Client Info Session Part 2
By Matthew Rosie, Director of Rosie & Rosie
In July, I had the pleasure of speaking at the Johnston Grocke Market Update where I gave my review of the Australian property market’s performance over the last 12 months. This is a summary of that presentation.
The annual growth of 5.5% over the last decade (as shown below), is a little short of the 7.2% per annum that is required for property values to double every 10 years. It’s important to note however that not all cities have performed this way. This is the combined capital city data.
No doubt you will have heard of the fantastic growth that has occurred in Sydney and Melbourne over the last 12 months or so.
There has been slowing recently, however. One reason, (which affects all capital cities) is simply seasonal. In addition, as we normally see in the Sydney & Melbourne market, after a spike in growth we are likely to experience a correction in the short term, followed by a period of flatter growth while the market digests the increased supply of new dwellings.
Another reason for the slowing, is as a result of changes to foreign lending criteria. With most lenders now taking a very conservative view towards foreign borrowers, the markets (in Sydney and Melbourne in particular) seemed to have finally started to cool.
Queensland is slightly more fortunate than other mining states in that it has other strong economic drivers. Tourism in Queensland has always been strong and with the Commonwealth games being hosted on the Gold Coast in 2018, this is expected to continue. Capital growth will most likely remain the same in the short term.
Recently however, both Hobart and Adelaide have started to enjoy the attention of interstate investors.
Adelaide has not enjoyed the same growth as its bigger brothers and sisters interstate but has continued to provide steady growth and rental returns. Adelaide has a really well balanced property market with just enough supply to meet demand. Good news in Adelaide is often rewarded with a prompt and positive movement in property prices. The submarine contract being a recent example.
Expect the property market to remain steady in the short term but be ready for growth when we get some more good news.
Ignoring the fall of 1% over the last 3 months I expect the Hobart market will continue to be of interest to investors as they have a very low entry price compared to the mainland capitals and have a reasonably strong rental yield to go with it.
Perth property values continue to fall as the mining boom continues to unwind. It’s reliance on the one industry (Mining) is risky but being so far from anywhere else in Australia & very isolated Perth just doesn’t enjoy the same economic benefit that comes with tourism.
I expect Perth property prices will continue to fall in the short term but I think they must be close to the bottom of the market cycle. Should global demand for commodities starts to improve, we can expect the Perth property market to recover then too.
A quick look at rental yields around the country. Our combined capital city yields have dropped recently as you’d expect when property prices increase rapidly but rental returns don’t follow immediately. This is driven largely by the increase in capital values in Sydney and Melbourne.
Outside of Sydney and Melbourne, most cities are still enjoying solid returns of between 4 and 5 percent. Expect this to drop a little where there is a solid pipeline of new apartment stock adding to supply.
While interest rates have been at historical lows there’s been a boom in apartment sales and construction and when these apartments finally hit the market it might take some time for them to find tenants.