National Property Report – June 2014

New South Wales

Investors eye government plans to sell off the ‘Hungry Mile’

As state and local governments prepare to put a number of surplus real estate assets on the market, property developers and investors are set to benefit from what could become a state-wide governmental sell-off.

Prime waterfront real estate in the Sydney CBD and the Illawarra could be sold off by NSW state and local governments, along with other ‘surplus properties’ located at Macquarie Park and Ku-ring-gai, both near Sydney.

The predictions have property developers and investors salivating at the thought of such prime NSW real estate coming onto the market.

Spearheading the initiative is a state government move to sell off its multimillion-dollar real estate at Sydney’s Millers Point, currently home to 293 government housing properties, as well as 79 apartments at the Sirius block located at the Rocks.

The properties are some of the area’s most cherished heritage assets, built in the early 1900s as social housing for wharfies, and often referred to as the ‘Hungry Mile’ during the Great Depression due to the lines of unemployed men that would line the street looking for work.

While about 400 government housing tenants will be displaced due to the sell-off, the move could provide a coup for individual developers and cashed-up investors.

Urban Development Institute of Australia CEO Stephen Albin believes it would be difficult to increase density or create major developments due to heritage restrictions, therefore investors likely to be interested in the Millers Point sites would be cashed-up investors willing to adhere to heritage orders.

“We’ve seen some of Millers Point and the Rocks sold off already by government, and it was those individual investors, usually families or couples, buying into the market.”

The Millers Point properties, some with 99-year leases, are already being sold for between $2m and $3m each, and it is expected that more dwellings will be put on the market, this time with freehold titles.

David Servi, director of Spencer & Servi First National, says that while historically sales in the area have been limited, should an additional couple of hundred dwellings come onto the market and be sold, value across the entire area will increase.

“Historically, the biggest challenge in terms of valuation has been finding comparable real estate – valuers have needed to look at areas like Glebe and Potts Point for comparable sales,” he explains. “But this would be a renaissance for the area, and one of the biggest investment opportunities the area has seen in a long time.”

While each government dwelling is different, Servi says his agency has recently sold government-owned properties at price tags reaching $2.3m, excluding any required renovations.

He says some buyers are then spending up to an additional $1m on overhauling the properties, with an expected rental yield of about $2,000 per week on completion.

It has also been reported that 4ha of prime commercial real estate at Waterloo Road, Macquarie Park, located 16km northwest of the Sydney CBD, will also be put on the market by the state government, with development juggernaut Meriton expected to be the frontrunner for the purchase.

While Meriton would not comment on the site specifically, the company did say it “anticipated strong developer interest in these potential land sales”.

Investors could expect Meriton to offer units for sale either as owner-occupier residential or as serviced apartment investments.

Still near Sydney in Ku-ring-gai, local council is also believed to be considering selling its Gordon Golf Course site to make way for new community infrastructure and a housing estate, while south of Sydney a Wollongong councillor has recommended three of the area’s waterfront land parcels be put up for sale by the government. Land at Cliff Road, Port Kembla’s Hill 60 and Bellambi Point would be included in the sale, which is currently home to government housing properties.

So is this the start of a state-wide fire sale, or is it just coincidental timing? Albin is reluctant to call these types of sell-offs the start of a fire sale, indicating land being sold under value, but he does believe the government is reacting to a shortage of land in Sydney.

“These land parcels are dead assets to government and they want to capitalise on that and get the best price possible,” he explains.

Albin says investors also need to be aware of how government is using the money earned from sales. “With these sales a lot of the money is going into the housing acceleration fund which is paying for new infrastructure, which in turn is creating economic growth,” he says.

Some examples of these investments are upgrades to Camden Valley Way and the north and southwest rail corridors.

“The sales are being used to improve infrastructure, but what it’s also done is stimulate the market for housing as well, and by putting the infrastructure in there’s a whole lot of new developments, especially in the southwest and northwest, that are coming on stream because it can be accessed accordingly.”

Victoria

Transport overhaul set to fuel demand for outer-ring suburbs

Ask any property investment expert and they will tell you how important infrastructure is when it comes to property value. In Melbourne it is no longer just Crown Casino upping the ante, but the Napthine Government, as the city becomes a leader in rail and transport infrastructure

They’re calling it a $100m transport revolution – a Labor-backed plan by the Napthine Government to cap maximum daily fares at the Zone 1 rate across Melbourne’s entire tram, rail and bus network from the start of the year.

