The Christmas decorations are well and truly back in that hard to reach spot and we are all regretting the excessive amounts of chocolate eaten over Easter. So now is a good time for our Australian property market review (first quarter 2017) and see how the first quarter of the year has shaped up for Australian property.
Sponsored post by Michael Cleary of Milk Chocolate Property Concierge.
As an Australian expat you would undoubtedly be reading headlines from major media outlets on the devastation of cyclone Debbie in North QLD, Winx the super-mare on her straight 17 wins in a row and the Australian property bubble that is or isn’t going to burst.
Search ‘Property Bubble’ in the AFR (Australian Financial Review) and you’ll find more than 80 articles in the last three months, the SMH (Sydney Morning Herald) has close to 90, that’s almost an article a day in each Masthead. Scaremongering not?
So let’s take a look at the facts and how each capital city is tracking.
Australian Property Market Review – Sydney (First Quarter 2017)
Sydney – as thought, is still defying all expectations and isn’t appearing to slow down.
- Ending 2016 with capital growth (all dwellings) of 15.5%
- We have seen a further 5% capital growth added in the first quarter (January 1.0%, February 2.6% and March 1.4%) all dwellings
- Gross rental yields (houses) are currently at 2.7% and have stayed steady throughout the first quarter at 2.8% in January and February
- Combined vacancy rates have remained fairly unchanged at 1.9% for the quarter
- The median dwelling (all dwellings) price as at March 31 is $805,000
- Herron Todd White is classifying Sydney as approaching the peak of the market for houses and at the peak of the market for units.
On the ground the city and surrounding areas are a virtual construction zone, with major infrastructure projects including the CBD and South East light rail extension, Badgerys Creek Airport, Parramatta Urban Growth Project, WestConnex, North West Rail Link and the Barangaroo Project including Crown Casino to name a few. Commercial office occupancy is also at all time highs of 96%.
As an expat reading the headlines it’s important to understand that the Australian property market works in cycles and it’s important to look at the historical trends to understand these patterns. In the last 30 years, Sydney has been through two full property cycles. In the five-year lead up to the peak of ’89 home prices increased by 122% and in the subsequent 18 months proceeding dropped by 11.1%. In the five-year lead up to the ’03 peak, property prices rose by 98% and in the 21 months following the peak declined by 8.8%. In the current cycle prices have risen close to 80% in the last five years. You can probably gauge what’s going to happen next…..
Australian Property Market Review – Melbourne (First Quarter 2017)
Melbourne, much like it’s northern neighbour, is still a very strong market, as is most of Victoria.
- 2016 saw the year end with capital growth (all dwellings) of 13.7%
- In the first quarter this has risen by a further 4.2% for all dwellings (January 0.8%, February 1.5% and March 1.9%)
- Gross rental yields (houses) are at 2.7% and have been all quarter
- The current combined rental vacancy rate is 1.7%
- The median dwelling price (all dwellings) as at March 31 is $605,000
- Herron Todd White is classifying Melbourne as a rising market for houses and at the peak of the market for units.
Like Sydney, Melbourne is seeing a huge amount of apartment development. And after Sydney, holds the most cranes in Australia, 146 up from 131 in September ’16. With a continuing worry of apartment oversupply in the Melbourne CBD we are seeing a shift away from the cranes in the city centre and immediate surrounds, to the city’s west and north. There is also an abundance of smaller boutique developments in Melbourne’s middle ring suburbs, such as Glen Waverley, Hampton and Doncaster. The Andrew’s government are revising the Plan Melbourne Blueprint, scraping the limit of two dwellings per block, allowing developers to build more townhouses, villas and smaller developments on existing parcels of land (also creating a windfall for suburban families selling their blocks to developers at hugely inflated prices). Apartment capital growth for the quarter sits at 2.9%, up from -1.8% where it finished the December ’16 quarter.
So where to from here for Sydney and Melbourne? At the cold face we are seeing open homes across both cities packed to the rafters and auctions hotly contested with clearance rates around the 80% mark week on week. Real Estate agents are having the time of their lives! Infrastructure projects are aplenty, the media is creating unparalleled hype and FOMO (the fear of missing out), Mum’s and Dad’s are drawing down on the equity in their home to help out their children or alternatively, purchasing investment properties and or holiday homes with their new found property windfalls.
