National Property Report – February

Australian Capital Territory

How far will Abbott go?

Tony Abbott’s stated policy of cutting 12,000 public servants is being reviewed. For the ACT, it’s not just jobs riding on the outcome, but the property market as well.

Public servants and property investors in Canberra have been biting their nails in recent months. Would they be one of the thousands of public servants laid off through the Abbott Government’s cost cutting measures? Would property prices plummet accordingly?

In its first few months in government, the Coalition hasn’t done anything too drastic to the public service. In fact, Abbott has discovered that the previous Labor government also had plans for thousands of job cuts and he now wants to review the manner and timing of the Coalition’s strategy to cut 12,000 public service jobs over the next four years.

But if it’s revealed the budget has deteriorated further in the coming months, then even more job cuts could be on the cards, says Shane Oliver, AMP Capital’s Chief Economist.

“ACT is a vulnerable market at the moment,” says Oliver. “It is dependent on how hard the new federal government goes in laying off public service workers.”

Despite the uncertainty, the latest Property Council/ANZ Property Industry Confidence Survey actually shows a slight increase in sentiment from 94 in the September 2013 quarter to 99 for the December quarter. Much of that improvement is speculated to have been a result of the Federal Elections getting done and dusted.

Paul Braddick, ANZ Head of Property Research, says that even with the small improvement, the result shows respondents are not overly confident with the economic outlook for the ACT.

“This result reflects the offsetting impact of a likely fiscal consolidation, following the change in government, weakening the outlook for office employment and office property in particular, and the recent surge in dwelling construction plans.”

New South Wales

Property prices up in flames in NSW?

It’s that time of the year again, when the weather heats up and bushfires threaten. So is it worth buying an investment property in a bushfire prone part of NSW? John Hilton finds out

When people think about summer in NSW, images of barbecues, beaches and cricket usually spring to mind. Sadly, in recent years, the time has also become associated with bushfires and properties reduced to ash.

In October 2013, NSW lost at least 248 buildings to bushfires, which burnt more than 100,000 hectares of land. The fires were particularly active in the Blue Mountains area, which was an unusual location for bushfires in that time of year. So now that summer has come and the danger has increased, what will happen to property prices in this region?

Professor Chris Eves from the Queensland University of Technology specialises in property economics and has studied the effects of natural disasters on property markets.

Eves says that after a heavy fire, there is always an immediate and significant effect on property prices. He believes this is different from other natural disasters such as floods, which tend to lose their major visual indicators of damage after a couple of weeks.

“With a bushfire and particularly when we are talking about areas like the Blue Mountains which is predominately timbered, that visual reminder can remain for up to two or three years,” he says. “And there is also a link between the amount of media coverage an area gets and the impact on values.”

The other connection that Eves found is that loss of life through bushfires had more of an impact on prices than loss of property.

Northern Territory

Peaking or plummeting?

As Darwin property prices continue their impressive run of price growth the question mark hanging over the market is the same as it has always been: how long can the good times last?

They call it ‘Boganomics’. It’s this idea that a fundamentally bogan thing to do is invest in a market when it is at the peak of a major growth period, only to sell when the market hits the bottom of a subsequent period of price falls.

In a word, Boganomics is unwise. And for Darwin – on paper, at least – it is starting to look like investors who enter the market now could risk doing what the first part of Boganomics suggests.

On some measures, growth in the market shows signs of peaking.

“Darwin is probably the only city where lower interest rates haven’t seen a commensurate effect on affordability,” says BIS Shrapnel residential researcher Angie Zigomanis.

Zigomanis adds that a boom in the gas production sector has been responsible for much of Darwin’s strong property price growth up until now, but many of the once drivers of that growth are changing.

“The Inpex gas project had a big impact on rental stock and rental levels, but on most levels of affordability the market is starting to strain,” he says. “I think we’ll see okay demand, but I don’t think it’s enough to drive strong price growth… There are factors pushing up and factors pushing down.”

Australian Property Monitors senior economist Andrew Wilson agrees that affordability is an issue for the Darwin housing market, but urges investors to keep in mind a unique attribute of the Northern Territory.

