Property Market Report – December 2017

Quarterly Market Report – December 2017

By Terry Ryder

Introduction: What’s Coming Up For Real Estate in 2018?

The coverage of real estate in mainstream media is misleading and confusing at the best of times. But a bad situation is about to get worse.

You’re going to be reading a lot 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, rest assured that you can ignore it.

The problem is that most articles in our major media about the housing market are re-cycled press releases. And most of those media releases are brain farts from economists or attention-seeking businesses which lurk on the periphery of the real estate industry.

Their understanding of the complexities of our many different real estate markets is wafer thin. Here’s a clue: anyone who discusses the Australian housing industry as a single market is a pretender. And that includes most economists.

The reality is that, while the Sydney market is well past its peak and I expect Melbourne to be winding down soon, many other significant markets around the nation are just getting started on their growth paths.

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.

Brisbane and Queensland

Queensland Shows Why It’s Dangerous To Generalise About “The Property Market”

Queensland is the best example of my contention that there is no “Australian property market” but multiple individual markets, each doing its own thing, primarily influenced by local economic conditions.

Regional Queensland has more locations with growth markets than anywhere else in Australia – and it also has the greatest number of “danger” markets, the ones that smart investors would avoid.

Equally, the Brisbane metro area has several locations with good growth potential – as well as the market I regard as the weakest and most dangerous in the nation, the inner-city unit market.

Generally speaking, there’s a growing list of reasons to like real estate prospects in Queensland. The state is creating more jobs than any other state or territory, it’s the biggest winner from inter-state migration, exports are booming and there major signs of revival in the resources sector.

Each month when I write another of my quarterly documents, The Ryder Report, I include a summary of major project announcements in each state and territory. And every month Queensland has more significant action in this regard than any other part of the nation.

Some massive enterprises have made big announcements in recent times, including mining, energy, transport infrastructure, retail, commercial and residential projects. The level of investment pouring into Queensland is impressive and it bodes well for real estate demand.

This is partly responsible for bringing improvement in the prospects for Queensland regional centres impacted by the resources sector.

We’ve seen a reduction in vacancy rates in locations such as Gladstone and a marked improvement in sales activity in several regional centres including Townsville, Mackay, Rockhampton and Emerald.

The general improvement in the resources industry and the advancement of major mining projects is lifting both sentiment and activity in some of these cities.

There is also a generally positive vibe in the recently-published QBE Housing Outlook Report about these markets, albeit with a note of caution. The report suggests price growth is likely to remain subdued for a number of years although there might be investors re-entering these markets.

“The median house price in the Isaac Region has recovered slightly since bottoming out in March 2016, suggesting the worst is behind it,” the report says, referring to the region that includes the boom-bust coal town of Moranbah, plus others like Dysart.

“The market in Mackay looks to have also bottomed out. Its median house price also increased between December 2016 and June 2017, while vacancy rates tightened from over 9% in 2015, to 4.5% in June 2017.”

Beyond those resources-related locations now showing signs of improvement, the regional markets that stand out for me are the Sunshine Coast and Townsville. The Sunshine Coast is being transformed by major spending on infrastructure and other developments, while Townsville is recovering after a couple of difficult years and will be boosted in 2018 by new developments and the city’s links to the resources sector (including being the HQ for the $20 billion Carmichael mining project – if it happens).

The Gold Coast will generate hype over the upcoming Commonwealth Games but much of the lift has already been felt by the property market, which was busy in 2015 and 2016 as construction projects related to the Games, directly and indirectly, brought workers into the region.

The biggest impact felt by the Gold Coast property market may be a negative one: apartment over-supply as developers do what they always do, which is to over-react to a major event that might otherwise generate a property boom.

Many investors have turned their attention from Sydney and Melbourne towards Brisbane because of its cheaper prices and better rental yields. And, according to a HIA report, Brisbane remains among the county’s most affordable capital cities for residential land.

Brisbane’s median lot price is $239,500, behind Sydney ($470,000), Melbourne ($275,000) and Perth ($262,500).

Over the year to June 2017, there was little change in Brisbane land prices, in contrast to Melbourne where prices rose 20% and Sydney which rose 10%. Despite Brisbane’s modest price result, it was Australia’s third most active land market based on sale volumes recorded over the June 2017 quarter.

Affordable areas of the Brisbane metro area are expected to do well in 2018, headed by the Moreton Bay LGA on the northern fringes and Ipswich City in the far south-west.

I’ve warned many times in the past few years about the Brisbane inner-city unit market and the evidence is clear right now – vacancies are high and values are falling, at a time when demand from buyers is dropping.

Ignore the hype from developers and the REIQ, avoid this market – and focus on Brisbane’s affordable housing markets.

In conclusion

The Often Forgotten Topic of Rental Growth – And How Vacancies Influence It

Media obsesses over median prices and their growth – and seldom looks at other kinds of indicators about our major property markets.

Another core factor is rentals – and figures from SQM Research, run by experienced analyst Louis Christopher, indicate that few of our major cities have delivered much in the way of rental growth.

The cities which consistently have the lowest vacancy rates, Canberra and Hobart, are the only cities to deliver strong rental growth, while the capital with the highest vacancies, Perth, has the worst outcome with rentals.

Hobart’s vacancy rate fell to a record low of 0.3%. Christopher says it’s now the lowest on record since SQM started recording data in 2005. In Canberra, the vacancy rate dropped to 0.8% in October from 1.0% in September.

SQM’s Weekly Rents Index for Canberra is up 13% in annual terms for houses and 5% for apartments. In Hobart, house rents are up 5.4% and apartments rents more than 12%.

“In Hobart, the shortage of rental accommodation is the most severe, with just 75 properties available for rent in October,” Christopher says. “This has prompted a record low vacancy rate of 0.3% and higher asking rents, especially for units which were up 7.9% over the month to 12 November.”

None of the other cities have recorded rental growth as high as 5%, either for houses or for apartments. Perth, Darwin and Brisbane – the cities with the highest vacancy rates in recent times – all have negative figures on rentals.