Property Report – September 2015
The average Australian interested in real estate has a head full of misinformation about property.
by Terry Ryder.
creator of hotspotting.com.au
So many consumers are accessing bad information
I speak often at seminars in major cities across Australia and field lots of questions about real estate.
The inescapable conclusion is that the average Australian interested in real estate has a head full of misinformation about property.
The average person is not well-informed about real estate issues and does not conduct genuine research before committing large sums to buy property. Instead, they absorb headlines and media sound bytes, unaware that most of what they think they know about real estate markets is false.
For analysis of markets nationwide, click on the topics below …
|National Overview||Debunking the prevailing myths about Australian property markets.|
|Adelaide & SA||Adelaide remains real estate’s best-kept secret.|
|Brisbane & QLD||Regional Queensland is “the good, the bad and the ugly” of real estate.|
|Canberra & ACT||The national capital is still the Goldilocks of Australian real estate.|
|Darwin & NT||Undoubtedly the worst market in capital city Australia.|
|Hobart & TAS||Launceston challenging Hobart as Tasmania attempts recovery.|
|Melbourne & VIC||Melbourne moderates a little, but still pumping.|
|Perth & WA||Perth trending down but hanging tough, while southern regions rise.|
|Sydney & NSW||Sydney doesn’t yet know that it’s in decline, while regions continue to rise.|
|Conclusion||Media usually gets it wrong on real estate – here’s why.|
Debunking the prevailing myths about Australian property markets
If you’re a regular reader of newspapers and other forms of media, here’s how you probably see the Australian real estate market.
- Investor activity is out of control and APRA has been forced to take steps to stifle it.
- Property values have soared because of low interest rates and we now have a bubble.
- There’s a chronic shortage of housing.
- There’s an affordability crisis and young Australians cannot afford to buy homes.
- Foreign investors are causing most of the problems by pumping up prices.
- Negative gearing is causing most of the problems by pumping up prices.
- Mortgage stress is rampant.
It’s quite a scary situation, all things considered – or it would be if any of it was true. But all of the above statements are false, despite being widely presented as truth by the media.
So what’s really happening in Australian real estate?
Sydney has been having a real estate party and all of Australia has been given a hangover by a ham-fisted APRA, which has imposed national restrictions on lending to investors to solve a problem (if indeed it is a problem) that exists in only one city.
The major banks have exploited APRA demands to reduce lending to investors by lifting interest rates on investor loans, including existing ones (which will do nothing to reduce new lending and is a grab for cash by the banks).
The claimed rise in Australian property values is an illusion created by Sydney’s boom growth, which has inflated the national average. Nowhere else has had price growth as big as the national average growth. In most of our capital cities, values have stagnated or declined. The median price for apartments has fallen in four of the eight capitals over the past 12 months.
Low interest rates have not caused the Sydney boom. If they were the catalyst, everywhere in Australia would be booming. The true cause is the NSW economy, easily No.1 in the nation, boosted by massive spending on new infrastructure in Sydney.
The housing shortage claimed by the developer lobby is a mirage generated by creative accounting. Developer groups like the Property Council of Australia have a vested interest in the argument that we need more houses and governments must make concessions to help developers create them.
In truth, the opposite situation is the biggest problem in Australian real estate: an oversupply of apartments in most of the capital cities, plus the Gold Coast. The shortage claim is a lie, and developers know it.
If the shortage was real, rents would be rising. The research shows a stark absence of the rental increases in the major cities. Rents have fallen in many capital city markets. Even booming Sydney has had negligible growth in median rents over the past two years.
The affordability “crisis” is another myth. The HIA Affordability Index shows improving affordability in most significant markets around the nation, with Sydney the notable exception.
Equally, the official data refutes notions of widespread mortgage stress. Three quarters of households are ahead on their mortgage repayments. The average household is two years in advance. Mortgage delinquencies nationwide are less than 1%, a record low.
Around 10% of sales across Australia are made to foreign buyers. Their influence is too small to greatly influence dwelling prices, which are rising significantly only in Sydney. Most foreign investment is in off-the-plan apartments in the inner-city markets of our biggest cities, headed by Melbourne.
The Federal Government’s posturing over foreigners who break the rules is an attempt to look tough and be seen to be doing something about affordability – but a clampdown on foreign buyers will not make suburban housing cheaper.
Negative gearing is the whipping boy of choice for anyone with a grudge against real estate. This issue is perhaps the most mis-reported of all real estate issues. The reality is that negatively-geared investors are a minority force in the property market. Owner-occupier buyers still dominate the national market.
