National Property Report – August 2015

NEW SOUTH WALES

Desperate buyers set to push Sydney prices higher

Despite the already sky-high property prices in Australia’s biggest capital city, buyers are still desperate to get into the market, sending prices higher into uncharted territory

Judging by the ultra-high auction clearance rates, buyer enthusiasm in Sydney appears to be showing no signs of waning.

The latest figures from CoreLogic RP Data show that Sydney continues to outperform all the other capital cities. During the three months ending May, median dwelling values in Sydney surged by 3.3%, even as the others fell or slowed.

Tim Lawless, head of research at CoreLogic RP Data, points out that the lower interest rates and high levels of investor interest have fuelled a rebound in the annual rate of dwelling value growth across Sydney and Melbourne.

“Dwelling values are now 15% and 9% higher, respectively, over the past 12 months,” he says. “Both Sydney and Melbourne are also seeing their strongest economic conditions, coupled with the highest levels of new housing supply, particularly in the new apartment sector.”

In fact the lower interest rate in combination with the stronger state economy will only continue to fuel strong buying activity throughout this year, according to Andrew Wilson, chief economist at Domain.

“We still haven’t seen the impact of the interest rate cut from May, and the RBA is still talking about cutting more. If they do, then prices are going to rise even higher. The lower interest will only fuel the Sydney market going forward,” he says.

The improved affordability resulting from the cheaper cost of lending is allowing buyers to push property prices higher and maintain competitiveness in this red-hot market, according to Wilson.

“We’re seeing the mortgage rate at mid-4%. Income is still flat, but you’re able to carry more debt because of the lower interest rate.”

So buyers continue to storm the Sydney market, unperturbed by bubble warnings.

“Sydney is still pretty exciting,” Wilson says. “There are no signs of tapering off in activity in the Sydney market, even with the investor market cracking another record over March. It’s still strong. There’s a lot of enthusiasm, and plenty of buying decisions are still being brought forward.”

Wilson notes that even the normally quiet side of Sydney is seeing an extraordinary level of activity, particularly the St George Illawarra region. During the past six months alone, the number of suburbs with a million-dollar-plus median price surged from 17 to 29.

“There are now more than one in three suburbs in the area with a median price of $1m and above,” Wilson says. “The Shire was the biggest mover there, buoyed by a lower interest rate that has fallen beyond the official mortgage rate.”

VICTORIA

Low interest rate fuels new growth in Melbourne

Like Sydney, Melbourne is set to hit another record amid frenzied buying in the middle to high-end market

Yes, the latest CoreLogic RP Data figures showed negative growth in Melbourne. Yes, median dwelling values fell by 1.7% during May and down by 0.3% over the quarter. But if you think Melbourne has run out of juice, you could be making a big mistake.

According to Tim Lawless, head of research at CoreLogic RP Data, the softer numbers in May are just temporary, and he expects a stronger showing in June.

“The negative May result is likely due to a natural correction from the previously strong month-on-month results,” Lawless explains. “The market stimulus due to lower interest rates and a well-received federal budget in May are likely to keep momentum going in the market.”

Lawless adds that other market indicators are still pointing to stronger conditions for the Sydney and Melbourne housing markets, with auction clearance rates surging at close to record highs throughout May.

Domain is also reporting a similar trend, with chief economist Andrew Wilson expecting the lower interest rate to continue to fuel buying in Melbourne, particularly in the aspirational segment of the market.

“The lower interest rate is encouraging buyers in the mid to higher price range,” he says. “These are aspirational buyers who don’t have to worry about job security and unemployment. These buyers are targeting the upper- to high-end properties, particularly in the eastern suburbs, northeast all the way down to the southeast. They’re active in trading up.”

Wilson points out that buying activity is mostly concentrated in the inner- and middle-ring suburbs.

“That’s where all the action is happening and where competition among buyers is fierce. That’s what’s generating price growth in Melbourne,” he says.

Even the quieter northern and western suburbs are picking up on the positivity generated in the inner and eastern suburbs, according to Wilson.

“There’s plenty of momentum in this market,” he says. “With another rate cut, prices can only go higher. The Melbourne economy is looking better too. That’s why we’re revising our growth forecast to 5–7% from 3–5% this year.”

Unit market under pressure

While the broader Melbourne market is still buoyant, strong growth is occurring mostly in the housing segment. The apartment sector continues to underperform houses in a big way.