Normally, growth in markets tends to stall when prices become too far out of reach of the majority of buyers, Wilson says, but this affect can be negated somewhat if there is a shortage of property.

“Darwin has a seasonal price cycle,” Wilson says. “It gets a lot of activity in the dry season, which tapers off during the wet. This acts as a disincentive for the supply of new properties, so there is often a shortage of supply.”

This leads Wilson to conclude that Darwin housing’s affordability issue – even if does cause a slowdown in demand – could be balanced out by a low supply of new properties over the short-term.

Queensland 

Brisbane’s road ahead

A number of competing forces in the Queensland economy and property market make 2014 a hard year to call, but forecasts are leaning more to this year being a positive one – and here’s why

In 2013, Australia’s two largest cities, Sydney and Melbourne, saw the biggest response from a lower interest rate environment. 2014 looks likely to see the country’s third largest city, Brisbane, caught in a game of catch up.

Australian Property Monitors senior economist Andrew Wilson says that property prices in the city have plenty of room to grow and he expects Brisbane to be one of the year’s strongest performing markets.

“Factors are lining in favour of strong price growth prospects for Brisbane property prices. We’re not talking double figures here, but Brisbane is a standout in terms of house price growth next year,” he says.

Equally optimistic is BIS Shrapnel’s head of residential research Angie Zigomanis. “[Brisbane] is probably where we saw Perth two years ago,” Zigomanis says, adding that pent up demand pressures mean it is only a matter of time before more residents start buying property.

For Zigomanis, the only potential worry point for the market is the current economy, which remains ‘soft’.

“Overall, the Queensland economy is still weak,” he says. “Unemployment rates are higher in Brisbane and Queensland than they are elsewhere on the eastern seaboard.”

Zigomanis adds that job losses resulting from Premier Campbell Newman’s fiscal consolidation measures have made people worry about their employment prospects.

“People are wary… Until you start seeing concrete signs that things have bottomed out and they are starting to improve, people won’t head back into the market.”

South Australia

Too flat for comfort?

The eternally calm and steady nature of the SA market should be attractive to those looking for the rewards that come from stable, long-term investments.

When looking at the Adelaide property market in the company of Sydney or Melbourne, it is easy for the elegant “festival” city’s market to suffer in comparison. Much like a swan, it glides along sedately, apparently untroubled by turbulence – but rarely recording the crazy highs that generate buyer zeal.

Newly-elected REISA president Ted Piteo says it is unlikely that SA will see the sharp spikes that NSW has seen of late, because the market just isn’t like that. “We don’t have the same peaks and troughs – or volatility that other markets do.”

This means that he, like many commentators, expects that Adelaide’s market will record small growth over the next 6+ months, but it will not be in the realms of the growth recorded by other capital cities.

The latest APM Housing report found that, over the last year, Adelaide had a modest 2.6% growth. The fact that the market has been flat and quiet for some time means any growth is welcome and significant. Most commentators point to a figure of around 2-3%, and Piteo believes it will be better than 2%.

Over the last few months, REISA has recorded significantly more action from buyers. There is now an increasing shortage of properties to sell and, while the backlog of supply is being cleared, it is not being replenished.

Buyer habits are changing, and average property turnover has moved from 7-8 years to 9-11 years, Piteo says. “With people holding on to their properties a lot longer these days, the market simply doesn’t have the sort of turnover it used to have.”

This situation has the potential to lead to buyer completion and an increase in Adelaide property prices.

In the meantime, it is the city’s affordable prices which are one of its draw cards for investors. RP Data gives the current median house price as $388,000 and the median unit price as $325,000.

As the most affordable of the mainland states, SA and Adelaide is a worthwhile market to invest in. Taking a long term perspective is key to the market, Piteo says. “It is a market which is good for investors who are interested in the medium to long term. It’s not so good for short term speculators.”

Not only is property affordable, but there is easy access to the market and good infrastructure is in place, he continues. “Adelaide is a great place to live and buy. The lifestyle is fantastic. Traffic congestion is not an issue.  It’s an excellent market for investors prepared to hold.”

However, the latest Herron Todd White report questions why the Adelaide market has remained subdued throughout 2013 –when there are record low interest rates, affordable prices and low levels of stock available.

