January Property Report 2013

NEW SOUTH WALES

As customary New Year’s resolutions are adopted, Sydney property looks set to find some New Year’s resolve as positive prospects for the NSW economy filter into the real estate market

In November, when James Bond fever hit Sydney with the release of Skyfall and the subsequent visit of Bond actor Daniel Craig, observers of the property market would have been reminded not of the martini drinking, fast-driving MI6 agent, but of his comedic alter-ego Austin Powers.

It was in these films that the antagonist Dr Evil tried to extort from the world’s leaders, pinkie finger in mouth, the now infamous amount of “one million dollars” – quickly changed to “100 billion dollars”.

That last amount is what would have struck a chord with observers of the NSW property market. The reason is that $100bn is the amount of revenue that the state property industry is estimated to generate every year.

This gigantic figure includes both direct and indirect flow-on benefits and, because of this, some 10% of the state’s economic growth comes from the property market, according to a Property Council commissioned report by the AEC Group.

The report adds that the industry creates one in 10 jobs in NSW and provides $16.6bn in wages to workers and families.

Considering these numbers, it is not surprising that the state property market has its own dose of international mystery, conflict, heroes and villains. Among these – and what is grabbing everyone’s attention – is of course, China.

QUEENSLAND

Investors are back in Brisbane thanks to high yields and solid growth prospects

Like many other markets around Australia, Brisbane is patchy. Great value opportunities exist in some areas, but other suburbs are still struggling.

Possibly the most important data to come out of spring, however, has been the first median house price growth for an extended period. The report, from Australian Property Monitors, suggests Brisbane medians are finally ready to start creeping forwards once more.

“The growth was just 0.3%, so it was just above the line, but the significance is that it was the first rise recorded in eight consecutive quarters,” says Andrew Wilson, senior economist at APM. “Our data showed the Brisbane median house price had fallen for two years, so there is a sense it has bottomed and the ABS confirmed that with their latest established house data release.”

Savvy investors and upgraders have been taking advantage of the mixed state of the markets in sought-after suburbs.

“There are some bright spots in the Brisbane market,” says Wilson. “The prestige market is showing some life, particularly in some of those riverside areas that were affected by the floods. A lot of people are starting to move back into these suburbs. Areas such as New Farm, Newstead and Hamilton are strong in terms of prices growth and buyer activity, particularly for unit developments.”

VICTORIA

Auction clearance rates have improved as upgraders find value hard to resist

Spirits have risen somewhat in the midst of the spring selling season in Victoria; listings have risen and clearance rates are tracking nicely, with upgraders looking to take advantage of some value opportunities in high middle to prestige markets.

“Auction clearance rates have been pushing low- to mid-60% range,” says Andrew Wilson, senior economist at Australian Property Monitors. “Price growth is nothing to write home about, but it has been a solid performance. We’re seeing that underlying capacity of sellers coming to the fore now, with large numbers of properties being offered for sale and the prestige change-up market almost in full swing.”

Prestige properties presented value opportunities throughout most of 2012 and Wilson believes the rising trend of auction clearances in that market could be traced back to autumn.

“The increase in competition for inner-city properties has really grown, but we must remember it’s a particular market that’s activated here,” says Wilson. “That’s the inner-east, inner-urban, bay side and inner-south areas and that’s where all the action is happening.”

Much of the activity generated in this space has come from higher net worth individuals, whose decisions are not necessarily motivated by job security, cost of living, and other issues that can spook the general populace.

“They see that they can secure these properties at a premium, in terms of being lower than what they would have got them for a couple of years ago, even if it means selling their current property for less,” says Wilson. “You buy at the higher level and the discount you have there is larger than the discount you have on your own property; eventually that creates value momentum and the competition fuels some price growth.”

WESTERN AUSTRALIA

Asian economic winds may be prevailing across Western Australian property, but they’re not as sure as times past, presenting new challenges for investors

It’s no secret that high stakes mining has been the subject of a lot of political discussion and Western Australia has been a big subject among it. What’s interesting is that the future of the state economy may have a lot more to do with what’s happening 5,000km away.

You wouldn’t expect it from a first glance, but a place like Hunan Province, in China’s south-eastern interior, has a fate that is heavily intertwined with Australia’s largest state.

This part of China is not frequently shown in the news. It is mostly hilly tea country and remains misty through much of the year. Few residents have cars and, being mostly farmers, they carry their livestock and produce onto public transport.

Apart from a few highways built in the last 10 years, roads are largely unsealed, snowed under in winter and drowned in mud over summer. Outside of the cities, the mere concept of fast food outlets does not exist. Most people still heat their modest homes solely with firewood.

Yet, like in much of China, this picture is changing. As the costs of steel production ramp up on China’s heavily developing east coast, some of the production is starting to move westward, and Hunan Province has been a recipient of this change. It’s been a slow move and not one without its difficulties. The province remains heavily underdeveloped and not even the Chinese are building infrastructure fast enough to support future plans for the area.

It’s been a reminder of a stiff reality for China. Over the years, economists have become used to Chinese economic growth overshooting 10% each year. Hunan Province, as its fledgling steel industry struggles to get off the ground, shows that the country is not quite the miracle economy it has previously been lauded as. It – like anywhere else – faces deep challenges and this will impact how fast the Chinese economy continues to grow.

