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01 October 2016

Property Report – October 2016

Quarterly Market Report No. #40 – October 2016

By Terry Ryder, creator of

Introduction: Desperately Seeking Clarity On Markets Around Australia

If you’re not confused then you haven’t been paying attention. Any Australian who tries to keep up with real estate events by following media will have a head full of misinformation, conflicting figures and downright dodgy data.

Journalists these days are under-resourced and poorly-skilled in the reporting of real estate issues. Most of the real estate content of newspapers and other forms of media is press release material submitted by organisations seeking to promote their businesses.

When this propaganda is re-cycled as news, without proper scrutiny, it’s a recipe for misinformation and confusion.

Anything presented as “research” will get a run in media, especially data on real estate prices. The problem is that statistics from different research sources seldom concur. It’s not uncommon for media to report a market is booming one day and that it’s declining the next, based on divergent data from two different research sources.

In this edition of the Quarterly Market Report, I compare figures from four major sources, point out the discrepancies and attempt to make sense of the figures.


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

National Overview: Confusion Created By Rubbery Figures From Multiple Sources.

Adelaide/South Australia: Under-Rated Adelaide Doing Better Than Most Realise.

Brisbane/Queensland: Consumers Need To Look Beyond The Generalised Data.

Canberra/ACT: Capital City Bouncing Back After Earlier Hit From Job Cuts.

Darwin/Northern Territory: NT Capital Among The Weakest Of City Markets.

Hobart/Tasmania: Definitely A Growth Market: Prices, Rents, Vacancies All Positive.

Melbourne/Victoria: One Source Cries Boom, But Melbourne’s Cycle Is Fading.

Perth/Western Australia: All Data Agrees Perth Is Last Among The Capital Cities.

Sydney/NSW: The Most Misreported And Misunderstood Of The City Markets.

Conclusion: A Single Price Growth Figure For A City Of 5 Million Is Ludicrous.


National Overview

Confusion Created By Rubbery Figures From Multiple Research Companies

The price of apartments in Australia rose 6% in the past year, according to CoreLogic. No wait, they rose 3.8%, according to SQM Research. Hang on, they haven’t risen at all, according to Domain, which reports a 0.1% change (which, in essence, means no change).

Did Sydney house prices rise 9% in the past 12 months? CoreLogic says they did. But SQM claims they’re up only 3.5% while Domain says annual price growth is just 1.2%.

HOUSES Residex SQM CoreLogic Domain
Adelaide 5.4 %  0.7 % 5.0 % 4.4 %
Brisbane 5.9 % 6.2 % 4.1 % 4.3 %
Canberra 6.1 % 5.3 % 3.1 % 4.8 %
Darwin    -5.2 % -6.6 % -5.9 %    -7.7 %
Hobart 0.9 %  4.4 %  5.6 %  2.6 %
Melbourne 8.9 % 15.5 % 8.0 %  7.4 %
Perth -3.6 % -4.8 % -5.6 %    -5.6 %
Sydney 8.0 %  3.5 % 9.0 %  1.2 %
CITY ave.  n/a  5.0 %   6.1 %  2.7 %

What are we meant to believe? Every one of these growth figures, and many more like them, have been reported by media as fact. Yet one set of figures contradicts the others.

Two major research sources say Brisbane apartment prices have risen, while two others say they’ve fallen. Consumers are entitled to believe that the direction of prices in a market is a matter of fact, yet big-name research entities often can’t achieve any kind of consensus on the state of individual markets.

UNITS Residex SQM CoreLogic Domain
Adelaide 0.2 -1.4 2.6 0.1
Brisbane 3.2 -0.3 1.9 -3.2
Canberra -0.4 -1.7 -0.4 -4.4
Darwin -6.2 0.1 -14.6 -1.5
Hobart 3.0 10.4 12.9 10.4
Melbourne 6.1 6.0 3.2 2.7
Perth -7.5 -3.5 -5.8 -7.8
Sydney 7.3 6.4 9.4 0.4
CITY ave. n/a 3.8 6.0 0.1

Darwin apartment prices are either unchanged, or have dropped 15%, depending on whose figures you choose to believe.

