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We’re a few days into the new year and what a year 2018 was! The residential property market has dominated mainstream media, with major markets softening, and economically, we’ve had a mixed run. Investment financing underwent significant changes - with regulatory interventions and tightening on investor loans, plus potential changes to negative gearing - continuing to impact consumer sentiment relating to housing market conditions. That being said, the downward pressure on national dwelling values is largely confined to Sydney and Melbourne, but with these two markets accounting for around 40% of all Australian homes and 55% of total housing wealth, the price movements here influence nationwide price measures. Luckily, Australia is a big place, and some of our regional areas continue to offer excellent outcomes for those who dare to venture beyond the capital city limits.

So let’s take a look at the November data:

Sydney

• November: Capital Growth, Units: - 0.9%

• November: Capital Growth, Houses: - 1.7%

• Median Dwelling Price, Units: $721,265

• Median Dwelling Price, Houses: $935,713

• Gross Rental Yield, Units: 3.8%

• Gross Rental Yield, Houses: 3.0%

• New South Wales Unemployment Rate (Nov): 4.4%

• Property Cycle, Units: Declining Market

• Property Cycle, Houses: Declining Market

Sydney has re-overtaken Melbourne as the market with the largest price declines this year, with values now falling 11 percent since they peaked in July last year. Auction clearance rates have weakened substantially, now consistently sitting at sub 50 percent; down from around 60 percent this time last year, and 80 percent this time in 2016. Properties are also taking longer to sell (around 50 days compared to 30 days a year ago), meaning that although new listings are down 8.2 percent, the total number of listings is up by 16.7 percent from this time last year. Some sub-markets have been more resilient than others, particularly the inner city and eastern suburbs, however, eight of the bottom ten sub-regions for changes in dwelling values are in Sydney, with three of those having double-digit declines in the year to October. As this correctional phase continues, property investors and homebuyers with finances sorted are provided more choice and less urgency, providing for a strong negotiation position on price.

Melbourne

• November: Capital Growth, Units: 0.5%

• November: Capital Growth, Houses: - 1.2%

• Median Dwelling Price, Units: $550,389

• Median Dwelling Price, Houses: $768.929

• Gross Rental Yield, Units: 4.2%

• Gross Rental Yield, Houses: 3.0%

• Victoria Unemployment Rate (Nov): 4.6%

• Property Cycle, Units: Declining market

• Property Cycle, Houses: Declining market

While Melbourne’s property prices are likely to fall a little further in the new year, they’re underpinned by a robust economy, jobs growth and immigration. In fact, Melbourne was recently determined to have the best property investment and development prospects, according to the Emerging Trends in Real Estate Asia Pacific 2019 report by the Urban Land Institute & PwC. That ranking was due to a good yield spread in comparison to the cost of debt, a market considered to be deep and liquid, while also having solid rental growth potential. It’s also worth digging into sub-market performance, with premium dwelling values down 9.9% over the past year, while the most affordable quarter of the market has recorded a 1.7% rise in values. Meanwhile, booming regional Victoria is one of the strongest property markets in Australia right now, as demand continues to ripple outwards from Melbourne. Geelong, in particular, is defying the market trend, recording a positive twelve month growth rate of 11.8 percent for the region. Similarly, Ballarat and Bendigo are on a strong growth cycle, buoyed by favourable affordability, improving infrastructure and strong rental yields.

Brisbane

• November: Capital Growth, Units: 0.0%

• November: Capital Growth, Houses: 0.1%

• Median Dwelling Price, Units: $382,158

• Median Dwelling Price, Houses: $542,273

• Gross Rental Yield, Units: 5.3%

• Gross Rental Yield, Houses: 4.2%

• Queensland Unemployment Rate (Nov): 6.4%

• Property Cycle, Units: Approaching bottom of market

• Property Cycle, Houses: Rising market

After years of slow growth, the Brisbane property market is emerging as a solid performer; unexciting but safe, with the most potential for growth over the next few years. Whilst interstate migration numbers continue to improve, job prospects remain flat, so lifestyle migration was the key driver this year. That being said, Brisbane did gain a more positive profile in 2018 as plans for major infrastructure projects became well established. There was a continued air of excitement around new works such as Queens Wharf, the Howard Smith Wharves, and a number of transport initiatives, that will stimulate job prospects and boost future appeal to industry and new residents.

The Sunshine Coast also remains one to watch, with strong activity and good increases in values experienced in most areas. The high volume of sales recorded throughout the market in the first half of the year had the effect of lowering stock levels and increasing upward pressure on values, with only a slight softening in the second half. Moving forward, conditions will be supported through increased tourism and numerous infrastructure projects; the Maroochydore CBD and Sunshine Coast Airport expansions are progressing, as are upgrades to the Bruce Highway. The next big game changer recently announced is the Sunshine Coast International Broadband Submarine Cable project, which is set down for completion in 2020. This will deliver Australia’s fastest telecommunications connection to Asia and the second fastest to the United States, with the potential to transform the area into a tech hub, driving sustained jobs and population growth.

