

Recently I spoke at seminars in Melbourne, Brisbane and Sydney, addressing this question: Where are the opportunities for investors in 2014?

Thirty-two years of researching and writing about real estate have taught me that there are always opportunities, regardless of the underlying national economic or political circumstances.

A primary reason for this is that Australia is a big country and there is no such creature as “the Australian property market”. There are thousands of different markets and they are not all moving in the same direction, nor at the same speed.

Media constantly speaks about “the property market” and recently has portrayed a national property boom. But this merely confirms the lack of credentials of people writing for mainstream media about real estate. There was no national property boom – there was a Sydney property boom. Melbourne also did well last year but none of the other major cities had strong markets.

Because most of our major media comes out of Sydney and Melbourne, journalists there have extrapolated their local situations to the entire nation, constructing a fictitious national property boom.

Here’s what has really happened, and this illustrates why there are always opportunities to buy well – somewhere.

The first city to move forward in the current real estate cycle was Darwin, followed by Perth. In 2011 and 2012, Darwin and Perth had strong rental growth, largely on the back of growth in their resources sectors. Eventually, in 2012, this translated into solid price growth.

At the beginning of 2013, Darwin was the national leader on price growth, but was quickly overtaken by Perth. Then Sydney started to rise and, in the second half of 2013, Sydney became the national leader on capital growth. Melbourne moved forward also, while Darwin and Perth subsided.

Meanwhile, nothing much was happening in Brisbane, Canberra, Adelaide or Hobart – and few regional centres recorded strong growth.

Now we are in different territory. The evidence in the first half of 2014 is that Brisbane, Adelaide and Hobart will rise, Sydney and Melbourne will moderate somewhat, and Canberra will continue to stagnate. There is evidence of a resurgence in Darwin – and Perth still has momentum.

The other key factor emerging is a ripple effect from big cities to regional areas. For example, regional cities close to Sydney have started to rise, partly because they are catching the wave from the state capital. Gosford and Wollongong are prime examples.

Other regional markets are rising also, notably in Queensland.

What does all this mean, in terms of opportunities?

It means that, at any given point in time, there are opportunities to buy well for future growth.

In late 2011 and early 2012, I was telling Hotspotting customers it was a very good time to buy in Perth, because the state economy was so strong and high rental growth was about to precipitate a rise in dwelling prices. That indeed occurred in 2012 and early 2013.

In the second half of 2012, I was telling anyone who would listen to get into Sydney, before prices started to go ballistic, for the first time in 10 years – and that’s what happened in 2013.

And late in 2013, my advice was to focus on Brisbane and Adelaide, because the fundamentals suggested those cities were starting to follow the lead of cities like Perth and Sydney. There were also reasons to believe Hobart would rise, also.

Recently I’ve been saying I would rather be a seller than a buyer in Sydney. The opportunities have gravitated outside of Sydney to regional cities. It’s a common pattern in real estate cycles that an upturn starts in the centre of the major city, ripples out gradually to the middle ring and outer ring suburbs, and then moves beyond the big city to nearby regional areas.

It doesn’t always happen that way, but it’s a pattern that regularly shows up.

Now we are seeing the suburbs in the City of Gosford, a little north of Sydney, rise strongly (after 10 very ordinary years) and Wollongong to the south is growing as well.

There are many other opportunities in real estate. One relates to town planning changes around the nation, with many state governments and local councils moving to free up restrictions on what can be done with residential land. This is designed to encourage in-fill development and capture population growth within the existing footprint of the city, rather than have ongoing urban sprawl.

There are myriad new opportunities throughout Sydney, some related to changes by local councils such as Blacktown City and Sutherland Shire, and others which apply across the metropolitan area, such as the ability to build granny flats in locations not previously allowed.

The relaxation of rules surrounding granny flats is happening around the nation, including in New South Wales, Western Australia, the ACT, Tasmania and the Northern Territory.

At Hotspotting we’re calling it The Town Planning Revolution and it’s opening up investment opportunities that previously did not exist right around Australia.

Adelaide and South Australia:
Opportunities to buy for growth as Adelaide gradually rises

Investors always under-rate South Australia. Even South Australians under-rate South Australia.

The Hotspotting website has published a SA Hotspots report for many years but recently scrapped it because no one was interested.

Those who discount the prospects of SA have missed some impressive growth. Port Lincoln has been one of the nation’s better performers, with growth above 15% in 2013. Whyalla has had several double-digit growth years in the past five years, while Port Augusta grew 11% in the past 12 months and Clare was up 15%.

Now, there is an upturn happening in the Adelaide market. The latest data from various research sources suggests a gradual upturn in the market.

Australian Property Monitors records a 1.3% rise in the March Quarter and a 4.1% increase in the 12 months to the end of March. The ABS House Price Indexes similarly records a smallish rise in the March Quarter and 4.9% annual rise.