The report says it continues to feel as though the market is in the early stages of recovery, yet nothing further is happening. It speculates that property owners are not game to face the market and are holding out until selling conditions improve, while buyers facing limited choice remain uncertain and unwilling to commit.

Tasmania

Early revival signs?

The state government’s recently announced boost to the FHBG is just one ingredient in the formula necessary for revival of Tasmania’s property market.

Recent property news from the Apple Isle has been dominated by the state government’s announcement of a significant increase to its first home buyers grant. The FHBG is now a generous $30,000 (up from $15,000).

Premier Lara Giddings says the “turbo-charging” of the incentive, to an amount equivalent to a deposit, is intended to dramatically stimulate activity and job creation in the building industry.

Property market professionals and commentators alike have greeted the move positively, with many expressing hope that it would prompt migration to Tasmania.

However, some have warned of the potential for unwanted side-effects. For example, the incentive might push up prices in the long term and could also lead to a lack of movement in existing properties at the bottom of the market.

According to Rob Zubin, from My Property Hunter, the government is trying to generate some economic activity in the property market, but the incentive might not achieve as much as hoped.

The premier hopes that people from all over Australia will move to Tasmania and buy property but, in order for that to occur, there are other things that need to happen to, he says. “Basically, Tasmania needs more jobs and more economic activity. Because, realistically, if you are wanting to buy property you need an income.”

Despite a slight recent drop in the state’s unemployment rate, it still sits at 8.2%. Meanwhile, the latest APM Housing report has Hobart’s unemployment rate at 6.4%. These figures remain a significant barrier to sustained housing market activity.

Victoria

Is Melbourne too expensive for investors?

The property boom in Melbourne is pushing up housing prices and pushing out first home buyers and low income investors. What are governments doing (or not doing) about this issue?

It’s no wonder Melbourne regularly features in ‘best city in the world’ lists. The Victorian capital has exceptional food, arts, infrastructure, education and sport, not to mention one of the world’s best coastal drives.

It’s also no wonder that in this climate of low interest rates and high consumer sentiment, demand for housing in Melbourne has increased substantially and doesn’t look like heading south any time soon.

Consequently, property prices have increased which may be good news for investors already owning property in Melbourne, but for first home buyers and low income investors looking to buy, it’s not what they want to hear. Indeed, the latest figures by RP Data show that prices are up by a strong 8.2% over the year.

And if anything, recent decisions made by both the Victorian state government and the federal government look like doing anything but turn things around.

For example, the Napthine government’s metropolitan strategy for Melbourne could limit housing supply and unintentionally push up prices. The strategy, titled Plan Melbourne, involves councils choosing what areas they think are appropriate for high-density development. With some council potentially choosing limited areas, this may result in housing cost increases.

Caryn Kakas, Property Council of Australia Executive Director, says that Australians have not been happy with how state and federal governments are responding to the issue of housing affordability.

“An Auspoll survey last year revealed that 84% of Australians rated housing affordability as a critical issue. Yet, less than 16% thought governments were doing a good job on the issue,” says Kakas.

Western Australia

Cooler summer?

Perth’s property market could be starting to slow, but that is not necessarily bad for the city’s long-term prognosis.

Slowing, growing, or changing – that is the question. There seems to be mixed views on what exactly the Perth property market is up to these days, and what it might do in the immediate future. While some commentators believe growth is tapering off, others believe that is simply not the case.

After a sustained period of price growth, Perth’s housing market continues to show signs of flattening, according to the latest APM Housing report. It notes that Perth’s median house price remained steady over the September quarter and its median unit price fell by 2.9%.

However, it also notes the median house price rose by 8.6% and the median unit price by 6.6% over the year ending September.

The September quarter sales figures did record a slight drop in turnover, REIWA president Dave Airey says. “But those figures even out over the year. Those September quarter months were cold and wet and that affects sales. Figures in both October and November swung back up strongly.”

For example, there was a 9% lift in sales activity in October with an increased share in the central part of the Perth market. The 15% increase in more expensive near-city sales subsequently pushed the median price up by 1.9% to $520,000 for the three months to October. There was also a 7% lift in listings over that month.

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