National Property Report – May 2017

NEW SOUTH WALES

Supply shortage drives heavy demand in Sydney

The crackdown on funds for property development limits housing development for the near future

Due to considerable population growth in urban areas, high auction clearance rates and an active lending environment, Sydney’s growth trend is expected to continue.

“There is still a shortage of supply, particularly in Sydney, so demand is outstripping supply,” explains founder and director of Meriton, and property investor and developer Harry Triguboff.

“The banks have cracked down on property development finance, which makes it more difficult for smaller developers to access funds for an upcoming project. This means there will be less development and inevitably less housing coming onto the market over the coming years.”

Stockland and Mirvac developers predict that the rate of price increases will slow down, according to David Naylor, co-founder and non-executive director of Chan & Naylor Partners, property tax specialists.

Nonetheless, “sentiment in the market is still strong,” he says.

Ken Morrison, chief executive of the Property Council of Australia, adds that the confidence of buyers in the state’s economic performance is another huge factor in Sydney’s success.

“We see in NSW a strong surge in confidence underpinned by expectations for economic growth, housing, forward work expectations as well as confidence in the government itself,” he notes.

Growth may slow

The aforementioned factors are expected to see the suburbs in the east through the first half of 2017 and sustain this region even as the growth rate slows.

“Detached houses around $1.5m to $3m, and units up to $3m are predicted to have a slower growth than in the previous years,” states the Herron Todd White Month in Review report for February 2017.

“As the eastern suburbs have had a strong three years of growth recently, there does not appear to be any suburb with an affordable price point.”

While demand builds for the detached housing market, the story for units is quite different in some parts of the metro area. Rental returns are falling and borrower costs may be rising in the inner west, which is contributing to apartment oversupply.

The construction of small, low-quality units aggravates this issue. However, improvements to the local infrastructure have helped to add value to this region, such as the establishment of the Inner West Light Rail, which enhances access to the CBD.

Beyond the boundaries of the metro, outer-western Sydney is looking to sustain long-term demand with the Badgerys Creek Airport, the Sydney Science Park and the expansion of Parramatta. However, these efforts could be hindered by unit oversupply, bank-imposed interest rate increases, dampened interest from investors as a result of low yield, and changes to government regulations.

Renters become buyers

With affordable housing supported by low interest rates, long-term tenants in western Sydney have been emboldened to become buyers. This is to the detriment of the rental market, as the resultant vacancies have generated an oversupply of properties for lease.

“With rental yields currently at circa 4% in areas such as Wilmott and Blackett, other areas like Blacktown are experiencing yields as low as 3%. These tight yields are mostly on the back of a soft rental market and as such may deter investors,” Herron Todd White states.

In the process, many investors are also turning south to Wollongong, which offers greater bargains than Sydney.

“[Our buyers] are mostly from western Sydney selling for great prices and making a sea change at a still very affordable price,” says Jason Hines of Peter Fitzgerald Real Estate.

For Rich Harvey, founder and director of propertybuyer, Wollongong’s beaches and proximity to the NSW capital are major factors driving its attractiveness, since it has been caught in the ripple effect of Sydney’s growth.

VICTORIA

Growth remains solid for Melbourne

Economic strength sustains the property market

In continuing a nearly decade-long trend, Melbourne reports the second-highest annual growth rate out of all the capital cities, according to CoreLogic.

Population growth is a significant factor, as the capital accounts for the majority of the population increase in the country, along with Sydney.

A significant portion of overseas migrants also chose to make their way to Melbourne in 2016, increasing property demand, especially in the CBD.

As with Sydney, however, the growth is expected to slow down over 2017.

As values rise, more and more buyers may be priced out of the city, especially if lending policies are tightened in response. Moreover, many lenders are increasing interest rates independently of the RBA’s decisions, which could affect mortgage refinancing activity.

Nonetheless, Ken Morrison, chief executive of the Property Council of Australia, sees good things happening in Melbourne’s future.

