How to spot value in today’s volatile property market.
You have to wonder whether we’re in the midst of the most difficult buyer’s market in living memory. On one hand, there are record and possibly unsustainable home prices in Sydney and Melbourne; on the other, there’s a bloodbath in mining towns.
The two biggest capital cities have seen house values soar in the past five years – by 70 per cent in Sydney – while prices have been falling in Perth and Darwin, and there have been warnings of impending doom in the Melbourne and Brisbane unit markets because of oversupply and tighter lending conditions. Pity the poor homeowners in some mining towns, where values have fallen by as much as 77 per cent.
Recent statistics suggest that the Sydney and Melbourne markets may finally be cooling. So where is it still possible to make capital gains? Or to at least retain present value?
My view is that the safest place to put your money in Sydney and Melbourne is in inner-ring houses. These cities have a dwindling supply of houses near the city because they are being demolished to make way for units, but demand will remain because of immigration and because Millennials want to live, work and play close to the city.
Charles Tarbey, chairman and owner of the Century 21 real-estate chain, offers these ‘hot spot’ suggestions:
Melbourne “Good long-term prospects due to the strength of the economy and the prices of properties compared to similar property brackets in NSW.”
Sydney “Construction of the Northwest rail project is well under way. There are still suburbs around Rouse Hill that hold value for investors and it is hard not to believe that Rouse Hill itself won’t continue to enjoy growth.”
Sunshine Coast “Still relatively cheap compared to other markets. However, if the market encounters an influx of investor interest, there is the risk of an oversupply of rental stock.”
Perth “While prices in many areas of WA are still falling due to the downturn in mining investment, this trend may begin to attract the interest of investors looking for value. They should watch areas in and around Perth, as any large increase in mining activity can see that market explode very quickly.”
Cameron Kusher of research firm CoreLogic says that, while most mining towns have seen prices crushed in recent years, some have seen sales volumes begin to lift. Median prices in Isaac, Queensland, are 77 per cent lower than their November 2012 peak. In WA, median prices in Port Hedland are 67 per cent lower than in June 2013, and in Karratha, 65 per cent lower than October 2010. In Roxby Downs, SA, they’re
55 per cent lower than October 2013.
“These towns continue to achieve some of the best rental returns, based on current pricing and rents,” Kusher explains. “While we expect very little in the way of prospects for capital growth over the coming years, investors looking for a passive income may become more attracted to these markets.”