National Property Report November 2012

NEW SOUTH WALES

The fight is on in the harbour city

Sydney’s resilient property market is continuing on the road to recovery, despite an end to government incentives

Of all the non-resource driven capitals, Sydney is widely regarded as the most indestructible, when it comes to prices and activity. A large population and lack of space for development means buyers can usually be dredged up from somewhere in the harbour city to keep medians moving and markets with their heads above water.

However, two areas that are likely to continue to struggle are the first home buyer and prestige markets, due to an end of government incentives and a continuing level of caution at the top.

Affordable? Not for everyone

A recent report by the Real Estate Institute of New South Wales (REINSW) claims Sydney properties are at their most affordable in a decade, following a 13% fall from a 2010 peak. However, CEO Tim McKibbin admits this doesn’t mean it is inexpensive.

“We are saying this somewhat tongue in cheek,” he says. “A median house price of $565,000 and a unit price of $460,000 are sizable sums of money in any language.”

The REINSW report covered the three months until June 2012 and also reported a 5% fall in the 12 months ending at the same time. McKibbin believes the latter figure reflects the redirecting of first home buyer incentives to the new property market.

“The end of 2011 saw a flood of first home purchases to take advantage of the [stamp duty] incentives,” he says. “These transactions worked their way through the market in early 2012; all the sub $500,000 purchases disturbed the market and pushed the median down. We didn’t see much activity after that for a few months, but now first home buyers are beginning to return and there has been a 0.3% improvement in property prices in that lower quartile.”

The return could be short-lived however, with the NSW government’s $15,000 boost for purchasers of new properties replacing the First Home Owners Grant.

“It’s disappointing,” says McKibbin. “First home buyers are the obvious losers here, but if we take a broader view, they are also a trigger for the rest of the market. Those coming into the market and buying property enable the vendors to upgrade themselves, so it does have a flow-on effect.”

The NSW government is trying to stimulate the purchase of new homes and while McKibbin agrees the state desperately needs new properties to be built, he said it’s misguided.

“The government’s viewpoint presupposes that our problem is demand, whereas I think that it’s supply,” McKibbin says. “The inhibitors to that supply are not first home buyers, but a convoluted and expensive planning system. I don’t think redirecting first home buyers to new properties will fix the problem of supply.”

A new green paper released by NSW Planning Minister Brad Hazzard is seeking to illicit discussion relating to an overhaul of the current planning system and McKibbin says this is an important first step.

QUEENSLAND

Buying activity ramps up

Increased market activity suggests the worst could be over for the Queensland market

By Brisbane’s recent standards, it has been an uneventful year for natural disasters. Remember that this time in 2011, the whole state was still reeling from a battering at the hands of the elements. However, the economy has also had to face up to the recent closure of several mines in the Central Qld area, as concerns continue to mount regarding the longevity of the resources boom. Economic boosts provided by the reconstruction efforts in the wake of the 2011 floods have now leveled out and the state’s property markets are caught in a state of limbo, with growth fluctuations in some areas being countered by the large number of properties for sale in others.

Activity increases

Investors are taking some positives away from a flat period for median growth in Brisbane, with an increase in buyer activity propping up the market, especially closer to the CBD.

“We’re seeing some improvement in the upper-middle suburbs of Brisbane, to the north and north-west,” says Andrew Wilson, senior economist at Australian Property Monitors. “These have been recognised as good potential value opportunities, so we’re seeing some increased buying and good growth in those regions.”

However, the same value potential is not evident in some of Brisbane’s outer suburbs, according to Wilson.

“The lower-priced regions of Brisbane are still seeing very high numbers of stock on market and I think we’ll have to start seeing some of the for sale properties cleared before we see price growth emerge across the city,” he says. “We just don’t have the competition between buyers at the moment that is required to drive growth.”

VICTORIA

Out of the woods? Not yet

When former Victoria premier Jeff Kennett addressed an Australian Property Institute Pan Pacific Congress in September much of his conversation steered toward magic.

The retired politician claimed that Melbourne was in desperate need of a subway and if he had his way it would be created in a flash. “If I was able to wave a magic wand even now, I would start the planning for an underground railway system,” he said.

“It would cost hundreds of millions of dollars but I can assure you when you look back in 50 years, or in 100 years, whatever you pay today would seem cheap. We can hardly accommodate the traffic on the surface of our community in an efficient way and it is only getting worse.”

