Top property
The losers in 2019 will be those for whom research consists of absorbing headlines and sound bites. They will believe that the entity known as “the Australian property market” is in decline and that prices are falling across the nation. They will be spooked by references to a “credit squeeze”, the imminent price crash and the negative influences of a looming federal election.
Better-informed investors will be getting on with business.
The past year has reaffirmed the lesson that Australia does not have a single market and the norm is to have different scenarios playing out in different areas.
While Sydney and Melbourne markets declined, as we predicted 12 months ago, other markets delivered strong growth. Hobart and Canberra were the leaders among the capitals and many regional centres recorded double-digit growth in their median prices, with some topping 20%.
We can expect similar diversity in 2019. The catchphrase to keep in mind is: “Think small for big growth.” The coming year will belong to the smaller capital cities and to key regional centres.
Attention-seekers who know that negative forecasts ease the path to free publicity have gained prominence with predictions of nationwide price crashes. But most analysts and commentators – including Domain, BIS, SQM Research, Propertyology and most of the major lending institutions – are more optimistic.
Most have predicted solid price growth in the smaller capital cities, outperformance by specific regional markets and an easing of the Sydney/Melbourne downturns towards the middle of the year.
There’s an expectation that the tougher lending environment will be relaxed this year, nudged by the federal government and some of the major regulators, including the Reserve Bank.
The elephant in the room is the federal election. Consumers tend to delay major decisions when a national election looms, particularly one where the potential winner has policies likely to impact real estate.
The Sydney and Melbourne booms were led by the top-end suburbs, with prices, typically well above $1 million, rising first in the premium areas. The growth rippled out later to middle-ring suburbs and latterly to the outer-ring areas.
So it may be significant for Perth, Adelaide and Canberra that many of their million-dollar suburbs recorded double-digit growth in 2018, well above the average rates for those cities.
Canberra currently has seven suburbs with median prices above $1 million and all but one has recorded significant growth in the past 12 months.
The median price for O’Connor has risen 12% to $1.17 million, Ainslie is up 25% to $1.175 million, Narrabundah 16% to $1.045 million, Red Hill 7% to $1.475 million, Deakin 7% to $1.25 million and Griffith 11% to $1.55 million. In addition, two suburbs with median prices in the $900,000s, Lyneham (14%) and Garran (8%), have recorded good growth.
In Perth, where most suburbs have growth numbers still in the negative,
many of the prestige suburbs recorded double-digit increases in their median prices, pointing to the beginning of an up-cycle.
The Western Australian economy has improved and higher-income earners are the first to feel the benefits, translating into demand for prestige property.
Adelaide overall has delivered only minor growth but the millionaire suburbs outperformed in 2018, including Henley Beach and Henley Beach South (both up 19%), North Adelaide (14%), Glenunga (19%) and Glenelg South (31% but based on a small sales sample).
Rentals and vacancies
One source of regular misinformation is the tendency to treat movements in median prices as the only worthy barometer of markets. Problems with this arise when you compare price data from multiple sources and find wildly contrasting results.
Another important barometer that seldom gets media attention is provided by the numbers on vacancy rates and rentals. Long-term research suggests that a market up-cycle measured by strong price growth is often preceded by low vacancies and high rental growth – this happened in Sydney in the years before the 2013-17 price boom.
For several years Hobart has had vacancy rates well below 1% and high rental growth, and then more recently moved into a period of prices rising by more than 10%pa.
Canberra also has vacancies well under 1% and had rents rising by around 10% in 2018. At the same time, sales activity has been busy and the city appears poised for a period of noteworthy price growth.
Vacancy rates have been trending steadily down in Perth and Brisbane, and this is one of several indicators that suggest better market performance in these cities in 2019.
Big spending on infrastructure and strong local economies have been major factors in driving the booms in Sydney and Melbourne.
Hobart’s mini-boom also coincided with vastly improved performance by the Tasmania economy and increased infrastructure spending. This suggests the Adelaide, Brisbane and Perth markets are worth watching. The economies of South Australia, Queensland and Western Australia are all showing marked improvements, with jobs being created and unemployment generally improving.
Infrastructure spending is strengthening in these three cities. The 2018 Queensland budget included spending totalling around $40 billion and major projects like Queens Wharf, Cross River Rail and Brisbane Live will increasingly impact Brisbane markets.
The South Australian economy is strengthening and Adelaide has the nation’s most confident business community, according to some measures. It is the national capital for high-tech innovation and alternative energy, and this is creating economic activity and jobs.
The $90 billion in contracts to build navy vessels is a massive boost for a city the size of Adelaide. Meanwhile, there’s plenty being spent on roads, rail and medical infrastructure.
Rise of the regions
Now, more than ever, it’s important to be aware that it’s not all about the big cities. Last year the strongest markets were in the regions and that will continue in 2019.
Victoria provides an example of what’s happening: the Melbourne boom is over and prices and yields there are unattractive; home buyers out of Melbourne are targeting regional centres within commuting distance; investors are targeting major regional cities where prices are affordable and yields are more attractive; and the key regional centres have growth economies, with population, jobs, investment and infrastructure all expanding.
This has already caused mini-booms in property markets in Geelong and towns east of Melbourne, such as Pakenham, Officer and Warragul. Now Ballarat and Bendigo are being targeted. Expect significant growth in these strong regional cities in 2019.
There are comparable stories coming out of NSW, Queensland and Tasmania. There are also signs of improvement in regional Western Australia.
Terry Ryder is the owner and creator of hotspotting.com.au , which helps identify emerging markets. He has three decades of experience as a researcher and commentator.