What could cause these markets to stall? It’s now getting very political at state and federal levels, with governments from both sides debating negative gearing, stamp duty and capital gains tax. Where it will end? I can’t answer that, but, what I do know is, The Australian Prudential Regulation Authority (APRA) are tasked with controlling investment related credit demand and we have seen a tightening of lending for investors and particularly expats with lenders demanding larger deposits, greater currency discounting and no interest only loans. Australia’s big banks are also handing down their own mortgage rate rises. These are also the typical signs of the cycle nearing the peak with record low rental yields that show home prices are out of balance with rents and the heightened affordability issues that are stopping some buyers from entering the market.
Australian Property Market Review – Canberra (First Quarter 2017)
Canberra, ended 2016 on a strong note and is continuing to prosper post Christmas.
- 2016 saw the year finish up with capital growth (all dwellings) of 9.3%
- The first quarter has seen this rise another 5.1% (January 0.4%, February 3.2% and March 1.4%)
- Gross rental yields (houses) are at 4.0% and have remained steady all quarter
- The current combined rental vacancy rate is 0.9% and dropping
- The median dwelling price (all dwellings) as at March 31 is $586,500
- Herron Todd White is classifying Canberra as a rising market for houses and a declining market for units.
As we thought would happen, Canberra has had a great first quarter, the new light rail construction is in full swing and Singapore airlines are flying four times a week to New Zealand and Asia from the new international airport terminal. Canberra is continuing to benefit from low interest rates and limited number of homes coming onto the market. Although apartments over the last quarter have only risen by 0.2%, which is probably due to continued development and an oversupply of apartments.
On the ground open homes see lines out the door, with renovated family homes moving quickly and auction clearance rates hovering around the 70% market. All the key economic indicators point to continued growth in this market.
Australian Property Market Review – Hobart (First Quarter 2017)
Hobart, is the best performing capital city for the quarter.
- The capital growth for 2016 was 11.2% (all dwellings)
- The first quarter has seen a further 5.6% added (January 1.4%, February 1.0% and March 3.1%)
- The city commands a gross rental yield (houses) of 5.0% the nations highest (along with Darwin)
- The current combined rental vacancy rate is 0.7%, also the nations lowest
- The median dwelling price (all dwellings) as at March 31 is $355,000
- Herron Todd White is classifying Hobart as a rising market for houses and units.
We had no doubt Hobart would start the year strong, the only problem, it’s near impossible to find a property as the market is so hot. On the ground we are seeing buyer numbers surpassing the stock and we all know what that means, prices will continue to push up and the ripple effect will see further out suburbs enjoying the same growth.
With the state governments A$1.8B investment in infrastructure and a booming tourism sector, Hobart is now the best performing CBD hotel market behind Sydney and Melbourne. Work is also underway at Hobart airport to extend the existing runway to allow for larger plans to land, this will open up direct flights to Asia and allow for more domestic flights. We never like to invest in a market that is reliant on tourism alone, however we certainly feel that Hobart is meeting the majority of our key indicators across multiple sectors.
To outline the main factors for growth in Canberra and Hobart.
- Interstate migration due to housing affordability issues in Sydney and Melbourne
- Remote working allowing people from Sydney and Melbourne being able to migrate and retain their employment and higher larger capital city salaries
- Increasing tourism industries
- Confidence and stability in state and federal government in both states
- Sydney and Melbourne homeowners drawing on their equity to purchase investment properties and holiday homes in both areas.
Australian Property Market Review – Adelaide (First Quarter 2017)
Adelaide – the tortoise and the hear fable comes to mind here – as I mentioned in our 2017 outlook the property market is fairly bland, however growth is steady, here’s how the first quarter has played out.
- 2016 saw capital growth of 4.2% (all dwellings)
- The first quarter has seen this rise by 1.6%, sitting in front of Brisbane, Perth and Darwin (January 0.5%, February 0.6% and March 0.4%)
- Gross rental yields (houses) are strong at 4.0%
- Combined rental vacancy rates sitting at 2%
- The median dwelling price (all dwellings) as at March 31 is $439,000
- Herron Todd White is classifying Adelaide as a rising market for houses and at the bottom of the market for units (to note units gained 5.1% capital growth in the January – March period, with January recording 0.3%, February 0.8% and March 4.0%).