“We are seeing consistent and strong growth expectations across Victoria,” he says.

First homebuyer activity affected

For those buyers on a budget who are seeking homes located within 15km of Melbourne, the options are becoming limited. Braybrook and Coburg North are good options, since some houses can be found for lower than $800,000. Those with deeper pockets can look into Footscray or Preston, with houses priced up to $900,000.

Preston, in particular, is a quick seller along with Reservoir, according to Tony Lombardi, director of  Harcourts. Nearby Thomastown, which lies roughly 17km north of Melbourne, offers houses for the median price of just approximately $500,000.

Cate Bakos, a buyer’s advocate, highlights the western suburbs of Sunshine and St Albans. The former is currently undergoing gentrification and prices are increasing accordingly. However, the latter is stocked with houses in the $500,000 price range.

“I think the rate of change that St Albans will enjoy in maybe five years’ time could be similar to that of Sunshine,” Bakos predicts.

Options like this offer opportunities to first homebuyers who have been frustrated by the recent surge in prices. In fact, they have inspired an increase in the number of such buyers in Melbourne over 2016, according to the ABS.

They are moving quickly to snap up properties in the affordable pockets in anticipation of further growth; however, this activity is expected to slow down during this year and next. “It’s never been harder to buy your first home,” states Daniel Cohen, co-founder of First Home Buyers Australia. Factors playing into this include the slow rate of wage growth, increasing rent rates and tight lending policies.

Value growth could also prevent some first homebuyers from becoming eligible for stamp duty concession.

QUEENSLAND

Brisbane buyers look to the inner city

Long-term buyers could benefit from buying at the right time, place and price

Regarded by Herron Todd White as one of the most forgiving capital city markets, Brisbane is a city that many buyers are looking to for their next investment.

“There are very few disappointed long-term buyers in our Sunshine state’s big city, provided they’ve stuck with the fundamentals and bought the right property in the right position at the right price,” Herron Todd White states in its February 2017 Month in Review report.

“With this historic performance as a foundation, there are opportunities to get into the Brisbane market and hold tight that will leave you feeling very satisfied with your decision, come a market cycle or two.”

Several popular café suburbs are commanding high prices at present, including Paddington, Bulimba and Woolloongabba. Modest detached housing rarely comes with a price tag lower than $700,000.

However, it is important that buyers, especially investors, continue to take quality into account, to ensure the property attracts good tenants. The median weekly rent in the city has been consistent at $450 – and demand has kept this rate afloat to date, but inner city apartments are starting to feel the impact of oversupply concerns.

Nonetheless, Brisbane must still surmount the issue of low interstate migration levels as a result of limited job opportunities. Thus far, the state’s economic situation is not set to attract new residents, and this could lead to oversupply as new stock continues to enter the market.

Infrastructure drives regional suburbs

Affordability continues to define Brisbane’s property market, and the benefits of the low prices have trickled through to the middle-ring suburbs, with growth predicted in Kedron and Wavell Heights. These areas outside the metro are expected to become more popular with those people who have been priced out of Brisbane city.

The property market in the fringe suburbs has also been remarkably active, with investors looking into house-and-land packages.

Meanwhile, the establishment of facilities and infrastructure in the western corridor approaching Ipswich has brought new life to the region.

Areas beyond the metro are also experiencing a resurgence, with Toowoomba being primed for major development. Current projects include the Toowoomba Second Range Crossing and the extension of the Grand Central Shopping Centre. The northern end of the Gold Coast is presently being regarded as a growth corridor, with new estates coming in. It has been supported by recent developments, including the upgrade of Exit 54 and the near-completion of the new Westfield shopping precinct, Coomera Town Centre.

The western section of the Gold Coast is also being spruced up for the Commonwealth Games, with road upgrades and the establishment of commercial facilities. In the southern part of the region, there is a proposal to improve accessibility through an extension of the light rail to the airport.