The media would have us believe that all property investors are negatively-geared but the official ATO data shows that this is false. The impression created by bad journalism is that property investors are “rich bastards ripping off the system”. The truth is that 73% of real estate investors own just one property and that most are families on average incomes.
The last time Australia had a national real estate boom was in 2003. That year, all eight of the capital cities had median price growth of at least 13%, with four of the cities growing more than 20%. The average across the eight cities was a rise of 19%.
In the current market, only Sydney has been consistently delivering double-digit price growth. The other major cities have recorded growth ranging from moderate to minor to negative.
Adelaide and South Australia
Adelaide remains real estate’s best-kept secret
Few Australian investors realise the quality of the Adelaide market, past and present.
At the start of this year, Adelaide’s long-term capital growth rate ranked it 4th among the capital cities, above Sydney, Brisbane, Canberra and Perth. Sydney’s stellar growth has allowed it to overtake Adelaide and claim fourth spot, the Adelaide remains a much better performer that people think.
The same is true of its current market. Adelaide has more momentum than most of the capital cities, in terms of rising sales volumes, which are destined to deliver price growth in FY2016.
Based on Hotspotting research for The Price Predictor Index, Adelaide has more growth suburbs than Sydney does. That will shock and amaze many people, particularly when they compare the price growth data. But while the Sydney market is tapering off (and prices have yet to react to the decline in sales volumes) Adelaide is on the rise. The price growth figures will look quite different in 12 months, for both cities.
There are two distinct sectors doing well in the current Adelaide climate: the middle market and the bottom end.
Middle Adelaide, the suburbs that sit between the top end and the bottom end, are generally places on the western side of the city, roughly between the CBD and the bay. Many of these suburbs have ample stocks of character housing, as well as a fairly handy location. Median prices tend to be in the $500,000s and $600,000s, which looks attractive to investors from the bigger cities.
The Local Government Areas of Charles Sturt, Marion, Port Adelaide-Enfield and Holdfast Bay are typical Adelaide middle-market areas. All these municipalities have multiple suburbs where sales activity is steadily rising, with prices starting to follow. They include bayside suburbs like Henley Beach and Glenelg.
The other sector shaping up well is the bottom end, headed by the seriously downmarket Salisbury LGA in the north of the metropolitan area. Salisbury has more growth suburbs than every Adelaide LGA except Charles Sturt.
Down in the far south of the metro area, the LGA on Onkaparinga continues to stand out as a location with growth markets. This LGA has seaside suburbs, a noted wine district, new suburbs and much improved transport links (both road and rail) to the centre of Adelaide.
The thing that bothers investors about Adelaide is the perceived lack of population growth and economic oomph. But two recent major announcements may help to change those perceptions: the Federal Government’s commitment (assuming anything politicians say can be called a commitment) to focus its $89 billion program of naval vessel construction on Adelaide, and plans to set up a new food processing plant in Adelaide.
Adelaide needs that kind of positive news because mostly people are reading about the impending close of the Holden car assembly plant in 2017.
Brisbane and Queensland
Regional Queensland is “the good, the bad and the ugly” of real estate
Capital cities dominate coverage of real estate. Research analysts, economists and the media all obsess over big city markets and largely ignore the regions. But in two major states, the regions are out-pointing their capital cities – and Queensland is one of them (NSW is the other).
It’s not that Brisbane is doing poorly – it’s that Queensland is (by Australian standards) a very de-centralised state and has numerous significant regional cities. And many of them now have rising property markets.
The first to get on a growth path was Toowoomba, a strong regional economy which went to another level when the coal seam gas industry started on its doorstep. Serious money is pouring through the Toowoomba economy and its property market has had two good years of growth.
Next to get cracking were Cairns and the Sunshine Coast, both places that suffered in the past from an over-reliance on tourism and are now thriving because their economies are diversifying through infrastructure spending. Both are now delivering good price growth. Cairns offers the bonus of the best rental yields in Australia, especially for apartments.
Now the Gold Coast is taking over – unfortunately. Right now, the Gold Coast has more suburbs with rising sales activity than other LGA in Australia. I say “unfortunately” because impressionable investors will be unable to resist the urge to pile in and buy off-the-plan apartments, as developers go to work on generating the region’s next massive over-supply. If you must invest in the Gold Coast, buy houses in genuine residential suburbs and avoid the high-rise speculator market.
Hervey Bay is also rising strongly, boosted by its affordable seaside lifestyle and increased spending on infrastructure. Townsville, one of the strongest regional economies in Australia, is emerging from an oversupply-induced downturn and looks to be back on a growth path.
