We’ve seen some interesting changes in the Australian market, particularly in the past six months. Michael Cleary from Milk Chocolate Property Concierge takes a look at what’s install for 2018.
After five years of robust growth and capital gains of 70.8% (February 2012 – December 2017) the Sydney market has reached its peak in this current property cycle. The city has recorded declines for five consecutive months (August – December 2017).
The cooling of the Sydney market is due to a number of factors, being the tightening of investment and interest only lending by the banks and tightening of foreign investment by the federal government. As a combined market, in 2018 we forecast growth to continue to slow and plateau. There are markets within markets, which due to other factors such as infrastructure, employment and demand will see some areas continue to climb. Rental yields have remained fairly steady throughout the year, hovering around the 2.8% mark (along with Melbourne, the lowest in Australia). However, as the price of property stagnates, we will see the yields climb to reflect this.
On the ground the CBD and major metro areas are hives of construction activity, with major road works, building and infrastructure projects. Cafes, restaurants and bars are busy, however, we have seen open homes and auctions that were once packed and frenzied reduced to just a handful of people.
Much like Sydney, Melbourne, has had a tremendous run in its current growth cycle and in 2018 is nearing the peak of the market. We have seen the rate of growth declining in Melbourne over the past five months with December recording a negative drop of 0.4%. Like Sydney rental yields have remained fairly unchanged all year.
The difference between Sydney and Melbourne and the slower rate of decline is there are a number of key factors propping the city up. These include high population growth (forecast to be Australia’s most populated), strong jobs growth and (somewhat) more affordable housing.
On the ground, like Sydney, the once robust auction market is now showing signs of thinning out. Agents are now more open to accepting offers prior to auction, which, until only recently, was not the case.
Canberra has been the quiet achiever in 2017 with continued capital growth throughout the year. We forecast the detached housing market to have another solid year of capital gains circa 8%.
There are a number of key indicators that point to consistent capital growth being; in the latest ABS (Australian Bureau of Statistics) population data, the capital had an increase in population by 1.8%, second only to Victoria. ACT tourism numbers have also hit record highs with 2.649M visitors up from 2.518M since June 2015. Lonely Planet also named Canberra the third best global city to visit in 2018.
Infrastructure projects including the light rail construction (connecting the CBD with the outer suburbs) which is now in full swing and the opening of the international airport terminal, with Singapore Airlines now flying four times a week to Asia and New Zealand and Qatar Airways operating a daily flight from this February. Unemployment is also the lowest in the country at 3.8%, combined with the highest median income in the nation, fuelled, by the professional services sector.
On the ground the city and surrounding regions are a buzz of activity with new hotels, restaurants, cafes and bars opening or scheduled to open. Open houses are busy and once government housing areas are showing signs of gentrification. Good rental properties are in high demand, with vacancy rates at 1%. There are some concerns of an oversupply in the unit market and we believe detached housing and land is the best investment here.
The Brisbane detached housing market continues to see steady growth with houses recording a gain of 3.1% (to note units dropped 1.2%) in 2017. Although the overall figures show slow and steady annual growth there are regions performing well above that range. Our key economic indicators are seeing a boost in infrastructure projects, employment and migration, all positive signs. The major price discrepancy between Sydney and Brisbane property prices has seen interstate migration to QLD from NSW triple in the past three years. If it continues, mid-2018 will see Queensland’s population exceed five million for the first time. Definitely a positive for house price growth.
Unfortunately, we are seeing apartments purchased off plan at the commencement of Brisbane’s unit construction boom (mid-2011) currently selling for losses of up to 36%. More than 5,300 units have been completed in the capital this year, with another 11,000 being built. We expect to see declines in the unit sector continue as these come onto the market and are resold.