But, in reality, can you believe any of them? The most quoted and published research company, CoreLogic, recently suffered the embarrassment of having the Reserve Bank announce that it had disregarded CoreLogic price data because it believed the figures were wrong. The RBA said CoreLogic had exaggerated the level of price growth in the Sydney market in particular.

And I wholeheartedly agree with the RBA. When those CoreLogic figures were published, I immediately declared that I believed they were wrong. They contradicted a substantial body of other evidence which showed that the Sydney market was rapidly losing momentum and that the boom was well past its peak.

Yet, based on the CoreLogic figures, media published headlines declaring the boom was on again, that bubbles were about to burst and that young Sydneysiders were doomed to a lifetime of renting. A major international ratings agency rushed out a press release warning that Australian house prices were over-inflated, with dire national consequences – all based on a single month’s figures from one research source about just one Australian city, later discredited by credible sources including the Reserve Bank.

This is what passes for analysis in Australian real estate these days.

The sad reality is that so many headlines about our housing markets are based on dodgy data, a problem exacerbated by journalists who lack expertise and don’t question anything – they simply publish press releases as fact.

Look at the numbers in the two tables of figures above. One has the latest annual price growth data on houses from four major research sources, while the other features annual price growth figures for apartments.

In some cases there is broad agreement on the direction of markets. But in many instances, there is no commonality at all. One source says a particular market is rising while another indicates it’s falling. In some instances all four sources agree on the general direction of a market but there major disagreement on the rate of growth or decline.

How can one source find that a market is rising at the rate of only 3% a year while another says the rate of growth is 13%? Such disparities are all too common.

The message for consumers is that they must treat real estate statistics with considerable skepticism. A wise investor will never base an important financial decision on the price data published in media.


Adelaide and South Australia

Under-Rated Adelaide Is Doing Better Than Most Investors Realise

The Adelaide property market is perhaps the most under-rated in capital city Australia.

According to one research source, it’s long-term growth rate for houses is above the national average; is better than the growth rates for Brisbane, Perth and Hobart; and is on a par with Canberra and Darwin.

Only Sydney and Melbourne currently have better long-term capital growth rates for houses than Adelaide does.

Right now, according to most major research sources, the Adelaide market is travelling quite well. But, as always with price growth statistics, it depends on whose figures you choose to believe.

In terms of the housing market, SQM Research says Adelaide prices on average are growing at a rate of only 1%. But Domain, CoreLogic and Residex all record much better growth than that – ranging between 4.4% and 5.4% in the past year.

That sounds about right to me – and I expect it to get better, because sales activity has been picking up steadily in Adelaide over the past 12-18 months.

The apartment market, in terms of average price growth across Adelaide, is fairly static. Residex and Domain report no change in average prices in the past 12 months, while SQM Research records a slight decline and CoreLogic reports a small rise.

If you take an average across the four research sources, a reasonable conclusion is that Adelaide unit prices are not going anywhere in a hurry.

There’s quite a lot of new product coming into the city’s apartment market. The State Government is providing incentives for people to buy off-the-plan to encourage construction and therefore generate jobs. Previously these incentives related only to the inner city but the latest policy has broadened the impact to the whole metropolitan area.

Developers are building lots of new projects, large and small, and that would tend to keep a lid on prices.

Looking forward, I expect decent performance from Adelaide, especially in the housing markets. One of the reasons is the size of infrastructure spending under way and in planning, as this has a big impact on residential real estate. Another is the emerging impact of Defence contracts related to building vessels for the Navy.

I also expect more investors across the nation to become aware of Adelaide’s general appeal as a place with attractively low prices, great value for money, better rental yields than the big cities and solid prospects for growth.


Brisbane and Queensland

Consumers Need To Look Beyond The Generalised Data To Understand Brisbane

There’s general agreement about the state of the Brisbane house market but little consensus about the apartment market. It’s one of those instances when the generalised figures about price growth are quite misleading and deeper analysis is needed.

