RP Data have reported their March quarter house price index results and the findings were encouraging.
Once
again, the latest stats will disappoint the doomsayers who frequent the
property forums and for the last four years have been predicting an
apocalypse.
What the stats show
Overall
Australian dwelling values were unchanged across the eight capital
cities over the first three months of this year. In fact, RP
Data-Rismark’s hedonic index data suggest that Australian dwelling
values have not budged at all since the end of October 2011.
The tide is turning
Of
course there is not one property market in Australia, so while the
market is flat in general there are markets within markets, each pulled
by a multitude of influences and, as a result, sectors within sectors
are performing at differing speeds.
Source – RP Data
Clearly
our property markets have slumped over the last 12 months, as the
following table shows, but the latest results suggest we are now in the
consolidation phase of the property cycle.
Apartments Outperformed
Units
outperformed houses in Australia’s major capital cities by a wide
margin during March. Capital city apartment prices increased by 0.9%
during the month to a median of $400,000, while detached house prices
increased by just 0.1% to a median of $464,500.
Let’s now look at some of our major property markets in a little more detail:
Sydney
Sydney
has been outperforming the rest of Australia, but the top end of the
market is still suffering from an oversupply of property relative to the
reduced demand. However affordable gentrified suburbs within close
proximity to the city, transport, amenities and infrastructure are
performing well.
In particular, well located
apartments in the inner western suburbs and Sydney’s eastern suburbs are
being snapped up by investors and owner occupiers at hotly contested
auctions according to George Raptis, director of Metropole Property
Strategists in Sydney.
"I’d like some of the
property doomsayers to come to one of these auctions and see how many
genuine bidders are in the market for the small selection of good
properties for sale," says Raptis.
"The market for
well-located apartments is likely to remain strong throughout the year.
Strong rental demand, a shortage of rental properties, tightening
vacancies and rising rents means investors will vie for the same
apartments as owner-occupiers, underpinning prices."
Melbourne
Different segments of the Melbourne housing market are at different stages of the property cycle.
There
is still an oversupply of property at the top end relative to the
reduced demand for luxury property. While there is more competition for
properties in the middle end of the market, there is still an oversupply
of properties relative to demand, even though recent auction clearance
rates have been encouraging.
Currently there are
some good investment opportunities buying established apartments in
Melbourne’s southern or eastern suburbs and adding value through
renovations.
But there are some segments of the Melbourne property market to avoid…
According
to Charles Marvelli, head of the Melbourne buyer’s agency division of
Metropole Property Strategists, "Builders and developers have got ahead
of themselves, and there is an oversupply of newly built house-and-land
packages in Melbourne’s outer western suburbs such as Point Cook and
Melton. Currently there is a flood of new properties, but buyers are
showing a preference for two to three year old homes which can be bought
considerably cheaper than new stock."
"There is
also an oversupply of inner-city CBD apartments, with more being
completed in the next few years at a time when there is less demand from
the tenant demographic that rents in the CBD," adds Marvelli.
"This
will put downward pressure on prices and rentals. I expect there will
be an oversupply of inner-CBD and near- CBD apartments in Melbourne for a
few years, causing prices to fall slightly" he says.
Brisbane
House
prices in Brisbane have dropped for the last two years and are now 11%
below their peak, but there are tentative signs of improvement in this
market.
However Brisbane buyers are lacking the
necessary confidence to re-enter the market, instead sitting on the
sidelines waiting for signs that real estate has bottomed before they
make a purchase.
Vacancy rates have fallen to 2.2%
in December 2011 from 3.7% fifteen months earlier, suggesting that the
market is working through an overhang in supply, and there is evidence
that investors as well as owner-occupiers are slowly returning to the
market.
The prestige end of the Brisbane housing
market is suffering, but more affordable homes within 5- 10 km of the
CBD are likely to perform well when the upswing eventually takes place.
