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Which Capital City will do their best this year?

Monday, February 03, 2014

By Jessie Richardson
Friday, 17 January 2014

With 2013 well and truly behind us, Property Observer is looking forward to the year ahead. We’ve asked four market experts to weigh in on where we’ll see the best capital growth this year.

Which capital city will perform the best in 2014?

Charles Tarbey - chairman of Century 21 Australia

BRISBANE IS THE NEXT TO MOVE

Brisbane. During the last year, other capital cities moved up in price far more than Brisbane did. And if I look at the three most vibrant ones – Brisbane, Sydney and Melbourne, the last two had the strongest growth. Three years ago, Brisbane and Sydney had very similar prices. But in the last 12 months, Sydney’s median prices have jumped almost 14%. The median price in Sydney is now close to $750,000, while it’s around $445,000 in Brisbane.

Sydney investors used to sell their properties in Sydney to downsize and buy in Brisbane, and still have a quarter of a million left over. That stopped three years ago, but now it’s back on the table.

If you look at discretionary spending, the majority of people who buy in the Sunshine Coast are from Melbourne. And as capital gains in Melbourne have increased, there’s a very big discrepancy in the prices of those sorts of properties in Melbourne and those currently available on the Sunshine Coast.

Brisbane and the surrounding areas have stayed flat in recent times, in part due to the floods, along with other factors. Astute investors will be picking up on those areas.

Victor Kumar - Director and Principal of Right Property Group

BRISBANE IS CERTAINLY ONE TO WATCH AS SYDNEY HEATS UP

Growth in any area generally follows a period of higher yields (annual rent expressed as a percentage of purchase price), if all other fundamentals remain the same. Given that money is fairly cheap, where you can get sub 5% interest rates on loans, the higher yielding suburbs, and indeed states, will and have seen a buying frenzy.

The result of this is that there is excessive heat in the market. Buyers, and indeed first time investors and home owners, are starting to pay over the top in a bid to get into the market, in the hope of not missing out on a good growth spurt.

Adding to that volatility, there are a lot of investors jumping into the market with their super funds, taking a longer term view on their purchases and who are therefore not fazed about paying a few thousand dollars extra to be ahead of the competition. There certainly will be a substantial increase in pricing in most metropolitan areas.

Given that Sydney traditionally has been yielding 6.5% plus properties in areas that show good investment fundamentals, the market is in an absolute frenzy with the lower interest rates, and the added bite of new year’s resolutions and so forth, it is generally a market I would not buy in unless there are notable price points between new and old. Certainly, I would be concentrating more in the mortgage belt and coastal areas, so that when the heat does go out of the market at some point in time, there isn’t such a major correction.

Brisbane is absolutely the other market to watch. Rising prices in Sydney are leading to reducing yields, and Brisbane’s lower priced (in comparison to Sydney’s) properties will be giving the high yields most seasoned investors are accustomed to. There will be a natural influx of out of state investors there, which will and has led to a strong market recovery.

Generally if you are buying here, this year you will see good growth, and yields will decrease. Naturally my preference is on established properties in the mortgage belt area here outside of the flood zones.

Melbourne, in the suburbs where the fundamentals do work, is never going to be a high yielding proposition, yet the growth is likely to be pretty good, given the infrastructure changes and the influx again of self-managed super funds and out of state investors seeking new markets. It’s likely to show good strong growth.

Perth, Adelaide and the other main cities in the country are, in my opinion, likely to lag behind these three areas (Brisbane, Sydney and Melbourne) in terms of growth in 2014.

The point to note in all of this is that whilst the market in each state is being driven by factors such as media attention, lower interest rates, more buyers in the market and good infrastructure, even though a state is highlighted for growth or decline, there will still be pockets within these states which will be bucking the trend. Therefore due diligence is required before jumping into a state or suburb just because everyone else seems to be investing there.

Tim Lawless - Head of Research, RP Data

BRISBANE SHOWING STRONG FUNDAMENTALS

Brisbane is arguably the best example of a city showing strong fundamentals. Gross rental yields are amongst the highest of any capital city (4.6 per cent for houses and 5.6 per cent for units), housing prices are much lower than Sydney and Melbourne (the median house price in Brisbane is 36% lower than Sydney’s and 24% lower than Melbourne’s). Population growth is strong and there hasn’t been a substantial uplift in new dwelling supply, indicating a persistent undersupply of housing. Rental vacancies are around the 2% mark according to the REIA which is likely to drive rents higher as well.