Regionally there are many options to consider; Gold Coast, Sunshine Coast, Townsville and Cairns to name a few. The Gold Coast and Sunshine coast have outpaced the Brisbane metro market in recent years, however, generally with single economic drivers like tourism, it’s markets we prefer to sit out of at this point in time. This is the same for Townsville and Cairns who are both seeing some troubling times with the downturn in mining investment and tourism numbers well down. We understand the new Adani mine is going to generate jobs, however, given this is a single driver for growth, we don’t recommend investing in these markets.
There is a hive of activity in Brisbane, with state and federal infrastructure projects in full swing. Demand in great investment grade suburbs is becoming stronger and evident as Queensland’s southern neighbours look for the blue skies and relaxed lifestyle.
The standout performer and best performing capital in 2017 has certainly been Hobart, with annual growth of 12.9% in the detached housing market. The city is currently experiencing the highest annual growth rate since 2014 and is also on track to have another strong year of growth circa at 8%.
Why are we seeing such growth? The housing market is being fuelled by interstate investors who have used their Sydney and Melbourne property windfalls to purchase investment properties. The cost of housing remains incredibly low compared to other capital cities and it’s still the most affordable capital city with a median dwelling price of $403,800.
Tourism numbers are also increasing YoY as Hobart offers a vibrant lifestyle filled with history, picturesque scenery, rugged wildlife and a fantastic food scene. The Museum of Old and New Art (MONA) opened in 2011 and has been a huge tourist draw card, having being credited in many circles as the southern states renaissance. Since opening, 1.7M people have walked through its doors.
With the increased tourism numbers there is now a lack of hotel accommodation; with properties being purchased and put on short-term rental sites like AirBnB. In 2017, a number of new hotels got the green light for construction and the airport’s 25M upgrade to allow for direct flights to Asia commenced.
Although there are a number of infrastructure projects underway and slated to commence, our greatest concern with Hobart has always been the reliance on one sector driving growth; Tourism. Whist millennia’s are moving interstate after they graduate and baby boomers move to the apple isle for a peaceful retirement, long term growth and stability is still a concern in our eyes.
On the ground, properties are scarce! Houses often hit the market on a Tuesday with the first open on Wednesday. By Thursday, the biggest decision for vendors is whether to go to the Saturday open or accept one of the many offers already received.
Much like Brisbane, Adelaide prices have held steady in 2017 with little movement at 3.3% for detached houses. There are positive signs from the federal government with new naval building contracts bringing jobs to the area and the state government has put aside $50M in grants to incentivise SME’s and startups to conduct business in the state. The return on this is more jobs and less stress on the social welfare system – which currently, is a substantial issue.
The success of the Tesla lithium-ion battery installed near Jamestown has seen really positive press. It’s the largest in the world and will provide solar energy for 30,000 South Australian homes. Funnily enough, making the state one of the most progressive for renewable energy.
On the ground, besides the light rail extension in town, there’s not a lot of major infrastructure happening. It’s not a hub of activity just yet, but given the recent state government wish list to Canberra, this may change in years to come.
Perth has seen another year of consistent losses (2.6%), however, this is slightly better than the 2016 figure of -3.5% for detached housing. The rates of declines are subsiding with this year being the smallest decline since May 2015. The Perth economy is starting to improve and so is the real estate market, property listings have dropped by 12.7%, showing the supply vs. demand ratios are starting to shift. The average time to sell a property has also dropped to 59 days from 68. Whilst these are good signs, it’s still too early to call as to when the bottom will actually arrive.
We are starting to commence our six month on the ground research to ascertain the best suburbs/regions for growth. However, we don’t anticipate purchasing here until late 2018 at the very earliest.
Unfortunately, the Darwin market still doesn’t show any signs of bottoming out, with prices continuing to drop at a consistent rate. The one positive for this housing market is rents are yet to drop in line with house prices, creating the strongest yields in the country.
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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.
Source: CoreLogic / SQM / Australian Bureau of Statistics (ABS) / Queensland Government / Melbourne Government / Qatar Airways / Real Estate Institute of Western Australia / South Australian Government / Australian Financial Review