The plan, which would also see CBD and Docklands trams become free of charge, was recently announced ahead of the upcoming Federal Budget release. The transport overhaul, expected to be carried out regardless of the current government’s longevity, means commuters from Melbourne’s outer suburbs could save up to $1,200 per year.

According to Real Estate Institute of Victoria CEO Enzo Raimondo, improving the accessibility and affordability of public transport is considered beneficial for home buyers and residents and is likely to have a positive impact on the property market in Melbourne.

Potential growth areas

Those keen to invest their dollars in the Melbourne market should also keep an eye on the suburbs of Brunswick (Jewell Station), Hampton and Alphington.

The suburbs have been identified as potential growth areas due to a recent announcement that government-owned transport authority VicTrack has selected the sites as part of a $1bn direct investment in the Station Precinct Enhancement Program.

The VicTrack program aims to make use of underutilised government land to significantly improve railway stations, along with providing a mix of housing, retail, commercial and public spaces for the surrounding communities.

Raimondo says he expects the program to deliver a number of new development sites, which would most likely lend themselves to the construction of apartments.

“The projects, which will be close to train stations, provide a point of differentiation from other developments that would be competing for tenants. One of the features that tenants look for is access to public transport, which is easily achieved by development on these sites,” he says. “Provided there is good design, especially for noise insulation, the developments could be very attractive to tenants due to their accessibility.”

The projects are expected to create more than 3,000 direct project delivery jobs, and 5,000 indirect jobs through construction. Once completed, they will also have the potential to support over 800 full-time commercial and retail jobs.

Economic modelling undertaken by MacroPlan Dimasi, has shown that the 10 sites identified for potential development will facilitate more than $1bn in investment opportunities over the next three to five years, and $5bn in economic stimulus.

Other areas identified as potential sites for the program include Essendon, Windsor, West Footscray, Collingwood, East Richmond, Ringwood and Watsonia.

Outer suburbs not forgotten

Investors keen to make the most of affordability in the outer areas of Dandenong and Gippsland should also add Dr Napthine to their Google alert, Facebook and Twitter accounts in anticipation of yet another major rail announcement.

According to the transport-focused leader, under his watch overdue upgrades to boost rail capacity on the Dandenong and Gippsland lines will also happen within the decade, along with a rail link to Melbourne airport.

‘’Let me absolutely assure you, our government is committed to rail projects to enhance rail capacity through the centre of Melbourne, to boost rail capacity on the Dandenong line and the Gippsland line. We need it; it is essential,” he recently announced at a Property Council lunch.

Raimondo says these types of projects will benefit all home buyers – property investors and owner-occupiers.

“For investors, properties located in these identified areas are likely to be highly rentable as they are close to transport, which is a key requirement of many tenants,” he explains.

“They also lend themselves to owner-occupiers looking to break into the property market, as they may well come on to the market at a range of price points, which will lend themselves to this market.”

Queensland

Market revs up as sentiment improves

Queensland is experiencing a dramatic turnaround in fortune amid rising confidence and improving fundamentals

A dramatic turnaround in fortune is not far off in Queensland, particularly in Brisbane, which is currently experiencing intense interest from interstate buyers.

According to the latest RP Data-Rismark Hedonic Home Value Index results, Brisbane recorded a 1.5% increase in dwelling values over the quarter to 31 March. The capital city’s median dwelling price is now $435,000.

But even better, Rismark’s managing director, Ben Skilbeck, says Brisbane’s performance is worthy of note, “given this market remains 5.2% below its previous peak and has one of the best rental yields of the capital cities”.

The strong rental yield looks set to get even better with the recent Real Estate Institute of Queensland (REIQ) report showing vacancy rates dropping significantly during the past three months in Greater Brisbane areas after increasing during the last quarter of last year.

“Queensland is seeing a return to a tighter rental market,” says REIQ CEO Anton Kardash. “Stronger tenant demand and a decrease in the availability of stock are the common themes across the state.”

RP Data’s research director, Tim Lawless, adds that Brisbane is likely to be the market to watch. “Compared with the other major capitals, Brisbane dwelling values have recorded a much softer performance despite a lift in buyer numbers and the strong yield scenario.”

Even SQM Research’s Louis Christopher, who once described the Gold Coast market as a “basket case”, with overvalued housing, an oversupply of stock, too many dodgy spruikers and a “one trick pony” local economy, has changed his tune. He recently released a positive report on that same market.

Queensland is a large and diverse state and is made up of many varied markets. Not all of those markets are currently experiencing great fortune. In fact, some are still at the bottom of their cycles and, thus, still struggling. But there is little doubt that the tide has turned and a recovery is underway.