Perth’s housing market has likely passed peak growth conditions. We are seeing rental rates now tapering as Perth vacancy rates rise, transaction numbers are trailing off and yields are slightly below average. We are also seeing the rate of overseas and interstate migration into Western Australia slowdown, which is likely in response to a wind down in the major infrastructure project pipeline that is evident across many of the resource intensive regions of the state.

It is logical to expect those markets that have been very ‘hot’ in terms of capital growth will naturally start to cool over the coming year, in fact we may already be seeing early signs that peak capital gains have passed in Sydney and Melbourne.

The key challenge for those investing in the housing market over the coming year will be to balance rental income with expectations for capital gain. In our view, investors should be approaching the housing market with a balanced strategy: seeking out homes that will provide opportunities for long term capital gains whilst also returning a healthy rental yield. With typical yields across Sydney and Melbourne now below 4 per cent for houses and slightly higher for units, finding balanced investment opportunities that offer both rental income and prospects for capital gain are becoming more difficult.

Catherine Cashmore - Market analyst

A NUMBER OF CAPITALS TO BENEFIT, BUT A SLOWDOWN IN 2015

There is nothing to indicate any slow down in the market's overall direction in 2014 - but I do think it will come in 2015.

Canberra and Adelaide are likely to remain soft however investors are the main players in this cycle and Sydney (gains of which could be in excess of 10%,) followed by Melbourne, Perth and Brisbane (+ 5-8%) are all set to benefit.

There are potential headwinds for the economy - as most are aware, job security is a factor for many buyers - unemployment is trending upwards and the Government is accentuating the problem with its unhealthy obsession to restore a surplus.

To offset this, money is flowing into the local established markets via strong immigration from China and India, for example, with other factors such as an increasing amount of wealth in self-managed super funds, which is a strengthening trend.

Interest rates are likely to remain low - which will assist mortgage holders and investors and for those entering the market, the concentration is most likely focused on their monthly payment rather than total upfront cost. However it's that upfront cost and the shortage of affordable supply, which will continue to deter first time buyers.

No doubt, the winners in this market have been - and will continue to be - investors and second time buyers - however, a growing and very vocal minority of low income earners and first time buyers, are starting to question the legacy they have been left with.

It won't change the current cycle, or stop the speculation - but perhaps it will inspire a much needed debate on the long term, feasible, and sustainable solutions.

The Message for 2014: Choose your Location Very Carefully

Thursday, January 09, 2014

By Terry Ryder
Wednesday, 20 November 2013

 

The experience of 2013 has taught investors, once again, how careful they need to be in their location choices.

When markets are rising, as some have this year, investors can be deceived into believing that any purchase will give them growth.

That's especially so when some media would have us believe that "the Australian property market" is white hot. The reality is that only a very narrow strip of real estate Australia has conditions remotely resembling a boom.

Most cities and regional areas have recorded moderate growth this year and others have struggled, with a few over-supplied markets in sharp decline.

The last time a property boom swept the nation, encompassing almost everywhere, was ten years ago.

These days, buyers have to be selective. A poor locational choice can result in an under-performing property surrounded by rising markets.

The latest House Price Indexes from the Australian Bureau of Statistics, describing annual growth to September, have Sydney as the only city with a double-digit increase. Melbourne and Darwin (6-7%) have had moderate growth, Brisbane has grown just 4% and Canberra, Hobart and Adelaide have stagnated.

In regional Australia, selected cities and towns have done very well this year, including a few where annual growth has topped 20% - among them Miles and Cloncurry in Queensland and Narrabri in New South Wales.

Some have had sharp corrections, due to local conditions. Notable examples are Queensland coal mining towns like Moranbah and Blackwater, and the iron ore town of Newman in Western Australia.

Moranbah demonstrates the volatility of pure mining towns: once the number one location in the nation for capital growth, it has recorded a 37% decrease in its median house price in the past 12 months, according to Australian Property Monitors figures.

