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We've seen some interesting changes in the Australian property market recently. The tightening of bank lending has certainly had the federal governments desired effect on the Sydney market - Melbourne, to an extent too. Grab yourself an almond latte, a pack of soy beetroot chips and join us on this narrative journey into 2018.
Have you owned property in Sydney over the past five years? If so you certainly have some pumped up tires! From February 2012 through to December 2017, the market has increased by a staggering 70.8% (all dwellings). However, all good things must come to an end with the harbour city recording no growth in August and negative growth for the last four months of 2017. We firmly believe this market has reached the peak of this current growth cycle. As we’ve mentioned previously, the tightening of interest only and investment property lending and the tougher restrictions on foreign buyers (non-Australian citizens) are contributing factors. And not to mention, wage growth not keeping up with property prices.
In 2018, we are forecasting minimal to no growth at all across Sydney. It’s to be noted that there are regions and suburbs that will perform outside of the norm. This is due to other factors such as large infrastructure projects, employment opportunities and people moving to new areas so they can afford a property, creating supply and demand. From a cash flow perspective, rental yields have remained stagnate throughout the year, hovering around the 2.8% mark. However, as the price of property plateaus, we’ll see yields climb to more investor-friendly levels.
On the ground, major metro areas are a hive of construction, with the continued development of residential & commercial buildings, light rail and metro train networks. The much-needed motorway and west connex projects are in full swing too. The hospitality scene is also full steam ahead with new bars, cafes and restaurants opening up across the city, metro and outer suburbs.
For us, unless you're purchasing a home to live in it’s not a market we are actively investing in. For those buying in Sydney, look to manufacture equity by purchasing properties in need of a nip and tuck, or better still, ability to extend and/or sub-divide.
Melbournians also have a lot to smile about. The sports made capital has had a tremendous run in this current cycle. The rate of growth has been slowing over the past five months with December recording a negative drop of 0.2% (all dwellings). In 2018, the city will near the peak of the market and much like Sydney, rental yields have remained fairly unchanged all year; circa 2.6%.
So why has Melbourne faired better than Sydney with the slower rate of decline? There are a few reasons including, more affordable housing (somewhat), stronger jobs growth and high population growth (forecast to be Australia’s most populated state).
On the ground, agents are open to accepting offers prior to the auction and we are seeing the once frenzied auctions starting to thin out.
Like Sydney, unless you are looking for a home in Melbourne we don’t believe the city represents good buying for investment properties, due to a slower rate of capital growth and current rental yields. Although, the major centres outside of Melbourne still represent great buying. Given the strong growth and predicted future population growth in Melbourne, we see the major towns within a 1hr 30m train commute into the CBD as great investments - regions like Geelong and Ballarat. With a population of just over 100,000 and growing year on year, Ballarat presents affordable options in a town with plenty of planned infrastructure and a direct line into the Melbourne CBD by train. Likewise for Geelong, with a commute on the express train under 60 minutes, it still provides affordable housing, with a great lifestyle within arms reach of the CBD.
Canberra was the quiet achiever in 2017 with median house prices growing by 8.4%. Also being named by Lonely Planet as the third best global city to visit in 2018.
We forecast the capital to see continued growth in 2018 circa 8%, due to a few factors being; Infrastructure projects include the light rail construction (connecting the CBD with the outer suburbs) which is now in full swing. The opening of the international airport terminal, with Singapore Airlines flying daily from Canberra to Changi (via Sydney) as of May this year and Qatar Airways operating a daily flight to the Middle East from this February. Unemployment is also the lowest in the country at 3.8%, combined with the highest median income in the nation, fuelled, by the professional services sector.
Good rental properties are in high demand, with vacancy rates hovering around the 1% market and rental yields at 4.1%. Great for investors! On the ground, it’s a buzz of activity with new hotels, bars and cafes popping up or scheduled to open in the CBD and surrounds. Open houses are busy and once known government housing areas are showing signs of gentrification. Growth in units has been much slower at 0.4% and we have continued concerns of an oversupply in this particular market.
In 2018 we see great opportunities in the detached housing market, particularly those keen to renovate and add value.
In Brisbane, there were gains of 3.1% in the detached housing market in 2017, showing the continued steady growth of the past few years. There are regions outperforming the state average and for the data-driven investor, the key economic indicators are pointing in the right direction. The Brisbane median price (as of Dec 31, 2017 - all dwellings) is 55% of the Sydney median. Historically, when we have seen a similar price gap, the Brisbane market has shown strong capital growth. Generally, due to families moving north in search of affordable housing, relaxed lifestyle and the warmer climate. To reiterate this, interstate migration from NSW to QLD has tripled in the past three years. If the trend continues, the population of the state is forecast to exceed five million for the first time.