Rural suburbs inconsistent

In addition to being among the most affordable pockets of Queensland, rural areas are presently providing buyers with an option for a relaxed lifestyle as well as jobs in different industries.

According to Darryl Conroy, senior economist at Suncorp, one of these regions is Rockhampton, which is strongly supported economically by the cattle sector.

“I think we’ve had a number of years of fantastic sales,” Conroy comments.

However, while sales have been on the up, rentals in Rockhampton went down in 2016.

By contrast, rents in Townsville increased over the December 2016 quarter. The region also recorded slight growth late in 2016 following a tumultuous two years. “We’re starting to see stabilisation,” Conroy notes.

Meanwhile, property prices in the Mackay were freefalling in 2016 with the mining downturn, but began to recover near the end of the year. Thus, agents are now feeling more positive.

“The vacancy rate for rentals almost halved, which was a sign of people coming to town,” says Ben Chick, principal at Explore Property Mackay.

WESTERN AUSTRALIA

Perth market ready to recover?

Declines seem to finally be easing following the resources slump

Even though prices continue to drop in Western Australia, property experts have hopes for Perth’s recovery.

“After 2016, there has been a significant lift in inquiries and offers since Christmas,” says Geoff Baldwin, managing director for RE/MAX WA.

“Property prices are steady at the moment after having continually dropped for the previous few years and, although we don’t expect booming conditions, we do predict that the WA market will continue to strengthen as the year progresses, resulting in an increase in prices.”

Baldwin points out that investors from Sydney and Melbourne have been showing interest in WA.

“It wasn’t that long ago that Perth prices almost caught up to Sydney and were on a par with Melbourne. While we’re now a long way behind both those cities, history has a habit of repeating itself in real estate,” he says.

“Activity in a recovering market can quickly snowball so we won’t be shocked if there’s a buyer surge this year.”

Bargains attract first homebuyers

Some property experts may be adopting a positive attitude, but it’s important to also consider that the state is still struggling somewhat to get past the mining downturn.

“Western Australia is still coming to terms with the end of the mining boom, and confidence did slip back into negative territory,” says Ken Morrison, chief executive of the Property Council of Australia.

While confidence in Perth remains shaky, the property market is expected to stabilise by the end of the year. For Peter Peard, chief executive of Peard Real Estate, now is the time for buyers to get in on the action.

“We keep on saying we’re at the bottom, but it feels like we are at rock bottom. We’re now seeing some real bargain buying and the buyers are starting to respond and coming into the open homes,” he notes.

Factors that could entice many first homebuyers into the market include the increase of the First Home Owner Grant to $15,000 for new homes by the state government, and the waiver of stamp duty on purchases up to $430,000 for first-time buyers.

“There couldn’t be a better time to buy a new apartment or build a new home. Or if you’re looking to upgrade, then the bargains are there for the picking,” Peard says.

Stockland and Mirvac developers also report that price growth is weak to steady in Perth – thus, investors should be able to get reasonable returns on their property.

However, buyers still do have to exercise a degree of caution, especially when considering larger, affordable properties outside of the city, since regional areas – such as the southwest – continue to struggle.

SOUTH AUSTRALIA

Adelaide basks in positivity

A strengthening economy boosts the housing market

Following its gradual improvement in 2016, Adelaide looks set to maintain the positive growth of its housing market into the future. Gregg Harris, general manager of NAB Retail, credits this to South Australia’s burgeoning economy.

“High-performing hospitality and education sectors, as well as government announcements aimed at stimulating jobs and economic growth, have been influential in the house price increase,” he explains.

Nonetheless, the growth rate is expected to be slower than it was over 2016 because of unemployment rates that remain stubbornly high, and a weak commercial scene.

“Employment security, along with price levels, is one of the biggest constraints on South Australian buyer activity,” Harris notes.

Rental yields in the state are expected to drop as well, although they will remain higher than the average returns in Sydney and Melbourne.