SOUTH AUSTRALIA

South Australian resources are there to be developed; it’s just a matter of finding the right investors

Adelaide has always been a subdued market; free from the volatility of some of Australia’s other capitals. Property movements are thoughtful and gradual, like the tortoise to the resource states’ hares. When the Olympic Dam project was still on the verge of getting underway, South Australia was poised to join its western and northern brothers on the positive side of the national economic average. However, it has stalled and so Adelaide returns to its subdued state.

“Olympic Dam has flattened confidence in South Australia to some degree,” says Andrew Wilson, senior economist at Australian Property Monitors.

“There has been no sense of any revival in house prices this year. They’re still moving south; not collapsing, but without a lot actually happening.”

Like a lot of the other states, Wilson says Adelaide has seen some bargain hunting in traditionally higher priced suburbs where value opportunities have come to the fore, but the city of churches is currently bound to play follow the leader for the next year or so. “I think Adelaide will follow the rest of the country as it moves forwards next year,” Wilson says. “But it will be a laggard in terms of that recovery scenario.”

AUSTRALIAN CAPITAL TERRITORY

The defining moment in the Canberra property market’s fortunes over 2013 will undoubtedly be the upcoming federal elections. Here’s why

As the rest of Australia holds its breath in anticipation of federal elections later this year, the one property market that will arguably be affected the most is Canberra.

Speculation over how much the current government will or won’t spend can vary depending on who is doing the commentating, but the general agreement is that the ACT’s prospects would change significantly were the Coalition to win, as most political pundits currently seem to think.

BIS Shrapnel manager Angie Zigomanis says the Canberra property market has tended to follow a predictable pattern whenever a Labor government is ousted. This is largely because of the public job shedding that has tended to occur whenever a Liberal-led government has taken power.

“In the early John Howard years, prices went back in the Canberra market and stagnated for a good four or five years,” Zigomanis says.

“They went back up with extra defence deployment when the war on terror began, but before that we did go through a period of pretty heavy [job] cuts.”

Since Canberra’s employment market is dominated by the public sector, public job shedding obviously has a marked effect on the ability of many residents to pay their rent. In other words, it hints at trouble for property investors.

Century 21 chairman Charles Tarbey says the risk is hard to deny. Whatever an investor’s political leanings, he says that historical patterns make the issue an unemotional one. People can argue about whether the country as a whole will be better or worse off under either government, but history suggests that the Canberra property market will most likely struggle if the Coalition wins the upcoming election.

“Any time the Labor government comes into power, it’s well known that there’s thousands of [public] jobs created, so you buy houses in Canberra. When Labor starts looking like they’re in trouble, you get out, because public service jobs are going to go. There’s no doubt in my mind that if the Liberals get in, they’re going to put a bit of pressure on,” says Tarbey.

NORTHERN TERRITORY

Darwin’s prospects are so positive that seasonal price dips are beginning to lose momentum

The top end is establishing itself firmly on the top shelf for Australian property markets, with giant resource investment, an influx of workers to support the projects and a continuing shortage of properties required to meet the increasing demand.

Price growth is already in full swing and has been for some time in Darwin, making the wet and dry season calendar almost redundant for the first time in memory.

“Darwin traditionally has this volatile price buying activity model, which reflects the net interstate migration that comes in and out of the territory largely because of the wet and dry season,” says Andrew Wilson, senior economist at Australian Property Monitors. “But if we look at the underlying growth and activity, there’s definitely an upward trend, once we take out the seasonality. We’re starting to see underlying growth rather than the big dips and rises that we usually get in Darwin.”

TASMANIA

Rather than being racked by two-speed troubles, Tasmania’s property market is more likely to be in cruise control this year, coasting along the bottom amid dire predictions for its wider economy

These days it’s become a fact of life – economists talk about speed more frequently than 1990s ravers in luminous green clothing.

Almost all of Australia’s financial problems and challenges are thrown under the umbrella term of two-speed or three-speed economics. In fact, the term is being so frequently thrown around that it is arguable that a lot of us ordinary folk have lost sight of what it really means. We’re marvelling at the Emperor’s supposed clothes because we’re too scared to admit that we don’t see them and must, apparently, be stupid.

The reality of a two-speed economy is a frightful one. What we’re really seeing, according to the theory, is two wholly different growth drivers in the economy – one that’s performing well and one that isn’t. It’s much like a Penny- Farthing bicycle. There’s a big wheel that’s powering forwards, while a little wheel labours behind it. The big wheel is what’s guiding the bicycle onwards, while the little wheel is being reluctantly tugged ahead only because the other wheel is moving. It doesn’t make for a very stable ride.

If the bicycle as a whole were Australia, the bigger wheel would currently be the resources industry. Spurred on by Asian demand for raw materials, it is what’s been responsible for keeping the country out of recession at a time when Europe and the US are struggling. The little wheel represents the other parts of the economy: manufacturing, retail and a host of other sectors.

Now let’s look at Tasmania. Not having a prominent resources industry like Queensland, WA, NT or even SA has, and also lacking the manufacturing and commercial bases of NSW and Victoria, the Apple Isle constitutes a big spoke in the part of the economy where the wheel isn’t turning well.

This is where the state’s current troubles start. “This is a state that is still shedding jobs despite what is already worryingly high unemployment… with soggy retail turnover and with a bunch of businesses going bust,” reports Deloitte Access Economics’ latest Business Outlook report.

The report adds that while the value of the Australian dollar remains high, this situation is likely to continue. “If the Australian dollar does come to the party by losing some altitude, that would be very welcome news for Tasmania’s manufacturing and forestry sectors, who have been under the gun,” it says.

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