The CoreLogic RP Data stats show that the median house price surged by 9.8% during the past 12 months, while units grew by a measly 2.9%.

“The higher supply levels are likely to be a primary reason why unit values are rising at a much slower pace than house values in Sydney and Melbourne,” says Lawless.

“The pace of growth in unit values across Sydney is about half that being recorded across the detached housing sector, with house values up 16.4% over the year compared with an 8.8% rise in unit values.

“In Melbourne, the situation is even more pronounced, where growth in unit values has been less than half of what is being recorded across the detached housing sector.

“Every other capital city is seeing a similar trend, with the capital gain for houses recorded at a higher rate compared with the unit market.”

QUEENSLAND

Disappointing performance continues to dog Brisbane market

Despite hopes for stronger performance, Brisbane continues to disappoint with its subpar growth. Experts are also increasingly worried about the current apartment sector building boom

Solid recovery seems to elude the Brisbane market. Despite the stimulus of a lower interest rate and the advantage of having lower-priced properties, strong growth just can’t seem to get off the ground there.

Even as local experts talk up the prospects of an imminent strong rebound in prices, the latest data is a stark reminder of the challenges facing the Brisbane market.

Recent CoreLogic RP Data figures show median dwelling values falling by 0.5% during the May quarter to $569,500. During the past 12 months the median house price grew by just 3.4%.

Domain is also seeing weaker prospects for Brisbane and the Queensland market in general, which has prompted chief economist Andrew Wilson to downgrade its growth forecast.

“We’re a little bit more pessimistic about Brisbane,” he says. “We’ve tracked a weakening in activity in Brisbane this year.

“I think what’s happening in Queensland that we picked up is that a lot of the consequences of weakening resources have been felt more quickly in Queensland than expected. Even the RBA has been quite surprised at how the resources sector has weakened so fast, particularly in WA but also Queensland.”

Therefore Wilson is now expecting the Brisbane market to grow by up to 5% compared to a more bullish 7% forecast a short while back.

“No doubt there are still a lot of concerns about the Brisbane economy, and that reflects the wider Queensland economy in light of the accelerated resources downturn, so we need to keep an eye on that,” he says.

“A lot of the coal-mining towns of Queensland are now looking like they’re in for a significant shake-out.”

Apartment sector worry

Another area worrying some analysts is the new apartment sector, particularly those properties located in inner Brisbane.

Angie Zigomanis, senior research analyst at BIS Shrapnel, says there is a real risk that supply will get ahead of demand, which would cause price stagnation at the very least, or a price drop as the worst-case scenario.

“The new apartment sector in Central Brisbane is worrying. There’s a big pipeline of new construction getting close to finishing, and once they come online a lot of people who bought these apartments are likely to struggle on resale.

“When apartments are sold off the plan, you have more markets such as local buyers, interstate buyers and overseas.

“When you’re onselling, you lose the overseas market, because they can only buy new or off the plan. You also lose some depreciation benefits.”

Already, there are signs of a weakening in prices. During the past 12 months, the unit price stagnated while house prices grew by 3.4%.

WESTERN AUSTRALIA

Perth recovery a long way off

Prices have fallen to a more realistic level, yet buyer sentiment remains weak. Experts say the pain could go on for longer

In May 2008, Perth’s median house price was the second highest in the country at $513,000, just behind Sydney’s $579,500.

Seven years on, Perth has fallen well behind the bigger capital cities. At a median house price of $530,000, it’s now significantly lower than Sydney’s $880,000, Melbourne’s $620,200, Darwin’s $572,500 and Canberra’s $588,000.

Indeed, it’s a case of how the mighty has fallen. And based on the current sentiment, the downturn looks set to get even worse.

Angie Zigomanis, senior research analyst at BIS Shrapnel, is particularly pessimistic about the near- to medium-term outlook for Perth.

“I expect more downside to the Perth market,” he says. “I think it’s too early to get back in. Perth’s recovery is looking like two to three years away from now.”

The main problem, according to Zigomanis, is the fact that a lot of mining projects are still winding down and the state government doesn’t have a big war chest to boost the economy.

“Perth is really a one-trick pony and just reliant on the mining sector, and with mining coming off, it’s going to get even weaker. Arguably, Perth values have already fallen dramatically. However, I think there’s still scope for it to fall further. I think it will bottom out in about three years.”

Zigomanis expects prices to fall between 3% and 5% this year.