In the three months to the May, RP Data records a 1.6% quarterly rise and a 4.3% annual rise.

This is supported by data in The Price Predictor Index published by Hotspotting. Sales volumes have been rising steadily since the second half of 2013, pointing to price increases in 2014.

Where’s the opportunity in this? Adelaide prices, generally speaking, haven’t risen a great deal – yet. I expect Adelaide to feature strongly on the list of rising capital city markets by the end of the year. Those who buy now, strategically, should experience some capital growth.

Locations of particular interest include the municipality of Onkaparinga in the far south of the Adelaide metropolitan area. This area is the city’s leading population growth area, has a wine district and beachside suburbs, and is being boosted by two transport infrastructure projects: the upgrade of the Southern Expressway and the extension of rail links to Seaford.

The next step in the plan to extend rail links further south beyond Seaford and key beneficiaries will be Aldinga Beach and Port Willunga.

Opportunities to buy well for future growth exist across the city of Adelaide. The local governments areas of Salisbury and Port Adelaide Enfield in the north feature among the examples.

The regions present opportunities as well. Port Lincoln continues to grow and Mount Gambier has recently recorded a surge in residential sales, with price rises around the corner.

Brisbane and Queensland :
Regional cities, as well as Brisbane, moving forward in 2014

2012 was the year of Darwin and Perth. 2013 was essentially the year of Sydney and, to a lesser extent, Melbourne and Perth.

The current year is Brisbane’s time in the sun. Many other markets in Queensland are rising also.

Brisbane is behind other cities in the property cycle because of the double whammy of severe floods in 2011 and the election of a new State Government (which sacked 15,000 public servants and cut spending) in 2012.

Those impacts have now faded and Brisbane markets are rising again. This is reflected strongly in sales activity recorded in The Price Predictor Index.

The market sectors showing the strongest rises in sales volumes are Brisbane Northside and the neighbouring Moreton Bay local government area, as well as Logan City, which is a cluster of affordable suburbs between Brisbane and the Gold Coast in the south of the metropolitan area.

Brisbane Northside suburbs tend to be middle market locations with median house prices in the $500,000s and $600,000s, with units in the $300,000s and $400,000s. Many of these suburbs have train links to the Brisbane CBD, good road links, plenty of shopping and other amenities, and good proximity to jobs nodes. The Brisbane Airport and the Port of Brisbane are close together in this precinct and around them has emerged the Australia Trade Coast commercial-industrial area.

Opportunities to buy for future growth are available around the metropolitan area, including in the western and southern suburbs. The only sectors that are sluggish in getting on the general growth path are Ipswich City in the south-west and Redland City in the east (Brisbane does not rate its bayside areas highly, largely because there are mud flats rather than beaches).

Queensland is the most de-centralised of the states and has many strong regional centres. One of the key features currently is that coastal cities with a reliance on tourism (which have had weak property markets in recent years) are recovering. The economic recovery, helped by a tourism revival, is being boosted by strong spending on infrastructure.

Three locations which stand out in this regard are Cairns, Hervey Bay and the Sunshine Coast.

Where is the opportunity in all this?

In Brisbane, I would be seeking investment properties in locations where sales activity has risen but prices have not yet moved, or not much. There are good opportunities throughout the Northside suburbs of Brisbane, but also in Logan City in the south.

In the regional areas, many of those coastal cities now moving into recovery phases have attractive buying opportunities, because prices have declined in recent years. For example, prices have dropped a lot in the Cairns apartment market, where there has been an over-supply.

The Gold Coast also is entering a growth phase. There has been an upturn in sales volumes and new infrastructure spending is having an impact. I continue to urge caution, because developers are already sowing the seeds of the next over-supply. If you must buy on the Gold Coast, look inland at the housing market and avoid the beachside high-rise, which will perform poorly long-term.

Canberra and the ACT:
Best to watch and wait while the ACT absorbs Tony Abbott’s cutbacks

Most of the news is bad for the ACT. Its days of being the most consistent city market, boosted by low unemployment and high average incomes, are set to end – for now at least.

Before the Federal Budget, the Canberra property market was already struggling.

Australian Property Monitors figures indicate a 2.6% decline in the March Quarter. The ABS House Price Indexes also a recorded a (smaller) decline. While Sydney has been charging ahead, Canberra has been stagnating.

Things will get worse before they get better. The Federal Budget has confirmed that about 15,000 public service jobs will go, with about half of them in Canberra.

In addition, many jobs will be transferred out of Canberra. As one example, 600 federal public service positions will be relocated to Gosford north of Sydney. Great news for the Gosford market, but unhelpful to Canberra’s struggling market.

Where’s the opportunity in this? If prices continue to fall in Canberra, as appears likely, there will be good buying options ahead of a future recovery.