Newman, which saw its median top $800,000, has recorded a median below $500,000 with its most recent sales. No doubt it will rise again when the massive Roy Hill mine cranks up construction. I couldn't sleep if I owned property in places like this.

This week I was in Central Queensland, which provides a case study in the variations that can exist across quite short distances. Gladstone, a city with high real estate demand but way too much supply, has recorded a marked decrease in prices and rents. The median house price for the suburb of Clinton is down 10% and South Gladstone has dropped 8%.

In Mackay, where new supply has coincided with a drop in demand thanks to a downsizing coal industry, the previous strong growth has halted.

Meanwhile, in unheralded Rockhampton, sales volumes have increased and prices are following. The city has more economic diversity than Gladstone and Mackay, with less reliance in resources. It's also considerably cheaper.

The message for 2014 is to choose locations carefully. These is no national property boom and while I expect Brisbane to rise and Perth to continue to be strong, most cities will deliver only moderate growth and some, like Canberra, will struggle.

Home Values are Increasing

Monday, December 09, 2013

 

Capital city home values are increasing at their fastest pace in three years, according to the latest RP Data quarterly review of the residential property market.  

The report found that, over the three months to October, home values across the combined capital cities rose by 3.4%, and that combined capital city home values have been trending higher since they reached a low in May last year. They have increased by 10.2% since then.  

Home values across all capital cities have risen by 7.9% over the past year, and, over the 12 months to October, house and unit values have risen by 8.2% and 5.9% respectively.  

Over the past three months, both house and unit values have increased by 3.4%.  

 

 

Annual change in dwelling values – year ending Oct ‘13

 

By Stephen Taylor
Wednesday, 04 December 2013

 

Is now a Good Time to Buy?

Wednesday, November 13, 2013

 

 

According to a recent RP Data survey, 74% believe that now is a good time to buy a property. And Brisbane and Regional Queensland are deemed to be in the Top 4 locations of where to invest.

Conversely, 74% of Sydney-based respondents though that, with the over-heating in the market, now is a good time to be selling Sydney property.

Australia's Top 4 Capital Cities are outperforming our regional areas for capital growth - ANZ Bank

The ANZ Bank recently released findings confirming capital city markets are outperforming regional areas. It said that Australia's non-capital city house price growth has underperformed that of the capital cities since the beginning of 2013.

More Reasons for Property Prices to Rise

Friday, October 04, 2013

Housing supply seems to be falling further and further behind demand.

Each year we build fewer and fewer houses. And over the last ten years, growth in the housing stock failed to keep pace with population growth. This is the first time this has happened since WW2!

This has a few really important implications.

The first is that all this talk of a bubble is completely over-blown. (hey? How’s that for a pun? Put that in a Christmas bon-bon.)

Because unless there’s a glut, then there can’t be a bubble, and unless there’s a bubble, then there can’t be a bust. This is one of the most important differences between the Australian story and what happened in America.

We also know that if supply is falling further and further behind demand, then there must be upward pressure on prices. This is as true of housing as it is of any market.

And so this supply shortfall goes a long way to explaining the trend increase in house prices we’ve seen over the past 50 years or so. Not the full story, but a fair bit of it.

And supply doesn’t look like it’s going to come bouncing back anytime soon. This means we can expect to see continued upward pressure on prices.

And all that is true for a given level of demand. But the truth is that there are major structural and demographic changes happening on the demand side that mean the supply and demand gap is getting even bigger.

Which of course means we’ll see bigger and bigger price increases.

So what’s happening on the demand side?

Well, in a nut shell, we’ve seen a bunch of changes that means we need more houses for the same number of people. That means that actual demand for housing is actually growing even faster than population growth, which itself is already growing faster than supply.

Over the past 50 years there have been significant changes in the way we live. Take average family sizes for example. As fertility rates dropped, average family size has been on a steady downward decline for decades now. That means we need more houses to accommodate the same number of people.

At the same time, family breakdowns have split many families in two, effectively doubling that family’s need for housing.

And what’s more, a steadily ageing population has resulted in more people living alone, again meaning we need more dwellings to house the same number of people.

And according to the 2011 census data, of the homeowners aged 70 and over who live alone, 62 percent have a house with three or more bedrooms. That adds up to 238,078 houses with at least three bedrooms occupied by just one person.