That’s a picture of positivity and growth but investors need to be careful. Queensland also has many “danger” markets – places where the mining and gas industries induced booms that were eventually overpowered by oversupply and the growing curse of FIFO workforces staying in temporary accommodation camps.
Places to avoid, until there’s evidence of improvement, include Gladstone, Mackay, Moranbah, Emerald, Bowen, Chinchilla, Dalby, Roma and Miles.
Back in Brisbane, there are plenty of growth markets, spread right around the metro area. The momentum has shifted, however, from the northside to the southside. The first precinct to start on a growth path, around two years ago, was the northern precinct of the Brisbane City Council area – and many of those suburbs had double-digit annual price growth.
Now the growth leaders are in the south of the metro area – Brisbane City South and Logan City are level pegging in terms of the number of growth suburbs. Affordability to good there and so is transport and other forms of infrastructure.
But the momentum is spreading, with growth suburbs popping up everywhere, including the peripheral LGAs such as Ipswich City (south-west), Redland City (east) and Moreton Bay Region (far north).
Canberra and the ACT
The national capital is still the Goldilocks of Australian real estate
Canberra has always been the Goldilocks of the Australian property markets – never too hot, nor too cold, usually just about right.
Even in its recent downturn, nothing too severe happened. The property porridge cooled a little, but never got too cold.
According to RP Data figures, the median house for Canberra rose 1.4% in the 12 months to the end of July and the median unit price fell 0.5%. The median weekly rent for houses has not changed in the past year and median weekly rent for units has risen 1.3%.
Those figures depict a market that’s stagnating but not declining to any major degree.
It now appears that Canberra’s market has survived the crisis of confidence induced by the Federal Government’s downsizing of the public service and is spluttering back to life.
Indeed one set of figures suggest that houses are selling faster in Canberra than any other city except Sydney and Melbourne, and with very little discounting.
But Canberra being Canberra, it won’t get too hot. It seldom does.
Darwin and the Northern Territory
Undoubtedly the worst market in capital city Australia
Three years ago, before Sydney’s real estate market became a national obsession, the capital of capital city capital gain was Darwin (closely followed by Perth).
Boosted by a then-buzzing resources sector, the Northern Territory economy and the Darwin property market was on top. Those conditions no longer exist.
The $30 billion Inpex gas project still has some way to go in construction but much of the impact has worked its way through the Darwin economy and property market.
Now Darwin is the weakest market in capital city Australia. It has the highest vacancy rate and has recorded the biggest declines in prices and rentals.
The median house price has dropped about 6% in the past 12 months, while the median apartment price has fallen around 3%.
The median weekly rent for houses has dropped 8% while apartment rents are down 9%. Rents are undermined by a vacancy rate nudging 4%.
According to RP Data, Darwin houses typically take almost three months to sell, at an average discount of 7.3%.
All of those market barometers – prices, rents, vacancies, time on market and discounting – are the worst among the eight state and territory capital cities.
Clearly Darwin is the weakest city market in the nation. That’s quite a stark contrast to three years ago when Darwin was No.1 on price and rental growth.
Longer-term, Darwin has a significant future as an export port and an international gas hub. But currently it needs an economic boost to generate a return to growth in its property market.
Hobart and Tasmania
Launceston challenging Hobart as Tasmania attempts recovery
There’s more life in Tasmanian property markets than most people realise. Hobart and co, are unlikely to set the nation alight with price growth but there’s some forward momentum.
There are growth markets in both Hobart and Launceston and sales activity is gradually rising.
Tasmania’s market has been on a slow but steady rise for the past two years, notwithstanding a brief pause in the September 2014 Quarter. The recovery from that hiccup, which we saw in the December 2014 Quarter, continued in the March 2015 Quarter and again in the June 2015 Quarter.
Together with anecdotal evidence out of Tasmania, I feel confident in predicting price growth in Hobart and Launceston over the next 12 months.
In the Hobart metropolitan area (covering the municipalities of Hobart, Glenorchy, Clarence and Kingborough) there has been that same pattern of steady increases, beginning late in 2012 and continuing until mid-2014.
In 2012, quarterly sales were generally between 850 and 900. Consecutive quarters since September 2013 recorded dwelling sales totalling 996, 1,022, 1,051 and 1,104 (June 2014). Sales numbers dropped to 926 in the September 2014 Quarter, then rose again to 1,068 in the December 2014 Quarter and to 1,075 in the March 2015 Quarter.
The Hobart apartment market has delivered a fairly steady pattern of gradually rising sales volumes since late in 2012, although the total number of sales (around 180-190 per quarter in recent times) remains small.