Kennett was clearly touching on a definite trend. A few months back, much of the talk around Melbourne was that investors needed to take heed. Vacancy rates were climbing and construction analysts were warning of an oversupply of dwellings. But with strong population growth and still stellar levels of demand for housing, this appears not to be the case. If anything, demand for inner city living is as strong as ever and, as Kennett pointed out, it is showing up in the traffic.

A September ANZ Property Outlook report puts the situation into perspective. Flying in the face of April forecasts that Melbourne’s city-wide vacancy rate would hit 4.4%, ANZ says that Melbourne’s rental market will be underpinned by tight vacancy rates, not high ones.

“Victoria’s share of [an] impending acceleration in population growth should cap rental vacancy rates at around 2% over the coming year, presenting conditions for yield-seeking investors to increase rents moderately through 2012-13,” the report says.

WESTERN AUSTRALIA

Perth is on the move

Escalating rents and changing lifestyle choices could transform the way Perth residents chose to live – with obvious consequences for investors

Perth is apparently not quite the city many think it is. For a metropolis that takes pride in its strong family appeal – it has the largest inner city park in the world and there are over 500 schools – the city has a hidden side that even its most familiar observes may not realise.

Despite postcard images of boy scouts rafting the Swan and fathers teaching children to surf, almost one in four residents lives alone – and their numbers are rising.

ABS Census figures show that over 2011 a record number of Perth residents reported that they did not live with other people, a number that rose the closer one travelled to the CBD. Within inner city suburbs like Subiaco, roughly 40% of residents told census takers that they lived on their own, a steep increase from close to a third who claimed to live this way in 2006.

That the city’s demographics are changing could have a dramatic impact on property markets. Singles typically choose to dwell in units, townhouses and terraced apartments, which already outperform detached houses in many parts of the city. If trends in lifestyle choices are anything to go by, this is a situation that may well intensify in the years ahead.

“Units offer a lot of advantages that you won’t get with houses,” says Rich Harvey, head of buyer’s agency Propertybuyer.com.au, who claims that as new houses are getting built further and further away from city centres it is often the case that units are being released in better locations, much closer to the action, but at much cheaper prices than similarly placed houses.

As it stands, the Perth unit market is much less developed than in Sydney and Melbourne, which together account for over two thirds of Australia’s entire unit market. If an increasing portion of the city’s housing stock were to become units, what would this mean for investors?

SOUTH AUSTRALIA

Beaches blaze ahead

Small, beachside towns across South Australia are showing remarkable growth at a time when regional coastal areas across the country endure a prolonged purgatory

A few hundred kilometers down the west coast of South Australia’s Yorke Peninsula, in a village cut into an arid strip of Spencer Gulf Coast, life idles by much as it always has. Retirees enjoy the sun on patios overlooking scrub littered beaches and holidaymakers camp underneath sapphire skies streaked with thin Cirrus clouds.

In fact, its breathtaking views aside, the town of Moonta, population 3,000, would be nothing remarkable if not for an unusual statistic. As a coastal property market relying on tourists, retirees and sea-changers to fuel property price growth it has reversed an ironclad Australian trend. As other towns in Moonta’s position have recorded massive median price falls, Moonta, astonishingly, has been powering ahead.

RP Data figures indicate prices have surged 26% in the 12 months to August, and within South Australia, the town is not alone.

Other small, beachside towns in the rural parts of the state have also seen price hikes Among them are Yorke Peninsula towns Wallaroo, Kadina, Maitland and Saddleworth, which all saw capital growth increases around the mark of 20%.

One only needs to look at property markets in the coastal areas of other states to realise why this trend is defying the odds. Queensland, NSW and Victoria’s largest fallers of late have all been small seaside towns that rely on holiday homebuyers and retirees to buy up properties. The hardest hit have been areas such as Queensland’s Airlie Beach, where prices have tumbled more than 30%.

Real Estate Institute of South Australia president Greg Moulton says he is not surprised. According to him, the state’s coastal regions have been undervalued when compared to the eastern states and southern WA – a situation that has endured for quite some time.

“Metropolitan coastal areas have shown good growth in the past five years, but areas further out have been undervalued,” he says, adding that holiday shacks have become increasingly popular across the state. This is just as demand from retiring baby boomers has hit a modest spike, driving sales in coastal areas.