But the core strategy at the moment is to stand back and watch. The full impact of the public service cutbacks will take some time to be felt and the wise investor will do nothing until that has happened.

Darwin and the Northern Territory:
Darwin may be poised to surge again

Darwin was the first capital city to rise in the current cycle. In late 2012 and early 2013 it had the highest price growth of the state and territory capitals – as well as massive growth in residential rentals.

As 2013 progressed, Darwin was overtaken as price growth leader, first by Perth and then by Sydney. This moderation of price growth followed a decline in the number of sales as 2013 progressed.

But in the December 2013 Quarter and the March 2014 Quarter, sales activity in the Darwin and Palmerston markets picked up again.

Where is the opportunity in this?

A significant rise in sales volumes inevitably leads to rising prices. With sales volumes on the up again in Darwin and Palmerston, there’s an opportunity to buy ahead of any new spurt in prices. Rentals remain at high levels so the rental returns are good, relative to other capital cities.

Investors need to keep in mind that Darwin is an expensive real estate city. You cannot buy as cheaply as you can in cities such as Adelaide, Hobart and Brisbane. It’s nearly impossible to find a house for less than $400,000.

There’s also a concern that the apartment market is heading towards another period of over-supply. So investors need to be careful and to buy selectively.

Another opportunity lies in Alice Springs, one of the Northern Territory’s few regional centres of substance. Alice Springs sales have risen in a similar pattern to Darwin’s – but is also an expensive place for real estate, thanks to isolation and land supply constraints.

Hobart and Tasmania:
Tasmania is starting to look like a market of opportunity

The Tasmanian election has been and gone, the Government has changed and confidence levels are higher. We are likely to see measures to stimulate the economy, including stronger activity in the forestry sector.

At the same time, we’re seeing evidence that Tasmanian markets are moving forward. Certainly, there are a number of markets in the capital Hobart and the second city Launceston with upward momentum.

Where’s the opportunity in this?

Hobart remains Australia’s cheapest capital city. Very few suburbs have had meaningful growth in prices in recent years. But there is an accumulation of positive factors suggesting price growth in the near future.

This means the buying is good. Those who buy now are likely to buy affordably and achieve solid capital growth later in the year and beyond.

But will there be growth worth having?

A couple of factors suggest there will. The change of State Government is a positive from the real estate viewpoint, because it lifts confidence levels.

The momentum in the Melbourne market is another positive. We have seen in the past that Tasmania gets some uplift from strength in Melbourne. Often, after a period of strong price growth in Melbourne, investors look elsewhere to buy at more palatable prices.

There are also a few major projects happening in Hobart – at last.

But the most positive indicator of price growth is the lift in sales activity late last year and the early part of this year.

Markets to watch around the state capital include the inner-city suburbs of Hobart, the Clarence LGA within the Hobart metropolitan area (on the eastern shore of the River Derwent) and the Kingborough LGA south of Hobart, where suburbs like Kingston and Blackmans Bay are rising.

Both Launceston and the neighbouring municipality of Meander Valley are showing forward momentum. Many of these places have median house prices in the $200,000s so there is appealing affordability for investors as well as the prospect of solid growth.

The places to avoid are the small towns in the West Coast LGA, including Queenstown, Zeehan and Rosebery.

Melbourne and Victoria:
Still plenty of momentum in Melbourne – and in regional Victoria

Contrary to media hysteria (and fictional figures published by the Real Estate Institute of Victoria) Melbourne has not been having the granddaddy of all property booms.

In 2013, according to credible research sources (including the Australian Bureau of Statistics), the Melbourne market rose an average 8%.

In the 12 months to the end of March, the market rise was about 10% for houses and 5% for apartments. That’s solid growth but a long way short of a boom.

Annual rental growth has been just 4% for houses and 1% for apartments.

But there’s still some way to go for Melbourne. While publicity-seekers have been competing to be the first to declare that “the boom is over”, there is still plenty of forward momentum in markets across Melbourne.

Where’s the opportunity is this?

I would be targeting those markets with strong underlying fundamentals but which have not yet shown significant growth. In particular, I would go for those strategic locations given special status in the Plan Melbourne report.

That includes locations such as the Brimbank, Dandenong, Casey, Monash and Whittlesea municipalities, all effectively designated as regional centres in the metropolitan area.

These are all locations in the middle and outer ring sectors of the Melbourne market. They all have strong underlying growth in sales activity but to date have not recorded the same level of price growth as the near-city millionaire suburbs, which had their periodic auction frenzy in 2013.

There are also good places to consider in regional Victoria, including Sale in East Gippsland and a series of good regional centres in the Goldfields region, including Ballarat, Bendigo and Maryborough.

Down in the south-west, Warrnambool and Portland continue to offer affordability and growth prospects.

