Top property
News of the death of the property boom has been greatly exaggerated. Last year provided undeniable evidence of the wind-down of the Sydney boom but other cities are only getting started and show promise of strong growth in 2018.
Because far too much of media commentary about residential real estate comes from economists who don’t understand the complexities of our markets, you’re going to be reading a lot this year about “the end of the Australian property boom” and the likely decline in “Australian property values”. If you do come across this kind of coverage, which generalises about Australia as a single market, ignore it.
The eight capital cities delivered a fivespeed market in 2017 and the coming year is likely to show similar diversity.
Sydney’s growth will reduce to around zero, or be slightly negative, but some of the apartment markets with rising vacancies may have greater price declines.
Melbourne will show increasing signs of slowdown, with most of the standout growth markets being the affordable outer-ring suburbs or regional towns not far from the city.
But while the two big cities will no longer be booming, other capital cities and some of the regional centres will step up.
Canberra is just beginning its run and may be the price growth leader for 2018. Hobart, which ended 2017 as one of the strongest markets, will continue to attract mainland investors and show strong price growth.
Brisbane and Adelaide, which have shown only minor growth to date, are likely to be stronger performers in 2018. Both will be boosted by improved performance in their state economies.
Brisbane has created a serious oversupply in its inner-city unit market and smart investors will stay away, but some of its suburban house markets will do well.
Perth is the recovery market and, after four years of decline, will show the first price growth since 2013. Those deterred by the city’s recent weak performance should remember the period from 2002 to 2007, when it showed the most sustained period of strong price growth in recent Australian history – including 2006 when the ABS House Price Index shows the annual growth rate topped 40%.
Damian Collins, of Momentum Wealth, agrees revival is under way and says: “It’s an owner-occupier-led recovery. Investors are a bit thin on the ground because vacancy rates are still high.”
Darwin’s recent performance has been similar to Perth’s. Vacancies have now fallen to acceptable levels and there are incentives for first-home buyers. But the local economy remains weak and price growth is likely to be muted.
Key regional cities will be among the strongest markets. Those who doubt the ability of regional areas to match the big cities on price growth should examine the recent outcomes in Newcastle in NSW, Geelong in Victoria and the Sunshine Coast in Queensland.
Regional markets in the eastern states, in particular, will do well, headed by the Hunter region in NSW, regional centres close to Melbourne, such as Ballarat in the north and Pakenham in the south-east, and Townsville and the Sunshine Coast in Queensland.
The Gold Coast, which levelled off in 2017 after a couple of strong years, may surge again on the back on the Commonwealth Games. But beware the high-rise suburbs where yet another glut is looming.
Resources-related towns, which have suffered major price decline since the end of the mining investment boom, will start to show price growth again.
In the latter part of 2017 there was a marked upturn in sales activity in markets such as Port Hedland and Karratha in Western Australia; coal-related towns like Muswellbrook, Singleton and Mudgee in NSW; and Emerald, Mackay and Dalby in Queensland.
The worst also appears over for oversupplied Gladstone, with vacancies having dropped steadily over the past two years.
But while things are looking up in these places, investors need to remember their inherent volatility and the high-risk nature of owning real estate in places reliant on mining for prosperity.
The secret to profiting from real estate will lie in understanding that Australia has many different property markets – and some of them will be rising strongly in 2018, even as the most high-profile ones are fading.
This will run contrary to TV talking heads who will keep referring to the slowdown in “the Australian property market”. Remember that they’re mostly Sydney-based boffins thinking about the Sydney scenario but extrapolating that nationwide.
The core message is that we don’t have an Australian property market. We have many different markets, all influenced by local economic conditions. Even within one city there are myriad different scenarios in play. Brisbane has rising markets, stagnant precincts and downturn markets that need to be avoided (notably inner-city units).
Expect more diversity of market performance in 2018 but with different growth stars. This year we won’t be talking so much about Sydney or Melbourne. It’s more likely to be about Canberra, Hobart and Perth, and possibly also Brisbane and Adelaide.
Beware unit markets
A lot has been written about oversupply in city apartment markets and this is likely to become an even bigger issue in 2018.
Brisbane has the most serious situation, with the vacancy rate in the CBD now around 9%, according to SQM Research. Neighbouring Fortitude Valley is about 7% and half a dozen near-city suburbs have similar problems.
The inner city has been the weakest point of an overall down Perth market in recent years and the unit market is likely to lag the general recovery in the capital in 2018. Residential vacancies in the CBD and near-city suburbs remain around 6%.
The consensus about the looming innercity glut in Melbourne was broken when BIS Oxford Economics issued a reassessment late in 2017, suggesting higher-than-expected population growth would absorb the high levels of new supply.
Most, however, remain in the oversupply camp, as 2017 ended with Southbank and Docklands showing vacancies rising towards 4% and lots of new high-rise coming out of the ground, at a time when the Melbourne market is winding down and government is discouraging foreign investors, who were the primary targets for many developers.
Sydney will have emerging issues in its apartment markets in 2018. The suburbs in and around the Olympic Park precinct have vacancies rising while sales activity generally is falling. The Homebush, Breakfast Point and Wentworth Point postcodes all have vacancies in the 5%-6% range.
There are potentially similar issues for suburbs between the Sydney CBD and the airport, where unit development has proliferated and lenders are increasingly reluctant to finance purchases. Parramatta and its neighbours are another danger precinct.