The latest data from CoreLogic RP Data certainly confirms the recent weakness. Since the beginning of the year, Perth’s median house price has fallen by 2.4%, the biggest drop of all other capital cities. During the past 12 months, the median price grew by just 1%.

The stats from Domain show an even weaker trend. During the three months ending March, house prices fell by 2.1% and down by 2.8% year-on-year.

“Perth is still looking dodgy,” says Andrew Wilson, chief economist at Domain. “Overall, the market has been suffering due to a slowing resources sector. The clear problem is confidence. It’s almost an expectational thing. Vendors and buyers have started to pull their heads in because they’ve been told that prices are going to fall.”

SOUTH AUSTRALIA

Green shoots appear but dark clouds remain

Adelaide’s stint at the bottom seems to be coming to an end as more signs of recovery start to appear. But experts remain wary about the city’s prospects

As Sydney and Melbourne prices continue to soar, affordable markets such as Adelaide logically should be the next area to target. And judging by the recent numbers, it would seem that priced-out interstate investors are making their move into this market.

During the 12 months ending May, Adelaide raced past Brisbane and Perth to become the third-highest-gaining capital city in Australia, behind Sydney and Melbourne, according to the CoreLogic RP Data stats.

Median dwelling values grew by 3.4%, while Sydney and Melbourne racked up 15% and 9% growth respectively.

Adelaide also outperformed Brisbane during the quarter ending May, with its median house price growing by 1.9% compared to a drop of 0.9% for Brisbane.

Domain’s data shows a similar trend, according to chief economist Andrew Wilson. “Adelaide is holding its own, although it’s a conservative market,” he says. “Although there’s still a question mark on its economy, there’s no doubt that parts of that market have picked up, thanks to the lower interest rate.”

In particular, the middle- to upper-end markets are experiencing a surge in demand which has helped trigger a solid increase in prices.

The Real Estate Institute of Australia reported that over the March quarter the inner-ring suburbs of Adelaide saw prices soar by 9.8%. Compared to the same quarter in 2014, the median house price jumped by 10.2%.

Outside Adelaide, Mount Gambier is the hottest market for buyers. The strong buying activity pushed median prices up by 10.9% during the three months ending March.

“We’re starting to hear that investors have taken their eyes away from Sydney and now going to Adelaide, and that’s what’s been keeping these markets buoyant,” says Wilson. “I’ll not be surprised if we see another 5% growth again this year for the Adelaide market.”

Despite the recent solid showing, Angie Zigomanis, senior research analyst at BIS Shrapnel, is not convinced that SA and Adelaide are out of the woods yet.

“Their markets are still a bit flat,” he says. “The growth is still meandering through and not getting any spike. That’s because there’s not much triggers for growth in these areas. If anything, I expect more downsides in that part of the country due to Holden shutting down. If South Australia doesn’t get the submarine contract, the state would be under pressure.”

TASMANIA

Property market weakens again

The volatile Hobart market swung into negative territory during the recent quarter, with units bearing the brunt of the downturn

Calling the market’s performance a recovery may seem premature, with the latest data from

CoreLogic RP Data showing Hobart to be the worst-performing capital city for the month of May.

The median house price dropped a hefty 2.4% during the month and fell 0.4% during the May quarter. Performance of the unit sector was even worse, with the median unit price sliding 5.9% in May and losing 5.5% in value for the quarter ending May.

This is disheartening news for property owners currently hoping to sell their properties. However, it’s welcome news for buyers looking to snag quality properties at a lower price.

Buyer’s market

According to the Commonwealth Bank-CoreLogic Home Buyers Index, Hobart continues to show conditions that are favourable to buyers rather than sellers.

“Effective supply continues to outweigh effective demand, which results in a stronger negotiation position for buyers,” it says.

Andrew Wilson, chief economist at Domain, explains that the local economy is still unable to gain momentum to support price growth.

“Hobart has hit a bit of a hurdle itself, perhaps not as bad, but prices in Hobart are still below where they were four years ago,” he says. “The local economy is getting better, but it’s still a fairly slow market. I expect growth to be around the inflation rate of 2–3%.”

Bright spots

Despite overall weakness of the Hobart market, there are a number of areas defying the downturn, according to a recent report from the Real Estate Institute of Australia (REIA). In particular, the median price in the inner-ring suburbs of Hobart racked up the largest jump over the quarter ending March, growing by an impressive 18.2%. It also performed well compared to a year ago, with the median house price climbing 7.5%.