The City of Glenorchy, which encompasses a range of cheaper suburbs north of the Hobart CBD, has steady momentum. Three of the Glenorchy LGA suburbs are ranked as rising markets – Moonah, Claremont and Lutana.
In the Kingborough LGA south of Hobart, both Kingston and Blackmans Bay have rising markets.
Launceston has made the most progress this year. The number ofRising Steadily suburbs has doubled to eight, while neighbouring West Tamar has two Rising Steadily markets.
Total residential sales in Launceston have risen for four consecutive quarters. This all suggests Launceston has more momentum at the moment than Hobart does. Suburbs with rising activity include East Launceston, Kings Meadows, Mowbray, Newnham, South Launceston and Summerhill.
Melbourne and Victoria
Melbourne moderates a little, but still pumping
Melbourne has lost a little of its momentum, but not much. It’s still pumping. It has fewer growth markets than three months ago, but only slightly.
There are still many suburbs with growing sales activity and they’re spread across the Melbourne metropolitan area.
Middle-market areas like the Whitehorse LGA in the eastern suburbs remain prominent but they are being matched now by bottom-end areas such as the Whittlesea LGA centred on Epping in the north and the Brimbank LGA based around Sunshine in the western suburbs.
Whittlesea, the downmarket but highly popular region in the north of the metro area around Epping, is a location in the ascendant phase. Suburbs such as Lalor, Mill Park, Epping, Thomastown and Doreen all have escalating sales activity.
Brimbank continues to be a strong precinct boosted by major spending on infrastructure and urban renewal activities. Growth suburbs include Sydenham, Sunshine North, Taylors Lakes and Cairnlea.
Other than Whitehouse, which was the clear market leader earlier in the year, there are numerous other middle-market locations with buoyant markets, including Darwin (Preston, Reservoir, Northcote) north of the CBD and Monash (Oakleigh, Notting Hill, Mulgrave, Glen Waverley) in the south-east.
Further afield, the Mornington Peninsula has come alive with growth suburbs, including Blairgowrie, Dromana and McCrae, and neighbouring Frankston City is also becoming stronger.
Unlike in New South Wales and Queensland, there’s little evidence of significant buoyancy in regional markets. There are plenty of solid performers but few showing major growth.
The exception is Geelong, which is the strongest of the regional Victoria markets by a considerable margin. It has numerous growth suburbs, boosted by attractive affordability compared to Melbourne, to which it is now connected by the Regional Rail Link.
Bendigo and Ballarat are both chugging along okay, but neither is yet showing signs of significant growth.
Warrnambool, Mildura and Latrobe Valley towns like Moe, Morwell and Traralgon are all showing promise, without yet taking off.
One market which may show good price growth in the near future is Wodonga which, with its cross-border twin Albury, is attracting growing interest from investors.
Perth and Western Australia
Perth trending down but hanging tough, while southern regions rise
Perth’s market is in a downturn but it’s a pretty mild one. The Perth market is showing considerable resilience.
In 2011 and 2012, Perth was alongside Darwin as the leading capital city market, with vacancies low and prices and rents rising strongly. It was, of course, greatly boosted by the resources sector, which was then in the midst of the greatest investment boom in the nation’s history.
That created an influx of population, massive economic activity and strong demand for all types of real estate, including commercial, industrial and residential.
There are still major iron ore and LNG projects happening in WA and resources exports remain strong, but the peak of that cycle has long since passed. Mining and gas companies have been downsizing and that has impacted businesses that provide services to the sector.
Vacancies have risen in all property sectors, including residential. Perth rents for houses and apartments have dropped 6% or 7% on average in the past 12 months. The city’s median house price has stopped rising and the median unit price has dropped 6%.
So the housing market is holding up quite well, while prices and rents for apartments have suffered, largely because the inner-city unit markets are oversupplied and there is considerable new product under construction or being marketed.
This means there will be good buying opportunities in Perth. In terms of sales activity, the Perth residential market peaked in early 2013. That means Perth is over two years into its down phase and that all competitive heat has vanished from this market.
The WA economy and the Perth property market have strong futures and investors might consider looking around Perth for good value buying opportunities, ahead of the next upturn.
The resources-related regional centres in the state’s north – places like Port Hedland, Karratha and Pilbara mining town of Newman – are now 2-3 years into a serious downturn. Vacancies are high and there has been a steep decline in rents and property values.
Three years ago the median house price in Port Hedland was $1.2 million. Today it’s around $750,000. Rents have fallen even further than prices – and yields, once in double-digits, are now down around 6%.