One
area of opportunity is the established apartment market around
Auchenflower and Toowong, where you can find 1970’s and 1980’s
apartments with good size rooms, close to amenities and within a brisk
stroll to the CBD.
Increasing confidence with a new
state government and an upswing in economic conditions, along with
improved affordability, suggest that prices should stabilize over the
next six months before starting to edge upwards.
However
there are a large number of off-the-plan apartments available in the
Brisbane CBD and surrounding suburbs. Many of these remain unsold, and
this oversupply of properties will put downward pressure on prices and
rentals in these suburbs.
Many of the apartments
that have been sold off the plan are coming on stream in the next few
years and have been purchased by investors. Some will have difficulty
getting finance and settling their purchase. Others will be disappointed
to see the end value of their properties is less than the original
purchase price.
Adelaide
The
Adelaide property market has been flat for some time now. Prices fell a
further 1.5% over the last 3 months and are likely to correct a little
more before the market bottoms.
The ANZ Bank
reports that, "While the SA housing market should remain subdued through
the first half of 2012, the economic benefits from a number of large
non-residential building redevelopments in Adelaide (Royal Adelaide
Hospital, Adelaide Convention Centre and Adelaide Oval) and a positive
outlook for regions benefitting from major mining and energy projects
(including the proposed Clinton and Arckaringa Basin coal-to-liquid gas
project and Olympic Dam) should drive an improved outlook into 2013. We
expect rental vacancies will grind lower through 2012 & 2013, while
house prices should trough around mid-2012."
Perth
While
the WA economy continues to benefit from our resources boom, the Perth
property market is still suffering a hangover from its pre-GFC boom.
In
the three years leading up to the 2008 peak in house prices, WA house
prices increased 20% per annum on average, compared to a national
average of 6% per annum. Since then, investors and homeowners have
deserted the Perth residential property market, prices have fallen and
are currently 8.2% below their March 2008 peak.
However,
there are signs of optimism creeping back and some areas of the Perth
market are likely to turn around later this year or in 2013.
What next?
We’re
entering the stabilisation phase of the property cycle, where buyers
are returning and slowly taking up available stock, but not really
pushing up prices yet.
This means our property markets are likely to remain soft this year, but should keep consolidating.
One
encouraging sign is that first time buyers are back, applying for loans
at levels not seen for two years. Remember, first time buyers are
typically a good barometer for changes in affordability.
How
soon things turn around will depend a lot on buyer confidence, and this
will depend upon what’s happening overseas, how our local government
performs and what happens with interest rates.
Does this mean you should put your money under the mattress or buy gold bullion rather than invest in property?
You already know what I’m going to say don’t you?
Property
is more than just an investment – it is a fundamental human
requirement. Everyone needs a roof over their head, whether they rent or
own their own home. As a basic necessity, housing will always be in
demand – it will always have value because we simply can’t live without
it.
The long-term future is assured for those who invest in property.
At
some stages in the economic cycle property values will rise strongly
and at other times they will languish. When people can’t afford to buy
property (when price growth slows because of decreased demand), people
end up renting; so investors win by getting better returns. And that is
currently happening as rents rise strongly.
Of
course... this also means that buying any property and hoping it will
make a good investment just won't work at this stage of the cycle.
You need to buy the right type of property...
One
that has a level of scarcity, meaning it will be in continuous strong
demand by owner occupiers (to keep pushing up its value) and tenants (to
help subsidise your mortgage); in the right location (one that has
outperformed the long term averages), at the right time in the property
cycle (that would be now in many states) and for the right price.
Then hold it as a long-term investment and reap the rewards.
Michael Yardney is a director of Metropole Property Strategists
who create wealth for their clients through independent, unbiased
property advice and advocacy. He is best-selling author, one of
Australia's leading experts in wealth creation through property and
writes the Property Update blog. Subscribe today and you'll receive a free video training - The Golden Rules of Property Investment.