Adelaide

• November: Capital Growth, Units: - 0.5%  

• November: Capital Growth, Houses: 0.2%

• Median Dwelling Price, Units: $325,976

• Median Dwelling Price, Houses: $469,822

• Gross Rental Yield, Units: 5.3%  

• Gross Rental Yield, Houses: 4.1%

• South Australia Unemployment Rate (Nov): 5.3%

• Property Cycle, Units: Start of recovery

• Property Cycle, Houses: Rising market

Adelaide has bucked the trend of other major capitals and has grown steadily over the past 12 months, albeit more tortoise than hare. With low-interest rates and a booming east coast market, the general consensus was that the steady growth of the preceding years would continue, and we’ve indeed seen a median value increase from $450,500 in the September quarter of 2017 to $470,000 this year. Some market segments have out-performed others, with the greatest gains seen in the inner and middle rings. Key clearance data from auctions and other market factors continue to suggest Adelaide may be following the trend lines of what we saw in Hobart pre-boom, so this is definitely one to keep an eye on in the new year.

Perth

• November: Capital Growth, Units: - 0.6%  

• November: Capital Growth, Houses: - 0.8%

• Median Dwelling Price, Units: $371,822

• Median Dwelling Price, Houses: $475,067

• Gross Rental Yield, Units: 4.7%

• Gross Rental Yield, Houses: 3.9%

• Western Australia Unemployment Rate (Nov): 6.5%

• Property Cycle, Units: Approaching bottom of market

• Property Cycle, Houses: Bottom of market

Perth’s housing market overall remained relatively stable but fluctuated significantly by sub-region. Even pairs of neighbouring suburbs have seen significantly varied growth rates, proving that small differences in location, amenities and supply can impact overall performance. With promising signs for the economy - as net migration figures and consumer sentiment appear to be set to rise - the market continues to be one we sit and watch.   

Hobart

• November: Capital Growth, Units: 1.6%  

• November: Capital Growth, Houses: 0.5%

• Median Dwelling Price, Units: $366,251

• Median Dwelling Price, Houses: $486,406

• Gross Rental Yield, Units: 5.1%

• Gross Rental Yield, Houses: 4.8%

• Tasmania Unemployment Rate (Nov): 5.8%

• Property Cycle, Units: Approaching Peak of market

• Property Cycle, Houses: Approaching Peak of market

Hobart and regional Tasmania continue to be the standouts for capital gain, with values up 1.7% across both regions over the past three months. In fact, Hobart is the best performing capital city this quarter, driven by continued, robust housing demand coupled with a supply shortage. Over the past twelve months, Hobart dwelling values rose by 9.3%; by far the strongest conditions across any of the capitals. Similarly, Launceston has continued an upward price trend, Davenport continues its recovery and regional centres continue to benefit from the upside of the ripple effect as pricing flows out from the major centres. There has also been a swing back to holiday houses along the east and north coasts as buyers are taking advantage of their new equity to buy that shack by the beach.

Darwin

• November: Capital Growth, Units: 0.5%   

• November: Capital Growth, Houses: 0.8%

• Median Dwelling Price, Units: $309,927

• Median Dwelling Price, Houses: $510,650

• Gross Rental Yield, Units: 6.5%  

• Gross Rental Yield, Houses: 5.3%

• Northern Territory Unemployment Rate (Nov): 5.0%

• Property Cycle, Units: Approaching bottom of market

• Property Cycle, Houses: Bottom of market

2018 was a difficult year for the Darwin residential property market. The volume of house sales is down 4.3 percent from 2017, and the median house price is down to $497,500; the first time it’s dipped below $500,000 since 2009. Rental yield remains the highest in the country, but we’re starting to see this trend lower as dwelling value movements outpace rental movements. The NT Government is doing its best to prop up the economy with a number of construction projects kicking off throughout the year, but these projects won’t be enough to inject the much-needed population boost, so regional towns elsewhere remain stronger options for investment as we head into 2019.

Canberra

• November: Capital Growth, Units: - 0.1%    

• November: Capital Growth, Houses: 0.8%

• Median Dwelling Price, Units: $438,695

• Median Dwelling Price, Houses: $668,925

• Gross Rental Yield, Units: 5.7%  

• Gross Rental Yield, Houses: 4.4%

• Australian Capital Territory Unemployment Rate (Nov): 3.4%

• Property Cycle, Units: Declining market

• Property Cycle, Houses: Rising market

Over the past twelve months Canberra dwelling values are up 4.1%, and this trend is likely to continue. On a macro level, the residential market has a depth driven by a number of underlying positives, including generally strong employment and a stable economy. In particular, detached housing saw a steady-strong growth throughout 2018, owing to high demand with limited stock. This was especially prominent in the Inner North and Inner South. The tightest rental markets also continue to be in Canberra and Hobart, where strong rental demand hasn’t been accompanied by a sufficient rise in supply. An increasing proportion of rental properties moving into the short-term rental pool is also supporting some upwards pressure on rents.

As we head into 2019, its critical buyers continue doing their due diligence; looking into historical and economic data, as well as real-time sub-market movements. and cutting the noise from doom-and-gloom headlines. One great measure to consider is Core Logics Home Value Index, which tracks month-to-month movements in the value of the housing market. Rather than relying solely on transacted sale prices, it’s based on a ‘hedonic’ methodology, which takes into account the attributes of properties that are transacting, such as the number of bedrooms and land area. This is one of the measures that we analyse - along with stock levels, market shifts and on-ground research - when conducting due diligence for our client purchases. If you’re thinking of renovating or purchasing in Australia and simply unsure how to progress please get in contact to see if we can help.

Sources: CoreLogic/Herron Todd White/Australian Government, Department of Employment/SQM Research/Australian Bureau of Statistics.

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