AUSTRALIAN CAPITAL TERRITORY

The cheap south

Canberra medians are pressing relentlessly forward, but value opportunities offer investors southern comfort

Quarterly price indices from multiple data providers show growth in Canberra property remains strong, with marginal increases recorded even as other capitals struggled. But there’s more than meets the eye.

A closer inspection of markets within the ACT shows growth is not as evenly spread as first thought. While the Australian capital is immune to a lot of price fluctuations thanks to robust medians in the lower end of the market and plenty of pressure in the middle, a number of suburbs have been bucking the trend with recent declines.

Over the 12 months to August, units in Canberra’s southern regions, incorporating a cluster of suburbs that includes Lyons, Hughes and Red Hill, as well as further south, Chapman and Fadden, have recorded negative trends.

According to RP Data, Chapman had the worst of it, with an 18% plunge, while Fadden dropped 15% and Lyons and Hughes both slid by 10%. This was a severe turnaround in fortune for Lyons and Hughes especially, where average annual growth over the past decade was 12% and 15% respectively.

Investigating the price falls

APM senior economist Andrew Wilson says traditionally, a number of market factors work together to keep Canberra property prices afloat. One of them is that a limited release of housing stock ensures buyers pay a premium for ACT properties. “The city has historically had problems with land release, driving competition for properties that are scarce,” he says.

Not surprisingly then, in all the southern Canberra regions that have seen massive price falls, the opposite has happened – an unusually high amount of stock has been released onto the market. For Lyon, Real Estate Investar data shows that in August there were 200% more listings than the year before, while in Red Hill reported a 75% surge in listings.

NORTHERN TERRITORY

Not just hot air

The growing gas industry in Darwin has grabbed the imagination of investors, but gas is not the only reason the city’s property market is booming

Darwin has been doing the rounds among property investment circles, which imagine it as something of a city on the brink of a boom. And why shouldn’t they? Rents and prices have been climbing steadily and many other indicators paint the city as an alluring place to invest.

Yet amid the buzz, some analysts are now saying investors need to be reminded of something they may have forgotten – reality. Despite healthy looking fundamentals, Darwin remains well behind most capital cities and prominent regional areas in many ways.

Population size is one factor. Leveraging off a state population of roughly 230,000, many forget that the city is home to only 127,000 people. This figure may be growing, but the low population base means the Darwin economy will never have the diversification evident in other capital cities, let alone places like Newcastle (540,000) or Wollongong (288,000).

Rents are another area to dwell upon. Investors speak of a gas boom, but nowhere in Darwin ranks among the 25 most expensive council areas in Australia for median weekly rents. Top marks go to the iron ore community of Port Hedland in WA, where it costs $1,900 a week to rent a house.

Of course, if the market has been booming, many may be asking why any of this should matter. The answer lies in expectations. Darwin may well continue to perform strongly, but with its small size and still one-sided economic base, one has to wonder: how long can it last?

TASMANIA

Buyers wary despite more choice

A lack of confidence in the local economy has put property on the back burner for investors

Hobart remains a buyer’s market, but the buyers so far don’t seem to want anything to do with it.

Some properties purchased in the last few years at ‘bargain prices’ have since been re-listed for less than they were sold, while sellers who rejected offers last year are now being forced to sell for much less. The upcoming spring selling season is crucial for Hobart and with RP Data reporting nearly 7,000 more homes on the market than six months ago, buyers are likely to be treated with some dream deals. But first, they are going to need to change their own mindsets.

No confidence

APM senior economist Andrew Wilson says the market is likely to remain subdued while Tasmania continues to endure tough economic conditions.

“We are seeing some fluctuations in terms of prices, but there is not a lot of buyer activity going on down there,” Wilson says. “There’s no real sense of breakout buyer confidence in that market and that reflects higher unemployment and no sense of improvement in local economic conditions.”

Confidence is likely to receive a further kick in the guts after the recent news the long battle to sustain the Gunns timber company has effectively been lost, with the 137-year-old family business going into administration.

While Premier Lara Giddings is holding onto the faint hope that a last-minute investor will purchase the company, more than 600 workers are facing the prospect of losing their jobs. Considering the Tasmanian population is only slightly more than 500,000, the Gunns closure would impact the unemployment figures significantly.

“The unemployment rate in Hobart was at 5.9% in August, which is the highest in the nation,” says Wilson. “And the trend is up. A 5% unemployment rate is reasonably acceptable, but it still reflects an underperforming economy and keeps buyer confidence subdued.”

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