A survey conducted by NAB Economics on industry experts’ thoughts regarding the local property market showed the opinions on South Australia improved significantly in the final quarter of 2016.

“While the survey results are not indicative of strong price gains going forwards for the local residential property sector, they also don’t suggest any declines,” Harris states.

The Property Council of Australia’s chief executive, Ken Morrison, also confirms that confidence in the state is increasing. Moreover, as per CoreLogic data, Adelaide looks set to maintain the previous year’s moderate growth trend.

Infrastructure boost

Infrastructure adds an attractive air to well-located suburbs, with projects like the Torrens to Torrens Road Project and the work on the O-Bahn tunnel helping the local economy by providing jobs and improving infrastructures.

The Darlington Upgrade Project will also improve access to Adelaide via the Southern Expressway.

In the Month in Review report for February 2017, Herron Todd White highlights Christies Beach and Seaford as affordable options for buyers. These suburbs are near Port Noarlunga, and are now more accessible due to the electrification of the Seaford railway line.

“There are increasingly improved facilities in these areas, due to the increasing development – both infill and in the Seaford Meadows South development,” the report indicates.

With supply levels staying low, suburbs in prime locations maintain an air of desirability, such as those within 10km of the city, at the fringe of the metro, and near the beach. Recent zoning changes in Campbelltown and Prospect precipitate a steady flow of developer activity as well.

Buyers may also be enticed by the fact that Adelaide is the most affordable capital in the mainland. In the unit market, however, the same fears of oversupply that plague other capitals may also apply to Adelaide, which reports high levels of unit construction.

“Given the relatively stagnant values in this market segment, this type of property should be treated with caution,” Herron Todd White states.

TASMANIA

Hobart continues its impressive streak

It’s both strong growth and affordability that define the Apple Isle’s property market

Hobart remains the overall most affordable capital city in Australia, despite recording strong growth results in 2016.

Cameron Kusher, research analyst at CoreLogic, notes that during the January 2017 quarter, Hobart’s property prices increased the most among the capitals, with a nearly 6% rise. Part of this growth has been the result of having low stock in the city. Indeed, the amount of new supply on the market is significantly lower than in 2016.

“Given that the amount of stock listed for sale is likely to rise, it will be interesting to see how quickly it lifts and how it compares to stock levels from a year ago which were considered to be quite low,” Kusher comments.

Due to the inspired demand, properties are flying off the market, taking far less time to sell in 2016 than in 2015. Discount levels were also dropping throughout 2016. This will benefit vendors of houses in particular, with prices for detached dwellings soaring by 8%.

Prices for units rose by only 6.3% in comparison, but this market is well compensated through a considerable boost in rental yields to an average of roughly 6%. By contrast, house yields slipped slightly to 5%.

Overall, Kusher predicts that the strong growth trend will be maintained throughout 2017, especially if the city continues to have the tightest vacancy rates in Australia.

Economic factors boost demand

Hobart’s excellent performance is due in large part to the city’s thriving commercial scene, which is generating a number of employment opportunities and supporting the local economy.

“Property and construction is driving a boom period in Hobart’s economy,” says Brian Wightman, Tasmanian executive director of the Property Council of Australia.

“Increased demand for office space is a welcome sign and presents further opportunity to embark on reforms which will deliver a generation of continuous economic growth.”

In fact, the tourism industry is a cornerstone not just of the economy, but of the property market, according to Herron Todd White in their February 2017 Month in Review report.

The effectiveness of this sector has prompted an increase in investor activity, where buyers are purchasing homes for use as accommodation during short-term holidays because these types of dwellings generate higher yields than long-term rentals.

The effects of the economic boom can be observed in how the level of interstate migration to Hobart has risen recently.

“Buyer’s agents have reported an increased interest in the property market throughout the greater Hobart region and have observed first-hand growth of 8–10% from January to December 2016,” Herron Todd White reports.