The Brisbane apartment market is still suffering a glut. Horror stories of apartments purchased off plan at the commencement of Brisbane's unit construction boom (mid-2011) currently selling for losses of up to 36%. Due to this, rental yields are sitting at a healthy 5.3%, however, unfortunately for those still in this market, capital growth will be a foreign word for the foreseeable future.
Regionally in QLD, there are many options to consider, Cairns, Gold Coast, Sunshine Coast and Townsville. Although the Gold Coast and Sunshine Coast have outmuscled the Brisbane metro market in recent years, we do have concerns it’s due to single economic drivers (tourism) and therefore not markets we are actively investing in. At this point in time, we also prefer to sit out of the Townsville and Cairns markets, we understand the new Adani mine will generate jobs growth and support businesses, however, we are very cautious of regions driven largely by the resource sector.
Big high fives go to Hobart - 2017’s best-performing capital city. The detached housing market saw annual growth of 12.9% and we believe 2018 will be another strong year of growth circa 8%. Hobart is currently experiencing it’s highest rate of growth since 2014.
There are a few reasons why Hobart is performing so well. The price of housing is incredibly low (compared to the other capital cities) with a median dwelling price of $403,800. Tourism numbers are surging and the city is becoming a huge tourist drawcard with its vibrant food & wine scene, and of course, the tourist mecca, MONA (Museum of Old and New Art). Since opening, 1.7M people have walked through its doors. It has been credited in many circles as the driver for the southern state's renaissance.
With the increased tourism numbers, there is now a lack of hotel accommodation; with properties being purchased and put on short-term rental sites like Airbnb. In 2017, a number of new hotels got the green light for construction and the airport upgrade. To be completed in early 2018 the airport and runway upgrade will allow for direct passenger flights to Asia and Europe, direct export flights to Asian markets for seafood, fruit and other fresh produce and strengthen Hobart's position as the preferred Antartic gateway.
The property windfalls from Melbourne and Sydney is seeing cashed-up mainland buyers coming in hot, purchasing affordable homes with great rental yields of 4.9% for houses and 5.0% for units. Combine those yields with extremely tight vacancy rates of 0.3% (the lowest in the country!) and you've got yourself an investor dream.
On the ground, it’s hard to find a house to buy or rent! Properties are coming on the market and being snapped up just as a quick.
Yep, things look great for the Hobart property market. However, Hobart is definitely a market that needs to be keenly monitored, with our greatest concern the reliance on tourism driving the market. We are seeing millennial’s move interstate once they graduate and baby bombers move for a nice relaxed retirement. Long-term growth and sustainability is still a concern in our eyes. However, for those budget conscious investors looking for solid returns, a play at the free-standing residential market is an option. To note, we are really excited about the Hobart City Deal that was announced on the 16/01/18. This will certainly aid in moving away from a one-paced economy.
The Adelaide detached housing market held steady in 2017, with little movement at 3.3%. The state has had some fantastic global press with all eyes watching the installation and subsequent working of the Tesla lithium-ion battery, installed near Jamestown. Coincidently, this now makes the state one of the most progressive for renewable energy.
On the ground, there is not a lot to report, the city metro light rail is being extended by 1.1km, adding four new stops. There are positive signs with the federal governments new naval building contracts bringing jobs to the area and the state government has put aside $50M in grants, managed by Blue Sky Venture Capital to incentivise SME’s and startups to conduct business in the state. The return on this? More jobs and less stress on the social welfare system – which currently, is a substantial issue.
There are submarkets within Adelaide and regions with detached housing that certainly tick the boxes for strong capital growth and rental yields. It’s about doing the due-diligence and knowing the market.
Although Perth had another year of consistent losses, losing a further 2.6%, the rate of declines is starting to slow. This year, saw the smallest declines since May 2015. There are still positive signs, property listings dropped by 12.7% (less supply, means more demand) and the average time to sell a property has dropped from 68 days to 59. Whilst these are all positive signs we are still very cautious of this market. We don’t anticipate purchasing in this market until late this year at the very earliest and are starting to commence our six months on the ground research to ascertain the best suburbs and regions for growth.
Besides the strong rental yields of 5.7% for houses and 6.1% for units - the best in the country for both categories - there is not much else positive to report. The market still isn’t showing any signs of bottoming out, with prices continuing to drop at a constant rate. It's definitely a watch and sit for us.
If you’re thinking of renovating or purchasing in Australia and simply unsure how to progress please get in contact to see if we can help.
Milk Chocolate was founded seven years ago by Richie Ragel and Michael Cleary, to purchase residential and commercial property in Australia on behalf of our clients, looking for a home or investment property. To see how we can help you get in touch here.
Source: CoreLogic / SQM / Australian Bureau of Statistics (ABS) / Queensland Government / Melbourne Government / Qatar Airways / Real Estate Institute of Western Australia / South Australian Government / Australian Financial Review / Singapore Airways / Canberra Airport / ABC News / MONA
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