Unlike the supply and demand issues we are seeing in other states, Adelaide’s supply and demand is closely aligned, which is why we see steady and consistent growth. Like most states, the Adelaide marketplace is greatly affected by the state economy, which has struggled in the past and as of January was sitting in seventh position nationally. There are further infrastructure projects planned for the next two years including road upgrades, the NBN rollout, major rail works, solar farms and significant public spending on defence projects. These projects would create employment, population growth and demand for housing which in turn will continue to sustain demand. We also feel rentvesters that have been priced out of the Sydney and Melbourne markets will look to Adelaide as a viable investment option with fairly priced property returning strong yields.
Australian Property Market Review – Brisbane (First Quarter 2017)
Brisbane’s had an interesting first quarter, which has played out like so.
- 2016 recorded capital growth of 3.6% (all dwellings)
- The first quarter 2017 has remained flat, recording a 0% change (January 0.1%, February -0.4% and March 0.2%)
- Gross rental yields (houses) are strong at 4.1%
- Combined rental vacancy rates sitting at 3.3%
- The median dwelling price (all dwellings) as at March 31 is $480,000
- Herron Todd White is classifying Brisbane as a start of recovery market for houses and a declining market for units.
Whilst the first quarter results aren’t strong for capital growth and vacancy rates, the YOY growth for Brisbane for all dwellings sits at 3.7%. There are certainly suburbs of Brisbane that are performing well. Family homes ready to move in or offering renovation potential are moving fast and compared to Sydney and Melbourne offer fantastic value for money. We still recommend people to stay clear of the apartment market, the looming oversupply is a huge concern.
With the impending Commonwealth Games and the improvement in the resource sector we feel the Brisbane market will continue to find its feet. On the ground, we are seeing busy open homes, property in the right locations moving fast, being snapped up by local owner occupiers and interstate investors, although for investment properties, finding tenants can take time.
Australian Property Market Review – Perth (First Quarter 2017)
Perth – unfortunately for those with existing properties there – the market has continued to fall.
- Ending 2016 with a decline in capital growth (all dwellings) of -4.3%
- We have seen a further decline of -1.3% in the first quarter (January 0.2%, February -2.4% and March 1.0%)
- Gross rental yields (houses) are currently at 3.6% and have stayed steady throughout the first quarter
- Combined vacancy rates are sitting at a national high at 4.8%
- The median dwelling price (all dwellings) as at March 31 is $475,000
- Herron Todd White is classifying Perth as approaching the bottom of the market for houses and in a declining market for units.
However, the good news is there are pockets of the Perth market that are performing well, as the market is correcting itself well priced properties in good locations with good renovations are moving fast for a fair market price. And as the market nears the bottom there are deals to be had for the savvy investor, the balls in their court. We are yet to see what impact the new Labor government will have on the housing market, however as we have seen in other markets a change of long term government can be good for the property market. This is going to be a great market to monitor over the next few quarters.
Australian Property Market Review – Darwin (First Quarter 2017)
Darwin, much like Perth is nearing the bottom of the market and one to watch.
- 2016 saw the year finish up with capital growth (all dwellings) of 0.9%
- The first quarter 2017 has seen a decline of -3.1% (January -1.7%, February -4.3% and March 3.1%)
- Gross rental yields (houses) are at 5.0% and have remained steady for the quarter (the nations best along with Hobart)
- The current combined rental vacancy rate is 3.8%
- The median dwelling price (all dwellings) as at March 31 is $490,000
- Herron Todd White is classifying Darwin as the bottom of the market for houses and units.
The state government reintroduced the First Home Owners Grant (FHOG) late last year and the feeling is the sub $650,000 market will be stimulated by this grant. Off the plan apartments and homes that were grossly overvalued due to the mining sector have now started to correct themselves and like Perth there are opportunities for the savvy investor to purchase in the right location. Again, with some large planned infrastructure projects and Sydney and Melbourne rentvesters looking to lay claim on their slice of Australia, we are excited to watch this market closely.
Sources – Listed at bottom of page
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way. The Australian Expat Investor may receive referral commissions from companies referred in this article.
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Does our Australian Property Market review for the March 2017 quarter inspire you to further research investing in property whilst living abroad? Here are some related articles to this story that might be of interest to you :
- Forecast for the Australian property market in 2017
- Benefits of Using a Buyers Agent
- 6 Steps to Buying Property Whilst Living Abroad
- 8 Benefits of Investing in Australian Property While Living Abroad
- Performance of the Australian Property Market in 2016
RLB Crane Index
Heron Todd White
Cordell State Market Watch
Australian Financial Review
Australian Bureau of Statistics