Perth and Western Australia:
Perth will continue to show price growth

Since 2011 Perth has had strong growth in residential rentals and in house prices. For a period of 2013, it was the price growth leader of capital city Australia (before Sydney took over).

This was underpinned by WA’s status as the strongest economy in the nation, including nation-leading population growth.

While media has been overly eager to declare the end of the resources boom, WA remains the leading state economy, driven primarily by gas and iron ore resources.

Major resources projects remain under construction, notably the mega gas projects such as Gorgon. At the time, new resources ventures such as the $10 billion Roy Hill iron ore mine are just starting construction.

And in the meantime, the resources projects more advanced in the construction process are now producing and exporting. This is the phase of the resources revolution often forgotten by media – the production phase, which is now delivering strong growth in exports from Australia.

So the flow of wealth into Perth continues. And many Perth suburbs still have sales momentum, with further price growth to come.

Rockingham City, one of the most popular municipalities in Perth for property buyers because of its affordable bayside lifestyle, has elevated sales levels and, while there has been solid price growth, it has not yet grown as much as other parts of Perth. Opportunities remain in this market.

Swan City in the north-east of Perth is another local government area which will continue to deliver growth. This is an affordable lifestyle area with growing spending on major new infrastructure and I expect further price growth here as well.

Many of the best opportunities now lie outside the state capital, particularly to the south.

There is no doubt that markets around Mandurah, with a water-based lifestyle favoured by retirees, FIFO workers and tourists, are rising. Once a national population growth leader and darling of interstate investors, Mandurah underwent several years of price correction after 2007, but is now on the rise again.

Further south, Bunbury is at last showing signs of getting on the price growth path, while further south again Busselton is another attractive seaside location with plenty of forward progress.

Sydney and New South Wales:
Sydney still upbeat but it’s time to look outside the city

As a general comment, I’d rather be a seller than a buyer in Sydney in 2014.

After growth averaging around 15% last year, we’re unlikely to see price increases of that magnitude in 2014. There’s still plenty of momentum in the Sydney market, but essentially the best time to buy in the NSW capital was late in 2012.

Anyone buying now is likely to be buying at the peak of the cycle, which is the dumbest thing you can do as a property investor.

However, a core element of real estate is that there are opportunities in any market. And Sydney will continue to present them. The difference now is that investors need to be much more precise about where they buy.

Where’s the opportunity in this?

The key now is to follow the infrastructure trail. Sydney is going to generate some specific hotspots through spending on new transport infrastructure.

The decision to go ahead with an airport at Badgerys Creek will create an array of property investment opportunities. This relates not only to the airport itself, but to the transport infrastructure – roads and rail links – that will be created around it.

It’s too early to be definitive about the best places to buy, but the City of Liverpool (which includes the suburb of Badgerys Creek) is well-placed to benefit.

There are new rail links to boost prospects in both the north-west and the south-west of the Sydney metropolitan area, and suburbs such as Westmead will benefit from the WestConnex project.

But at this point in the cycle I see the best opportunities popping up in regional cities outside Sydney. Gosford to the north and Wollongong to the south are prime candidates.

The City of Gosford has been a terrible performer on capital growth over the past decade, but it’s about to have its moment in the limelight. It’s catching the wave from Sydney and is being boosted also by infrastructure spending and by a Federal Government decision to relocate hundreds of public service jobs from Canberra to Gosford.

Wollongong has fought back well from Bluescope Steel’s downsizing and other setbacks of the past few years, and now has many growth suburbs looking good bets for price rises.

Further afield, Dubbo and Tamworth are strong regional centres offering affordability and good growth prospects.

Conclusion:
Boom over? It’s really just beginning

When it comes to reporting real estate, Australian media is a rabble. Real estate articles are written by people with no credentials or expertise, and the prime motivation is sensation, especially negative sensation. The outcome is the worst kind of misinformation.

Three times in the past seven months, media has declared that “the property boom is over”, only to be contradicted by subsequent figures showing that prices in Sydney and Melbourne were still growing.

In reality, you can make the argument that a property boom is only just starting. To date, there has been no national property boom. There has been a Sydney property boom over the past 18 months, with a solid performance also from Melbourne.

Perth and Darwin, which were strong in 2012, had only moderate growth in 2013, while Canberra, Brisbane, Adelaide and Hobart have had no growth worthy of mention.

But the sales trends in many of these capital cities, and a large number of regional centres as well, suggests price growth lies in the near future.

Brisbane did not have a price boom in 2013, but there will be growth in the near future.
Ditto Adelaide. Ditto Hobart.
Darwin subsided somewhat in 2013, but a recent uplift in sales volumes suggests there will be price growth this year.
And there remains plenty of momentum in the markets of Sydney, Melbourne and Perth.

Outside the capital cities, many regional centres are picking up speed, especially in regional cities near Sydney and throughout Queensland.

This means there are, right now, opportunities to buy for future growth right around Australia.

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