PROPERTY REPORT – September 2017

Property Report – September 2017

Quarterly Market Report September 2017

By Terry Ryder

Introduction: Major Change Coming To Markets Around Australia

Property markets around Australia are entering a phase of notable change. Cities that have been leading on price growth have passed their peaks, while some which have under-performed in recent years are now showing better outcomes, and others that have been in decline for local reasons are now showing signs of recovery.

This reinforces a persistent theme in these quarterly reports: that there is not one property market in Australia, but many different ones influenced primarily by local conditions. It also reminds us that markets are in a state of flux – not rapidly, as property is a slow-moving creature, but change occurs over time.

So now we are seeing adjustments in the pecking order of capital cities, in terms of price growth and the overall condition of their property markets.

I noted in the previous report three months ago that “there are growing signs that Sydney and Melbourne will slow down, both Hobart and Canberra are rising, and Perth and Darwin appear to have touched bottom, with hope of recovery”. I also said there are similar evolutions happening in regional markets across the nation”.

The past three months have confirmed those impressions. Sydney is no longer the national leader on price growth, with one research source ranking Hobart No.1 on capital gains over the past year.

Brisbane and Queensland

Under-Achieving Brisbane May Improve On The Back Of Jobs Generation

A recent analysis of the Brisbane market commented that the city had under-performed expectations in recent years and that the missing element in the equation was jobs growth.

There’s some truth in that assessment – and, if it’s on the mark, we can expect improvement in Brisbane markets in the near future, given the latest official data on jobs creation.

As I state in the “National Overview” section of this report, there is a strong correlation between the health of the state economy and the strength of the capital city property market.

Queensland’s economy, which traditionally has been towards the top of the national rankings, recently has been a lukewarm performer. The downturn in the resources sector has been a factor in this and the state’s historic status as a leader on population growth has been diluted.

Brisbane’s property market has been solid overall, with some individual sectors showing good price growth – but the general trend has been only very moderate growth. The state economy has been under-performing and so too has the capital city property market. Most research sources report house price growth averaging around 3% or 4% per year in recent times.

But new data shows two important changes: Queensland is gaining more from interstate migration than any other state and the state is now creating more jobs than any other state.

Since the start of 2017, according to ABS figures, Australia has created 202,000 new jobs and 71,000 of them have been in Queensland, well ahead of NSW in second place.

This adds to growing momentum in the Queensland economy, helped by growing export earnings, a revival in the resources sector and big spending on infrastructure in the tourism sector.

Many analysts and commentators have been expecting solid growth in the Brisbane property market (including me) but to date Brisbane has disappointed, other than in individual pockets which have out-performed.

With jobs being created, population growth rising and interstate buyers showing greater interest in Brisbane because of the price differential with Sydney and Melbourne, better things are expected.

The most active markets now are the affordable ones in the outer-ring areas of Brisbane: the Moreton Bay Region in the far north, Logan City in the south and Ipswich City in the far south-west. These precincts all offer affordable dwellings, major employment nodes and good infrastructure.

But investors need to be careful about where and what they buy. Some of the Brisbane apartment markets need to be avoided.

There’s no doubt about the status of Brisbane’s inner-city unit market – over-supplied, with high vacancies, and set to get worse – although some entities like the REIQ have tried to deny the undeniable.

Further evidence comes from a growing trend of developers offering kickbacks to secure buyers or ensure existing contracts settle.
We have also had a dozen Brisbane postcodes named in a blacklist by lender Citi, which includes core inner-city suburbs like Hamilton, New Farm, South Brisbane and Brisbane City itself.

Corporate recovery firm Ferrier Hodgson says “crunch time looms” for the Brisbane apartment market, advising financiers and developers to prepare for multiple scenarios.

“With all the headwinds facing the apartment sector in Brisbane, we expect prices for new apartments to decline, as will sales volumes for off-the-plan apartments, with settlement risk being a significant concern,” a Ferrier Hodgson report says.

The report suggests the inner-city problems are spreading to the middle-ring suburbs. This has been recorded previously by Hotspotting, with vacancies high in a number of middle-ring suburbs, especially north of the Brisbane CBD. Our “No Go Zones” report has said that suburbs such as Albion and Chermside should be avoided as much as the near-city markets.

Ferrier Hodgson agrees: “While inner-city areas such as Newstead, Fortitude Valley, West End and South Brisbane will face these pressures, we have heightened concerns for developers and financiers with exposure to middle-ring suburban areas such as Albion, Nundah, Cannon Hill and Chermside where significant apartment projects are completing now and throughout the rest of 2017.”

Some developers are offering rental guarantees to lure buyers, a practice used only when markets are weak.
The renewed population exodus into South East Queensland isn’t all going to Brisbane. Both the Gold Coast and the Sunshine Coast have been attracting their fair share of the growth. And both areas are generating jobs through the size of their infrastructure spend.

As a result, both have busy property markets, with the Sunshine Coast continuing to stand out as a market that’s thriving as its economy transitions to greater strength and diversity.

The Gold Coast property market has been busy but, as with Brisbane, buyers need to differentiate between housing markets and the high-rise apartment market.

Townsville is Queensland’s comeback market. The current statistics on prices, rents and vacancies don’t look so attractive but the city economy is primed for a growth surge, with multiple large projects set to have a big influence. It’s a market to watch – and one where the buying currently is good, following several below-par years.

In Conclusion

Forget Sydney and Melbourne: Focus On Some Of The Smaller Capital Cities

The general theme of this edition of the Quarterly Market Report is that major property markets are tied to local economic performance – and the landscape is changing.

So where should real estate investors be focusing their attention?

The answer is: much less on Sydney and Melbourne, and considerably more on Hobart, Canberra, Brisbane and Perth.

Both the ACT and Tasmania have improving economies – and Canberra and Hobart are showing increasing signs of growth in their real estate markets.

The two major resources states, Queensland and Western Australia, are also showing strong signs of improvement. Since the start of 2017, Queensland has created more jobs than any other state or territory, and WA has also lifted its game on jobs creation.

For those and other reasons, I expect better real estate performance to emerge in both Brisbane and Perth. Just steer clear of the inner-city apartment markets in both places.