“Should the increased interstate migration and booming tourism levels continue at this rate, we believe this will serve to create stronger growth throughout not only 2017 but also for the next few years.”

NORTHERN TERRITORY

Darwin gets on the road to recovery

The property market shows increasing signs of stability

While growth levels certainly won’t be through the roof, it seems that Darwin is getting back on its feet after a dark 2016.

“Sales volumes are starting to flow back into the market, construction levels of new apartments has eased, land supply appears to be slowing and rental and vacancy rates appear to have stabilised,” Herron Todd White’s most recent Month in Review report states.

The first steps to economic recovery are likely factors in kickstarting this process. Various small-scale projects are expected to commence in 2017 from both the state government and the federal government as well as private firms – and these initiatives should generate employment opportunities and buzz from investor activity.

“Defence projects in Darwin and Tindal, together with Palmerston Hospital, large retail centres and Landbridge operating Darwin Port will be some of the drivers in the economy that will flow through to the residential space,” Herron Todd White adds.

The rise of sales and buyer activity is expected to be supported by stamp duty exemptions and the introduction of the First Home Owner Grant across both new and established properties. Demand may also be helped by a drop in supply in the Darwin CBD – there is little stock set for release into the market this year.

This could bolster the rental market and allow the city to steady itself. Moreover, in combination with low interest rates, first homebuyers may finally have a chance at ownership.

More work ahead

Nonetheless, more further work needs to be done to restore Darwin as a force in the market.

“There are a number of options and projects that the NT government can undertake to reinvigorate its capital city. These other options focus more on improving amenities in the city that aim to bolster construction, retail, hospitality, tourism, hotels and the ever-growing number of residents that call the city centre home,” says Ruth Palmer, NT executive director of the Property Council of Australia.

“The Darwin CBD is the primary employment hub for the Top End and is in desperate need of additional employment and economic activity.”

The state of the commercial scene will speak volumes about the government’s commitment to improving the city’s profile in the eyes of buyers.

AUSTRALIAN CAPITAL TERRITORY

Investors drive Canberra’s rent

Tight vacancy rates and high demand raise prices

Canberra is fast becoming an expensive city for tenants. Findings presented in the Domain Rental and House Price report released in February 2017 suggest that the rate of increase in rent rates in Australia’s political centre was the highest of all the other state capitals.

Factors playing into this upswing include development efforts, political stability and greater job security for those working in government. In fact, wages have been high, but the increased rental cost still puts a strain on tenants.

For Nicola Powell, data scientist for Allhomes, this rise is indicative of a resurgence in investor activity.

“As affordability becomes stretched, some tenants will be forced to move elsewhere in search of a lower price point,” Powell explains.

“Tenants need to brace themselves for further potential hikes in rent. Vacancy rates remain low, indicating that more rental rises could be possible, pushing the journey to home ownership even further out of reach.”

Consumer demand drives approvals

Despite the blow to tenants in terms of rental hikes, Canberra’s property market in general offers a rosy outlook.

“Canberra has seen value growth lift over the past year, and with the improving economic conditions and a tightly managed supply of new housing, it may actually see an acceleration in value growth throughout 2017,” notes Cameron Kusher, senior research analyst at CoreLogic.

Ken Morrison, chief executive of the Property Council of Australia, adds that the ACT is one of two states in which he does not “see industry concerns about the state government performance, in terms of planning and managing growth.”

Indeed, infrastructure projects are currently underway to add to Canberra’s appeal, as described in Herron Todd White’s Month in Review report for February 2017. The construction of a light rail system will add another public transport method that connects metro suburbs such as North Canberra to the CBD, adding value to these areas.

Undersupply is another factor in the soaring of ACT prices, although this may be alleviated soon by the recent boost in housing approvals. The apartment market is growing considerably in Gungahlin, Belconnen, Molonglo Valley and Tuggeranong, although it does inspire concerns about unit oversupply in these pockets.

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