All of the four major sources I examined attribute moderate growth to Brisbane house prices in the past year. CoreLogic says Brisbane house prices are up 4.1%, Domain says 4.3%, Residex says 5.9% and SQM claims 6.2%.

There’s a broad consensus there but deeper delving reveals many markets have done better than the generalised figures which describe the entire Brisbane metropolitan area. Some precincts have recorded double-digit annual growth at times over the past 2-3 years, but the rise has not been uniform across the Greater Brisbane Area.

In this regard Brisbane has been quite different to Sydney. Brisbane has lacked the strong impetus Sydney has received from a strong state economy, major infrastructure spending and big population growth.  So Brisbane has had elevated sales activity but not the level of price growth across the board that Sydney and, to a lesser extent, Melbourne has received.

The Brisbane up-cycle started 2-3 years ago in the inner-city suburbs and then spread to the middle ring suburbs on the Northside. Later the middle ring areas on the Southside joined in and more recently the more affordable precincts in the outer reaches of metropolitan Brisbane got on board.

Some suburbs have had periods of double-digit price growth, but it has not been as widespread or as sustained as in Sydney or Melbourne.

Right now the best markets are affordable Logan City in the far south, bordering the Gold Coast, and its mirror image in the far north, the Moreton Bay Region.

The most problematic part of the Brisbane market is the apartment sector. Domain and SQM both record small decreases in Brisbane apartment prices overall, while Residex and CoreLogic each report small increases.

Obviously they can’t all be right and, at the end of the day, it’s irrelevant whose figures are most accurate. What matters is what other data tells us: that the Brisbane inner-city unit market is already oversupplied and it’s going to get worse because of the high level of new construction under way.

Looking across the CBD and inner-city suburbs such as South Brisbane, Fortitude Valley and Kangaroo Point, vacancy rates are currently 5% or higher in most precincts. Vacancies will rise further when new projects are completed and investor buyers seek to find tenants.

Research shows that most of the buyers of Brisbane inner-city apartments are investors and few of them are local – always a danger signal for any market.

We’re now seeing the apartment building boom spreading beyond the inner-city to middle ring suburbs like Chermside on the Northside. Buyers should check local vacancy rates (try the SQM Research website for good information about vacancies in individual postcodes) but also go a step further and check out building approvals. Current vacancy rates may look okay but a big upturn in building approvals may provide a clue to future oversupply.


Canberra and the ACT

Capital City Bouncing Back After Earlier Hit From Job Cuts

Canberra has a moderately strong housing market and a weak apartment market, according to the general theme contained in the figures from the four research sources.

The annual rate of growth in Canberra house prices is 3.1% (CoreLogic), 4.8% (Domain), 5.3% (SQM) or 6.1% (Residex), depending on which figures you like.

There has been a moderate upturn in sales activity in Canberra over the past 12-18 months, and this has translated into some price growth but certainly no boom to match the one in Sydney three hours up the road.

Overall, it’s clear Canberra has broadly recovered from the downturn it suffered when the Federal Government started cutting back public service numbers a couple of years ago.

The house market in Canberra in underpinned and frequently propped up by the ACT Government’s control of land supply. The Government drip-feeds new land to the market in a way that keeps prices high. A limited release of new housing lots which attract demand well in excess of supply and auction bidding will result in people paying half a million dollars for a 300m2 block of land.

The industry frequently complains about this but the ACT Government has a vested interest in doing things this way. It’s just one of many ways in which politicians around the nation are the single biggest cause of housing affordability issues.

The flipside of that is the apartment market, which has been weakened in recent years by too much building of new stock at a time when demand was weak in the national capital because of public service cutbacks.

All four research sources record an annual decline in Canberra apartment prices overall, with the rate of decline varying from 0.4% (Residex) to 4.4% (Domain).

This broadly reflects Hotspotting’s research into sales volumes, which shows the housing market fairly solid but the apartment market declining.

The published data on vacancy rates is also positive for Canberra. Only Hobart among the capital cities has lower vacancies and Canberra appears to be seeing some growth in its residential rentals – but, again, there are widespread variances in the rate of rental growth published by different sources.