This scenario is somewhat overdue in the view of many. The 2011 floods are said to have had a negative impact on Queensland’s markets and delayed recovery. This means the current positive environment is being particularly well received.

Michael Matusik, from Matusik Property Insights, says the recovery will not be as strong as past upturns – although the fundamentals, like population growth and vacancy rates, are good. This is because there are some affordability issues, even though wages are relatively high.

As a result, in Brisbane more people are renting, rather than buying. There are also increasing numbers of tenants choosing to share rental accommodation. All of this impacts on the market generally.

Matusik believes the recovery will be in terms of sales and saleability, not necessarily prices. There will be price growth, he says, but not of the 20%-plus type; it will be more of the 5–8% type.

“This should continue for the next 12 months. It will probably repeat in the 2015 year and then the market will peak, in terms of recovery and upswing, in mid to late 2016. Then it will be back in the decline phase again. That is the way it goes.”

In the meantime, he hopes the market won’t overheat. Parts of the Brisbane market – notably the city apartment market where sales are up and price growth is high – are already hot. He says this means investors should tread with caution in this sector.

Western Australia

Another boom in the offing?

WA looks set to launch yet another industry boom, with property development poised to take the baton from what was once a dominating resources sector

Last month we spoke about the possibility that WA was tipped to become one of the country’s leaders in property development. Since then industry speak has added fuel to the fire with further predictions that our western state is set to ignite the market for property development in Australia.

According to economic forecasters BIS Shrapnel, approvals for new dwelling developments have increased exponentially of late, breaking records across the state.

BIS Shrapnel associate director Kim Hawtrey says total dwelling commencements in WA have surged by 38% over the past 12 months to reach 25,600. The multi-residential sector has posted the strongest growth (49%) while detached houses have also increased (35%), reaching almost 20,100 commencements.

“Urban renewal projects in inner Perth provided a sizeable boost to high-density starts and will continue to feed the pipeline over the forecast period. Strong growth is also being experienced in the medium-density sector,” Hawtrey explains.

Regarding potential development boom areas, Hawtrey names Bunbury, Esperance, Albany, Mandurah, the Goldfields and the Wheatfields as areas that would benefit most from residential development.

“Western Australia is already exhibiting a sizeable housing stock deficiency which will maintain pressure in the property market and promote new residential building activity,” he says.

“As prices rise in Perth, the natural effect is for buyers to look beyond the main metropolitan area for housing that is more affordable.

“This will drive development in places such as Bunbury, Esperance, Albany, Mandurah and Wheatfields regions. Activity will spill over from Perth into these surrounding regions. Improved transport links to these areas will also contribute to growth.”

He says the Goldfields will also experience a rise in value because they are coming off a very low base, post-GFC.

“In Goldfields, although work is expected to wind up on the Super Pit and Tropicana mines in 2014, two other gold mine projects are set to commence and these will continue to support demand for housing.”

According to Hawtrey, the demand for new dwellings is being driven by two factors: high population growth and strong investor demand.

“Australia’s population growth rate is running at a vibrant 1.8%, which is amongst the highest in the advanced industrialised world,” he explains.

“This reflects a pick-up in net overseas migration flows attracted by Australia’s mining boom and stable economy. After averaging an impressive 200,000 persons per annum from 2009 to 2012, net overseas migration picked up even further to 244,400 persons in 2013. This historically strong pace is creating a housing stock shortfall and supply is responding.”

Ripe for another boom

Real Estate Institute of WA spokesman Joe White also agrees the state is set for another boom on the back of skilled labour and efficient industry, so long as government does not get in the way of land supply.

“WA deserves to be a boom state because we have taken risks and deserve it,” he says.

“The fundamentals of the Western Australian economy are built on efficient mining, efficient agriculture and efficient industrial development, rather than on subsidised mendicant, and boom economies need skilled personnel. If you don’t encourage it at all levels, the price of these personnel will rise to a point where wage costs make us inefficient and we cease to become an attractive place to invest money into.

“Housing costs are part of the same efficiency equation; government needs to encourage, not discourage, land supply or we will kill the goose which laid the golden egg.”

With the WA property cycle now at one minute past midnight, White believes the focus needs be on ensuring land supply is available to developers.

“Our greatest threat is becoming a victim of our own success because we continue to stuff up and frustrate land supply as we did in Karratha and are now doing in Onslow,” he explains.