Launceston also recorded solid gains, with the median house price surging by 7.1% in the same quarter compared to a year ago, according to the report.

The median price for other dwellings, including units and apartments, also rose by 5.7% over the March quarter. The middle-ring suburbs in Hobart notched up 11.1% growth over the same quarter.

Rental market steady

Rents stabilised in the March quarter, settling at a median rent of $350 for three-bedroom houses in Hobart, according to REIA.

However, four-bedroom houses in inner Hobart are in high demand by renters, resulting in a strong increase in the median rent. During the March quarter, median rents surged by 14.4% to $555. Compared to the March quarter of 2014, four-bedders in the outer rings of suburbs recorded the highest increase, with median rents increasing by 12%.

The units and apartment sector saw a patchy performance, with one-bedders suffering a 2.4% drop in rents while larger units recorded an even bigger decline of 10%. Despite this, the rental market appears to be healthy, with the vacancy rate sitting at 2.9%.

NORTHERN TERRITORY

Downturn set to continue

Just like Perth, Darwin is currently going through the painful process of market correction as a result of its excessive gains in recent years. Experts say this could go on for longer

The numbers are bleak. They have been so for a number of months and, as far as trend goes, there appears to be no end in sight. Not yet.

While the May figures from CoreLogic RP Data show a median house price increase of 2.6%, the market has fallen by 1.6% compared to a year ago.

The unit market suffered a bigger price drop of 4% thanks to the growing supply and falling demand for this type of accommodation.

“Affordability has been the problem,” explains Andrew Wilson of Domain. “There’s not much demand for high-end properties now. A lot of units have been built, and there’s certainly an oversupply in that market, as seen in the weakening in rents and prices.”

Buyer’s market

After enjoying strong buyer’s demand for a number of years, the tide has turned. Selling conditions across the Darwin housing market have weakened over the past year, with the housing market now in favour of buyers over sellers, according to the Commonwealth Bank-CoreLogic Home Buyers Index. “Active buyers have more stock to choose from than a year ago and their purchase decision is no longer as rushed as it once was when the market conditions were much stronger,” it says in a report.

Despite this weak performance, Wilson still sees some growth in the market.

“Darwin has probably suffered more because it got a bit too expensive and a lot of the mining companies have already shifted out because of the downturn in the resources sector. But they probably have better prospects compared to Western Australia because of their gas sector.  There’s still enough confidence and energy in the local market. The unemployment rate is very low at 3%. There’s no doubt growth has weakened compared to three years ago when the market was at its peak. I expect property prices to grow by 5% this year.”

AUSTRALIAN CAPITAL TERRITORY

House price strengthens but units suffer losses

Stronger house prices signal a rise in confidence, but the lingering worry about oversupply in the unit sector continues to cast a dark shadow on the nascent recovery

Things are looking up in the Australian capital city. The numbers are stronger and the more upbeat sentiment is palpable in the housing market.

During the month of May, Canberra houses outperformed all other capital cities by recording a solid 1.6% growth in values as the majority suffered losses, bar Darwin’s 0.4% gain. During the May quarter, Canberra was the third-best performing capital city for houses, gaining 2.1%.

Recent data from the Real Estate Institute of Australia shows similar upbeat results. It shows that when compared to the same quarter a year ago, median house prices rose by 5.9%.

The West and North and Outer South areas of the city led the outperformers, with their median house prices surging by up to 7.9%.

However, the unit sector remained weak, with the median unit price dropping by 2.5% during the three months ending May, according to the CoreLogic figures. During the past 12 months, unit values have dropped by 3.9% to $409,700.

Andrew Wilson, chief economist at Domain, points out that Canberra has shown steady growth recently, thanks to improved sentiment.

“Canberra has had a good start to the year and the property market is certainly looking better,” he says. “Domain recorded three consecutive quarters of growth in Canberra for the first time in four years. Canberra saw the highest auction clearance rates in four years and the highest auction volumes in six years.”

Wilson notes that the turnaround is boosted by growing confidence as the job shedding that many feared before the budget hasn’t materialised.

“The movers of that market have been in the mid to upper range because of the perception that it’s a good time to buy.

“With the lower interest rate, we’ll have another solid year. Things are a lot better there. Canberra is a solid market but it has always suffered from the nature of the economy and the federal government.”

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