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It's fair to say that a lot of people are confused about the Australian property market in 2017 and what to expect. No one can predict the future, including us. What we can do is present the vast amounts of information distilled by our data scientist to give you a view on how we see things. In this article, we take a look at each of the capital cities and territories, with a deep dive on what we believe are the two rising markets.
Firstly, the property cycle works in four stages, so let’s take a look:
Peak Stage - Marks the top of the market:
Prices will have increased very rapidly (as much as 20% year on year), but have reached the highest point of the cycle and can start to decline.
Value Stage - Prices are flat, leading many people to believe it’s a good time to buy:
Prices will have declined and are approaching the bottom of the market or are at the bottom of the market.
The Growth Stage - Prices begin to rise, slowly at first before picking up the pace:
The market is at the start of recovery, it’s continuing to rise or is approaching the peak stage.
The Correction Stage - Prices will moderate or stay stagnate:
People often equate a correction to a price crash, it’s typically where prices come back to normal levels after the peak stage. Sometimes a correction is simply a long, slow period where prices stagnate.
The property cycle generally takes around 7 to 10 years and ideally, one full cycle will see the price of property double (given other key investment criteria is met). Let’s take a look at each state and territory grouped in the stages we believe they current sit.
Peak Stage:
Melbourne, Australia's cultural epicentre. The city continues to defy all expectations, the economy is buoyant and the state is number one for population growth and large infrastructure projects. 2016 was a boom year and we firmly believe this will continue into 2017, again seeing strong capital growth.
However, we believe 2018 will see the market stall, if not start the correction phase. Given the impending oversupply of apartments in Melbourne, the demand for housing will slow with the stock on market surpassing the demand. The concern is the market will become volatile and somewhat unpredictable as it approaches the peak stage - a market we do not invest in. At this stage, it’s a sit and watch for us.
Sydney, what’s not to love? Probably everything but the property market. Much like Melbourne, Sydney continues to defy expectations. 2016 saw record capital growth and we believe the same is installed for 2017. NSW is number one in many leading indicators, such as business investment, retail trade, economic growth and low unemployment figures. The state runs second only in population growth to Melbourne.
Some economists are overvaluing the market by 40% and we have concerns over a large amount of apartments due to complete and settle in the back end of 2017 and 2018. As many new builds come on the market we believe this growth will either stagnate or decline in 2018 as the supply and demand ratios shift. As the market is nearing the peak stage, strong consideration should be made if looking to invest here.
Value Stage:
Brisbane, warm weather and a relaxed pace, for us Brisbane is ticking a lot of boxes and we believe is at the start of a rising market. But, we’ve been saying that for a while now! This market has been stagnated for a number of years (5-7) with only some regions showing growth in that time. However, after spending a lot of time on the ground we are seeing regions located outside of Brisbane showing strong growth - specifically, Logan, Ipswich and Redcliffe.
The average median house prices in Brisbane's middle to outer ring are very much affordable to most in comparison to Sydney and Melbourne - offering fantastic value and potentially greater capital growth. We believe Brisbane is a long term play if you’re considering investing in the housing market and if you’re happy to be patient, there could be some fantastic rewards to those who wait.
As for CBD apartments, much like Sydney and Melbourne, there are concerns of a gross oversupply. We don’t believe the population growth will meet demand and therefore would not recommend any investment in CBD apartments.
As many people know, the city was badly affected by the floods of 2011, which hit the market hard. In recent times, buyer confidence is back, leading us to believe it's in the growth stage of the property cycle. The market, however, has been in this stage for a period of time now and we’re confident that once key identifiers such as population growth and an improving economy resurface, Brisbane will then enter into a buoyant market.
Adelaide, great wineries, churches and a bland property market. There is really not much to say, 2016 saw steady growth of 4.2% and we predict more of the same in 2017 and the near future. Our belief is the market will remain steady, with small consistent gains year on year. Unemployment is currently the highest of all capital cities at 6.8% and the economy is ranked 7th in Australia. Our leading indicators don’t point to any signs of major infrastructure or great capital growth and we would prefer to see more from the city before we think further about investing here. Investing in this market would be a long term play.
Correction Stage:
Darwin, the top end, but nowhere near the top of the property cycle. Darwin hasn’t seen the peak of the market since the mid-2000’s, when the resource boom gripping the state made way for huge infrastructure investment, population growth and a tightly held rental market with strong yields. The housing market then slowed with the resource bust and has been in a state of steady decline since. We do however believe, the cycle is now nearing the bottom of the market.