Darwin and the Northern Territory

The NT Capital Is Clearly Among The Weakest Of The City Markets

There is little doubt that the Darwin market is in the depths of a downturn – the only question is the extent of the decline in the city’s apartment market.

Residex, SQM Research, Domain and CoreLogic all record substantial annual decreases in Darwin house prices. The annual rate of decline recorded by the four research sources ranges from 5.2% to 7.7%.

All four also report a depressed apartment market, but there is considerable divergence in the annual rate of decrease in unit prices. Domain says just 1.5%, but Residex reports 6.2% and CoreLogic a whopping 14.6%.

I tend to think the CoreLogic figure is over the top, especially given the doubt cast on the data from this source by the Reserve Bank and others. It’s well out of line with the other sources and also does not correlate with anecdotal evidence.

It is certain, however, that recent oversupply and a decrease in buyer demand has led to weakness in the apartment market and a decrease in price levels. Anecdotal evidence suggests investors are now bargain-hunting in the Darwin unit market, so this may eventually help recovery.

Other research data supports the overall impression of Darwin as one of the weakest of the capital city property markets, challenged only by Perth. It has the second highest vacancy rate (after Perth) and there have been big decreases in rental levels.

SQM Research reports that apartment rents overall are down 5.5% in annual terms, while house rents are down 2.1%.

Those are fairly moderate declines, but the CoreLogic Rental Index records a 12% annual decline in Darwin house rents and a 29% drop in apartment rents – but, yet again, we’re suspicious of the extreme nature of the figures from this source. The Darwin market is struggling but it’s certainly not as desperate as those CoreLogic figures imply.

The problem for Darwin is that there’s really nothing in the immediate development pipeline to generate an economic resurgence. There are a number of big proposals in planning or under discussion, but nothing likely to get under way in the near future.

The biggest hope for revival in Darwin and the Northern Territory is the landslide election result and the possibility that the newly-elected Territory Government may initiate a revival in confidence. Time will tell.


Hobart and Tasmania

Hobart Is Definitely A Growth Market: Volumes, Prices, Rents, Vacancies All Positive

Hobart is a growth market. Residex, SQM Research, Domain and CoreLogic all concur on that – but to what extent is a topic of considerable disagreement.

Hobart, indeed, is a fine example of how confused people can become when looking at the published price data.

Residex says that Hobart house prices overall have risen in the past 12 months, but only around 1%. Domain says the increase is 2.6%, but SQM Research reports 4.4% and CoreLogic 5.6%. So the market is showing little growth worth mentioning or it’s growing at moderate to good rates, depending on which figures you believe.

The apartment market is even more confusing. Again, all four sources have published growth figures for the past 12 months, but while Residex reports a growth rate of 3%, both SQM and Domain report 10.4%. And CoreLogic claims Hobart apartment prices are up almost 13% in annual terms.

Once again, I would discount the CoreLogic figure as being out of whack with the other sources and with cold logic. There’s no evidence supporting the notion that Hobart has the fastest-growing apartment market in capital city Australia.

Hobart’s apartment market is very small, with low sales volumes and little in the way of major new development that might drive prices to those reported levels.

One statistic that’s very consistent for Hobart is the one on vacancy rates. SQM has reported Hobart as the capital city with consistently the lowest vacancy rate throughout much of this year. Month after month its vacancy rate is recorded as being below 1% – well under the capital city average of 2.5%, according to SQM Research figures.

SQM reports a 5% rise in Hobart rents, while the CoreLogic Rental Index records a 6.2% annual rise.

So the overall prognosis for Hobart is positive: Hotspotting research shows solid rises in sales activity, all sources record growth in prices for houses and apartments, vacancies are consistently low and there is evidence of rental growth.

Given the affordable nature of Hobart prices, it’s a location worth considering by investors.


Melbourne and Victoria

One Source Cries Boom, But Melbourne’s Growth Cycle Is Fading

Melbourne is another leading example of how much divergence there is in the growth figures from different sources. It’s also an example of how, sometimes, price and other statistics are utterly useless in alerting consumers to important events in major markets.