“On one hand we encourage people to come, and on the other, the inability of government to get out of the way of land developers is doing everything it can to drive them back home.”

South Australia

SA market on the mend

Election drama may have caused a certain lull in SA’s market, but the capital city has bounced back encouragingly – followed by a number of the state’s regional markets

Elections have a way of stalling life and the events surrounding them. It was no surprise then that SA’s property market slowed over the course of the state’s recent dramatic election campaign.

Following the cliffhanger election – which delivered 23 seats to Labor, 22 to the Liberals and two to the Independents – it took another week for a government to be formed. Although Independent MP Geoff Brock’s eventual decision to support a Labor minority government resolved the situation, uncertainty reigned for a while.

During this period, Real Estate Institute of SA (REISA) president Ted Piteo expressed his concerns about the situation and its potential effect on the market. He also noted that property had not been a particular campaign issue for either party. However, the capital city’s market itself seems to have sailed through the uncertainty and industry concerns with flair.

According to the latest RP Data- Rismark Hedonic Home Value Index results, Adelaide recorded an increase in home values of 1.4% over March and 1.2% over the quarter ending March 31. This has left the city’s median dwelling price at $390,000.

RP Data figures also reveal that auction clearance rates, which traditionally don’t make up a big proportion of Adelaide sales, have increased noticeably in recent times.

Further, a number of commentators report that confidence in SA’s capital city market is increasing. This is due to a number of factors, including affordability, healthy rental returns and a certain shortage of good property.

It is not just Adelaide’s market that is displaying positive indicators; REISA regional market representatives have also reported that markets in their respective cities are showing signs of growth.

Tasmania

Market continues to strengthen

Tasmania’s property markets may be arriving late to the growth party, but indicators show that they are finally getting there – despite the state’s ongoing economic struggles

Some are fashionably late, some terminally late to parties. In the case of Australia’s property market growth party, the Apple Isle’s lack of punctuality fits into the latter category. But the good news is that Tasmania’s property markets are finally eligible for entry to the party.

According to the latest RP Data- Rismark Hedonic Home Value Index results, Hobart recorded a growth of 4.7% in dwelling values over the quarter ending March. While it is still the most affordable capital city, it leaves Hobart’s market with a median dwelling price of $338,000.

Andrew Wilson, of Australian Property Monitors, says without a doubt property markets across Tasmania are more active, in common with housing markets around Australia. “It is not surprising Tasmania is a little late to the party, though: economically, Tasmania and Hobart are underperformers.”

Ongoing economic issues will continue to be challenging for the state’s property markets. Tasmania’s economy has suffered a decline over a long period of time and, as a result, it has a very subdued economy now, Wilson says.

“Tasmania doesn’t have a lot of factors to drive it and the problems are structural, including its high unemployment level, which needs to be reduced. But the lower dollar is good for Tasmania’s economy, particularly in terms of export markets and tourism.”

Despite the state’s broader economic performance issues, its property markets are poised to improve – thanks to the impact of historically low interest rates finally flowing through, affordability and, at least in the short term, the change of government.

Wilson says that while there are still some confidence issues that need to be overcome in order for the state’s markets to really move forward, there is continued and growing energy in those markets.

“Inevitably, the affordability of the market is a key driver in market growth and, in turn, improving confidence,” says Wilson. “When prices reach a certain low point, they activate the market. It’s all about perceptions that property is undervalued.”

Contrary to some other commentators, Wilson believes that the performance of the North Tasmania economy and property market is generally better than that of Hobart’s.

However, all of the state’s markets – particularly Hobart and Launceston – are improving and will continue to do so. The market overall has moved from being about 8% below its peak to about 3% below now. This means that even Hobart and Launceston are about to reach their previous price peaks.

For the Hobart market, the quarter ending December 2013 encouragingly showed the most growth since 2010, Wilson says.

“There are now a lot more opportunities and, crucially, confidence in the market. And the new growth in the last year reflects that. Hobart is the last capital city to make it to the party, but the coming year will be significantly better for its market.”

Impact of FHBB initiative

The latest Herron Todd White report notes that, while Tasmanians might like to boast about the First Home Builders Boost initiative, it is actually too soon to tell what its impact might be.

The FHBB initiative is scheduled to end at the end of this year, but Wilson believes there is room for more. This is because new builds tend to drive both the surrounding industry and market demand – and seem to go down well in the Apple Isle.

“Hobart and Launceston don’t seem to have the same sort of spread of new build development that Sydney, Melbourne and Brisbane have. This means that FHBs are happier to buy new because there isn’t that same dislocation on the fringes that you see elsewhere.”