In Newman, the median house price has fallen from a peak close to $800,000 to about $600,000, following a 22% decline in the past 12 months. Rental yields have halved to 5%.
I don’t see prices returning to those peak levels, even when the resources sector moves into another growth phase.
The dominance of FIFO workforces staying in temporary accommodation means the days of soaring property values and rents above $2000 per week are over. Newman’s market has declined sharply in recent years, even though the $9 billion Roy Hill iron ore mine has been under construction on its doorstep.
But there are growth markets to be found in regional WA and most of them are south of Perth. Mandurah, Bunbury, Busselton and Margaret River are all thriving for varying reasons and there is growing activity in their property markets.
These are mostly places with little or no links to the resources sector, other than the FIFO workers who chose to live in lifestyle locations like Mandurah and Busselton. The exception is Bunbury, which has an export port.
Sydney and New South Wales
Sydney doesn’t yet know that it’s in decline, while regions continue to rise
Sydney is declining but it doesn’t know it yet.
The problem is: most analysts, economists and journalists chart markets via movements in media house prices, which are typically six months behind the game. To date, there is no indication from the price growth data that Sydney is slowing down.
Nevertheless, Sydney is a market in decline. Indeed, the market peaked in the December Quarter last year. Since then, sales activity has been tapering off – to the extent there are now few suburbs with growth markets.
Over the past three quarters the number of suburbs with growth markets have decreased from 118 to 72 to 36. That pattern reflects the inevitable end to a boom that has extended across three years.
The overall result for the Sydney metropolitan area is a gradual reduction in sales activity, so I don’t expect any dramatic change in pricing levels. What we will see, instead, is a slowdown in price growth. A year from now the rate of price growth will be a fraction of the current high levels.
As a point of reference, the last time Sydney has a major price boom was in 2002 and 2003, when annual price growth topped 20%. When the boom ended, prices did not fall – the growth stopped but prices did not decline.
Another indication that the up-cycle has run its course is the reality that the leading growth markets are on the outskirts of the metropolitan area. This cycle, like most, began in the expensive areas and rippled out from there over 2-3 years.
With Penrith in the far west and Camden and Campbelltown in the far south-west providing more growth markets than anywhere else in the city, it’s clear the cycle has almost run out of steam.
But, while Sydney is starting to fade, regional New South Wales is rising. A process that started a year or so ago with regional centres close to the state capital has now spread state-wide.
Gosford, Wollongong and the Blue Mountains were the first to grow. Then we saw movement in markets such as Goulburn, Newcastle and Dubbo. Now locations at extreme opposite ends of the state, like the Tweed region in the north and Albury-Wodonga in the south, are showing considerable positive movement.
Other regional locations with upwardly mobile markets include Port Macquarie, the Southern Highlands, Orange and Wagga Wagga.
The Newcastle and Hunter Valley region is gathering strength. Neighbouring LGAs including Newcastle, Lake Macquarie, Port Stephens, Maitland and Cessnock all have growth markets. It’s good to see the Hunter region, a strong regional economy recently undermined by developer overbuilding, making a comeback.
Media usually gets it wrong on real estate – here’s why
How does media get real estate so wrong so often?
Whenever I speak to an audience, I take the opportunity to alert consumers to the high levels of misinformation in mainstream media. Some people struggle with the concept that most of what they read about real estate is wrong or distorted. Some publications, like theSydney Morning Herald and The Australian, still have an aura of authority and quality.
But, in my experience, publications like that are the worse sources of inaccurate and unbalanced reporting on real estate.
How do they get it so wrong so often? Here’s how it works …
- The journalists who write articles on real estate are not property experts.
- Media companies have downsized editorial staff to such low levels that journalists no longer do what journalists commonly did – i.e. research, check facts, ask hard questions and seek alternative views.
- Most of what appears in media about real estate is a re-cycled press release.
- Press releases, by their nature, are propaganda, not statements of fact.
- Press releases are handled within media organisations by non-experts who do not know (or care) whether the information is accurate or factual. Often it is not.
- Media is more influenced by political affiliations and commercial interests than in the past.
- Journalists often compound their own lack of expertise by publishing comment from other non-experts, especially economists. Most economists have only a slim understanding of real estate issues.
- Too much comment and analysis is generalised – i.e. Australia is treated as a single market described by a single figure (e.g. Australian prices rose 12% last year) without any regard for major differences from one location to the next.
The outcome is a great seething mass of misinformation, with propaganda presented as fact by journalists who lack expertise on the subject of real estate.
My advice to anyone who wants to be informed about property markets: stop reading newspapers.