Is the Melbourne housing market booming or merely growing at solid rates? Is the apartment market spluttering along or growing moderately? It depends on whose figures you trust. And then it depends on how deep you want to dig beneath those generalised figures – which can often create a misleading impression of the state of play within markets.

Domain claims Melbourne house prices overall are growing at an annual rate of about 7%. CoreLogic says 8% and Residex says 9%. But SQM Research reports an annual growth rate of 15.5%. Three sources depict moderate to strong growth, but the fourth describes a major boom.

The Hotspotting barometer, which focuses on sales volumes, finds that sales activity has dropped markedly in 2016. The fall-off in sales has been quite sharp and, while there may be a Spring revival of sorts, it’s clear that the strong markets of 2014 and 2015 no longer exist in Melbourne. There are still some strong sales taking place (caused primarily by a shortage of quality housing stock on the market), according to anecdotal evidence, but the big price growth of 2015 is unlikely to be repeated in 2016, notwithstanding that big number from SQM.

Before 2016 some sectors of the Melbourne market, especially some middle market suburbs, were recording median price growth above 20%. When we delve a little deeper, it’s clear that this is no longer happening. When the number of sales drops, prices always follow, but with a time lag.

In the Melbourne apartment market, Domain records annual price growth of 2.7% and CoreLogic says 3.2%. But both SQM and Residex report annual growth around 6%.

At the end of the day, it doesn’t matter who you believe – because essentially this is worthless information. What’s increasingly relevant is the supply situation. Melbourne has been building, and continues to build, massive numbers of new apartments, not only in the CBD and near-city markets but further afield now in the suburbs.

This is not yet being reflected in the generalised data much loved by research companies and our compliant media. The overall vacancy rate for metropolitan Melbourne is just 2.1%, which suggests all is well in the city’s market.

But this gives no hint of the oversupply storm that’s brewing. Individual markets already have high vacancies – such as 5% in Southbank and 6% in suburban Doncaster – and generally the situation will get considerably worse, with tens of thousands of new high-rise units in the construction pipeline.

According to SQM figures, Melbourne rents overall are growing (house rents up 3.4% and apartment rents up 4.2%), while CoreLogic also reports small rental growth.

If you looked at all those figures – price growth, vacancies and rent growth – you could be misled that all is well in the city’s markets.

It’s evidence that the data published in media can be worse than useless. It can be downright dangerous. Investors should tread very carefully in the Melbourne market, especially if considering buying an apartment. 


Perth and Western Australia

All Data Agrees – Perth Is Clearly Last Among The Capital Cities

In contrast to Melbourne, where the statistics are misleading, there is no doubt about the state of play in Perth. The various figures from multiple sources paint a clear picture of a market in the serious doldrums – and that’s right on the mark.

Perth is clearly the weakest market in capital city Australia, even below struggling Darwin.

Domain, SQM, Residex and CoreLogic broadly agree that the Perth housing market is down and that the apartment market is even further down.

In annual terms, the generalised figures for metropolitan Perth show that house prices are down 4% (Residex), 5% (SQM) or 5.6% (both Domain and CoreLogic). This correlates with most other data, including Hotspotting analysis of sales volumes, which have been dropping steadily for three years.

The apartment market, which has suffered from oversupply at a time of diminishing demand, has reached a lower ebb than the housing market. CoreLogic, Domain and Residex all have Perth unit prices down 6% to 8% in annual terms.

The Perth malaise is seen in other data as well. The city has by far the highest overall vacancy rate – 5.2% for metropolitan Perth, compared to the capital city average of 2.5% published by SQM.

And the city’s rents have fallen further than anywhere else – the Rents Index for houses is down 8.4% in annual terms, while apartments are down almost 11%, according to SQM. CoreLogic’s Rental Index for Perth shows an annual decline of 9.2%.

This correlates with anecdotal evidence, which depicts tenants exploiting their position of strength to negotiate rental reductions and other benefits.