Election outcomes

Meanwhile, the Liberal Party’s election victory will bring a stable government to Tasmania, which will benefit property market participants, according to Real Estate Institute of Tasmania president Adrian Kelly. He expects confidence in Tasmania’s real estate to strengthen with the election outcome. The fact that the new government is a majority one should provide greater consistency.

The ongoing issue of Tasmania’s many different planning schemes, and the resulting inconsistencies, will also be addressed by the new government, Kelly says. This is because pre-election all parties acknowledged that the complicated planning system was a problem that needed to be dealt with.

Property Council of Tasmania executive director Mary Massina welcomes the new government’s commitment to cutting red and green tape and taking a more ambitious approach to job creation.

Australian Capital Territory

Canberra lags behind other capital cities

While the other capital cities are seeing stronger performance in general, Canberra continues to languish

The good news for the ACT is that unemployment has been down in recent months; the bad news is that the state continues to lag behind other capital cities in house price growth and sentiment.

RP Data figures show that during the 12 months ending March 2014, Canberra house prices rose a paltry 2.8% compared to the 11% growth of the combined capitals.

Rents are also falling in the capital. During the past 12 months rents fell by 6.2%, according to Australian Property Monitors (APM). Andrew Wilson, APM senior economist, says the ACT market is struggling for traction, and local economic issues through public service job shedding have acted as an impediment to house price growth over the past two years despite significant improvement in affordability through slashed interest rates.

“ACT continues to be the slowest growing of all capital city markets, with subdued confidence also an impediment to recovery,” he explains.

“At current growth levels ACT will be the laggard of all capital city markets in the cycle, with prices still hovering around levels of four years ago by mid-year.”

In a recent pre-budget submission to the Federal Government, the Property Council of Australia – ACT Division also confirmed that the state continues to have the lowest investment sentiment of any mainland state or territory.

The submission cites concerns that reform action and spending priorities are not being taken to best suit objectives, and of special concern are “disincentives to investment and development hindering potential growth and undermining the future prosperity of Canberra”.

Northern Territory

FIFO rules the market

While Darwin is no longer achieving the eye-popping growth it racked up in recent years, it’s by no means out of gas

Thanks to its strong economy, FIFO workers and an undersupply of property, the outlook for Darwin’s property market continues to be strong, despite its slower growth compared to Sydney, Melbourne and Perth.

According to the March figures of the RP Data-Rismark Hedonic Home Value Index, Darwin’s dwelling values grew by a meagre 3.8% compared to Sydney’s 15.6% and Melbourne’s 11.6%. Compared to its peak, values have actually fallen by 5.1%.

However, this is no reason to panic, given the territory’s strong economic fundamentals. Darwin still has one of the country’s strongest economies and lowest unemployment rates.

Australian Property Monitors’ Andrew Wilson says the property market is currently driven by the FIFO workers who are now an integral part of the Territory’s growing mobile workforce. “They are driving the ongoing high demand for property – both to rent and for purchase,” he says.

Given Darwin’s chronic undersupply of property, which is a major structural issue for the market, this means the city now boasts some of the highest house prices in Australia. In fact, the RP Data-Rismark index results show that, with a median dwelling price of $547,000, Darwin is second only to Sydney.

This underlying dynamic also means the city has a strong rental market with a low vacancy rate. According to the RP Data-Rismark figures, Darwin houses (with yields of 5.9%) and units (with yields of 6.2%) offer the highest rental yields in the country.

While Darwin’s small market means it could be volatile and difficult to measure, Wilson says “the impact of the FIFO workers is quite extraordinary and it keeps that underlying demand for property ticking over”.

The medium- to long-term outlook for Darwin therefore remains positive, Wilson says. “It is a market on its own. But it is difficult to see how its prospects could fail to be good when the strength of the city’s economy, combined with the shortage of property, is taken into account.”

Construction boom

Meanwhile, the latest Herron Todd White report notes that the city is going through a residential housing construction boom. It says there are “cranes in the CBD, tradies as far as the eye can see, and heavy machinery creating new sub-divisions daily”.

This construction activity has been prompted not just by the undersupply of available property but also by the high median property prices that now characterise the market. The report says it is often far more cost-effective for market participants to look towards building a property.

Wilson says that, when there are high levels of construction activity in a market, there is always a risk that the market will move ahead of the underlying demand. However, he thinks the unique combination of factors currently at play in Darwin should prevent that from happening.

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