In 2017 we expect to see continued flat growth. We are however seeing new private and public infrastructure projects in the pipeline - providing a catalyst for employment and population growth. With this predicted growth, vacancy rates should lower (currently sitting at 3.2%) and housing becoming more in demand. In saying that, we believe Darwin is firmly a sit and watch city and we are excited to monitor the market for potential investment in the future.
Perth, has seen better days, but is the light at the end of the tunnel near? It had a number of tough years and like Darwin is still struggling with the resource boom downturn. Vacancy rates are at highs of 4.8% - landlords are discounting rents and offering rent free periods. There are currently circa 10,000 homes and units available for rent in the Perth market.
Workers once enjoying high 6 figure salaries in the resource sector are struggling to get shelf packing jobs at local supermarkets. As unemployment and stock listings rise, population growth is also stalling. Unfortunately, there is really not much else to say, we feel Perth still has some rocky roads ahead. Like Darwin, we will keep a close eye on the market in 2017, looking for better population growth and signs of a growing economy before we consider investing.
Growth Stage:
Hobart, Australia’s second-oldest capital after Sydney and starting to follow in its footsteps. November 2003 was the last time we saw Hobart at the peak of the property cycle, at which time it hit rock bottom with lifeblood industries like forestry declining sharply and a stagnate tourism industry which both created record unemployment. However, we now believe Hobart is firmly in the rising market phase of the property cycle.
So, why is this? Infrastructure is aplenty with the Tasmanian government committing 1.8B in projects and many in the private sector spending up big. MONA (Museum of Old and New Art) has given the tourism industry the injection it needed and this sector has played a major part in the recovery of the state with international visitors increasing by 13% and their expenditure by 23% (year ending June 2016). Mix new job opportunities with housing affordability and we are seeing native Tasmanian’s that have been priced out of Sydney and Melbourne moving back and a cultural shift in remote working is allowing mainland residents to migrate whilst still retaining their mainland employment.
A quick look at the figures reveals limited stock on market and with the population increasing, the supply and demand ratios have flipped. The city also holds the record of having the lowest vacancy rates in Australia at just 0.5%. 2016 ended with houses and units gaining 11.71% and 6.07% respectively.
We feel Hobart represents fantastic buying. In our eyes, it should be a short to medium term investment and the market needs to be carefully watched. Any downturn in the market could hit hard here.
Canberra, images of red tape and stuffy suits? Far from it, in our humble opinion. What a fantastic cultural city, housing many of the nation's best art galleries, museums and a food and bev scene to rival its Sydney and Melbourne neighbours. Take a walk around the city centre and suburbs and you’ll be presented with a diverse mix of people from all demographics. It’s certainly not the Canberra you would remember from years past.
It’s fair to stay the city has struggled for the past few years. A third of the economy comes from the federal government and with cutbacks in public and private sector jobs, the housing market bottomed out. On the upside, we firmly believe Canberra is now in a rising market. In 2016, asking prices rose by 5% (houses) and vacancy rates are at a healthy 1.1% dropping from 2.0% (as of September 2016). Unemployment remains historically low at 3.7% (against a national average of 5.7%). At the cold face, open homes are packed to the rafters and auctions hotly contested, with high clearance rates week on week.
The reason for the change? There is confidence back in the market now the election is over. There is a large increase in private sector employment in service exports and education (increase in international students attending local universities) and a positive swing in the tourism sector. First home buyers in public and private sector roles are taking advantage of low-interest rates and affordable detached housing. Overseas buyers are purchasing detached homes for their children attending ANU and Sydney and Melbourne investors are using their equity to purchase investment properties - simply, all causing strong demand in a limited supply market.
The city is becoming more ‘international’ with the recent completion of the international airport terminal being serviced by Singapore airlines flying direct to Singapore and New Zealand - providing better access to Asia and Europe. Within the city, stage one construction of the 12km light-rail network from the city centre to the Gungahlin Corridor is underway.
We do recommend the market to be monitored closely. As the federal government is the key driver in the economy, the housing market is largely influenced by their decisions.
Understand how the Canberra leasehold system works? Read here to know all about it.
Click here to view our short 30-second video on national capital growth for the last two years.
Milk Chocolate purchase residential and commercial property in Australia on behalf of Australians living abroad, looking for a home or investment property. To see how we can help you get in touch here.
Thanks Michael
Sources:
CoreLogic
Your Investment Property
Herron Todd White
Hobart Mercury
Tourism Tasmania
CommSec State
SQM Housing Boom and Bust Report
ACT Government
Sydney Morning Herald
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