Vacancies are high not only in the inner-city apartment markets, but also in many suburban housing markets. The dissipation of the resources boom has seriously impacted markets right throughout metropolitan Perth. 


Sydney and New South Wales

The Most Misreported And Misunderstood Of The City Markets

If you’re trying to make sense of the various scraps of research information about the Sydney market, good luck to you.

Media continues to obsess over Sydney real estate and equally it continues to constantly get it wrong. There’s mass confusion for consumers because everyone – economists, sharemarket analysts, media commentators, anyone with a voice on TV, radio or elsewhere – thinks they’re an expert and that they have the definitive analysis to impart.

TV talking head Alan Kohler – very good when discussing finance but an idiot when he delves into real estate – made some big statements recently about Sydney’s ongoing boom, based on a single weekend’s auction clearance rates – rubbery figures at the best of times.

Others got carried away when CoreLogic published dodgy data which suggested a revival in Sydney price growth – figures that were publicly discredited by the Reserve Bank. It was later revealed that CoreLogic had changed its methodology for computing price growth and it resulted in a couple of months of inflated price growth data.

None of the major research sources can agree on what’s happening with Sydney prices. CoreLogic still has Sydney growing at 9% and Residex says 8%, but SQM claims it’s only 3.5% and Domain says it’s just 1.2%.

I tend towards the lower end of that broad range of figures, because there has been a stark decline in sales activity in Sydney in 2016. In many suburbs that were previously booming, the number of sales has dropped alarmingly. You cannot have double-digit price growth rates when sales rates have halved or (in some cases) dropped to one-third of their former levels, which is the case in many suburbs across metropolitan Sydney.

Hotspotting now classifies some Sydney suburban unit markets as “Danger” markets, because sales levels have dropped so alarmingly at a time of increased supply.

Which leads us to the published price data for apartments. CoreLogic reports an annual rise of almost 10% in Sydney apartment prices, while Domain records a rise of 0.4% – which means, in essence, no change. In between those extremes are SQM (6%) and Residex (7%).

And there’s the source of endless consumer confusion: when the CoreLogic figure is published, media reports a Sydney apartment boom. When the Domain figure shows up, media says the boom is over. Often both reports appear in the same week or on consecutive weeks, with no reference to the contradiction in the two sets of figures.

Who is right? At the end of the day, it’s almost irrelevant. To understand why I think so, read the “In Conclusion” chapter on the next page.


In conclusion

A Single Price Growth Figure For A City Of 5 Million Is Ludicrous

You know you’re listening to a charlatan when a commentator or writer is discussing “the Australian property market” as a single entity.

Economists in particular speak about this mythical creature, the Australian housing market. They will predict that “Australian house prices” will rise 5% next year or observe that “Australian apartment prices” increased 7% last year.

What actually does that mean? In reality, it means nothing of value to anyone. It’s utterly useless information.

To distill all the sales across a nation as large as Australian down to a single growth figure is a ludicrous proposition. There are so many different and conflicting situations across the nation.

According to CoreLogic, apartment prices in capital city Australia rose 6% in the past 12 months. That was the change in the median price for apartments across the eight capital cities.

But, according to the same source, Perth unit prices fell 6% and Darwin dropped almost 15%. Canberra recorded a marginal decline. But Sydney was up 9.5%, Melbourne 3.2% and Brisbane a tad under 2%. Hobart, rather surprisingly, recorded a 13% rise in apartment prices.

That single national growth figure disguises myriad different situations in the various cities.

The single figure for Sydney – a rise of 9.5%, which has been disputed and discredited by the Reserve Bank – is also a nonsense. Sydney is a city of over 700 suburbs and 5 million people. Beneath that single rubbery disputed figure describing the whole metropolitan area lies multiple different situations – some where prices are rising strongly, others where prices are rising moderately, many where prices are stagnating and some where prices are falling, in some cases by a lot.

Most serious researchers know this to be true. But their objective is not to inform consumers or to be helpful. Their goal is to generate publicity to advance their businesses.

Some of them simply don’t care about accuracy or balance. So they continue to publish statistics which are meaningless, inaccurate and sometimes downright dangerous.

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