Among houses owned by older couples (with at least one partner aged over 70), 82 percent – or 332,752 houses – have at least three bedrooms.

And the Australian population is only getting older, so we’re going to need more and more housing. Some older people might downsize into something more practical, but people are generally reluctant to leave their communities and the family home.

Together, these structural and demographic factors – smaller families, more split families, more older single-person families – mean that the average number of people per dwelling has been on a long-run downward trend for over a hundred years!

That’s what this chart here shows:

 

What’s interesting here though is notice the small pick up between the 2006 and 2011 census. That’s the first rise in at least 100 years!

How do we explain that? Well, I don’t think there’s been any change in Australian preferences. What I think it reflects is tighter economic conditions through the GFC.

As money became tighter, people started share-housing, kids moved back in with their parents, or delayed starting out on their own.

If that’s true, what it points to is even more pent up demand. As economic conditions continue to solidify around the country, people will look to head back out on their own, and the average household size should return to trend.

And ultimately what the downward trend in household size means is that actual housing demand is growing faster than population growth. So if we know that population growth is growing faster than supply, then we know that actual housing demand is growing even faster than supply.

And this of course means more upward pressure on prices.

Of course, the other important factor here is the expansion of investor demand over the past 30 years or so. I’m planning to write a bit more about that later.

And so looking back at the past 30 years, it’s not hard to see demand for housing to live in, combined with demand for housing to invest in, running far, far ahead of supply.

And so when I look at the prices rises we’ve seen, I just don’t see a bubble. The price rises we’ve seen make perfect sense.

And I see these dynamic continuing to drive the market going forward. Unless there’s a slow down in the rate of population growth (unlikely) or an increase in the average household size (very hard to see where that would come from) OR there is suddenly a lot more supply brought to market (how?), then undersupply and growing prices will be the norm for many years to come.

Add to that the lowest interest rates in 50 years and a cyclical upswing out of a prolonged soft patch, and you’ve got all the ingredients of a boom.

Simple as that.

by: John Giaan

The Future Remains Bright for Mackay, Gladstone and Townsville

Friday, September 13, 2013

There are currently many investors who purchased in regional areas of QLD and have been disappointed by having to accept lower than anticipated rental returns. Negative media about the end of the resources boom have also left these investors thinking that they have made a bad investment choice. However now is not the time to panic.

When you dig deeper into what is actually happening in these regions and look at the longer term the future prospects for cities like Gladstone, Mackay, Emerald, Rockhampton and Townsville remain incredibly strong. We may have passed the peak of the investment stage but we are yet to begin receiving the billions of dollars of income once exporting begins. And we still have some massive projects due to commence that will employ thousands of workers.

Please see the following link to an article from Terry Ryder suggesting that bright days are ahead;

http://m.propertyobserver.com.au/residential/rocky-on-the-rise-as-gladstone-stumbles-terry-ryder-hotspotting-rockhampton-gladstone/2013052261590

The short term over supply of rental properties in Gladstone and Mackay should be absorbed by early next year. It may take awhile for rents to get back to their peak levels but the potential for above average capital growth remains very strong. The Gladstone metropolitan area is fast running out of land that can be developed at an affordable price. Most future development will be around 20 minutes away in Boyne Island/ Tannum Sands or Calliope. While there is more land around Mackay capable of being developed you are no doubt aware of how long it takes for the Mackay council and local developers to bring the land to market. And most land left is either low lying or very hilly, meaning the cost to deliver lots is higher.

We are very confident is the medium to long term prospects for these regions an hope that investors can be patient. If they hang on happy days are ahead.

 

By: Chris Halpin

Who Said Mackay is Over!

Monday, September 09, 2013

 

The train is departing, All aboard!

The Daily Mercury yesterday announced the opening of a BHP Daunia mine and has created over 900 jobs while boosting the economy by $1.4 billion.

Relate this to another story they printed yesterday informing us of another airport upgrade which backs up the recent million dollar refurbishment.

"Mackay's perfectly positioned to be Central Queensland's integrated transport hub, so we're in the sweet spot for the Bowen Basin. Mackay is the capital of the Whitsundays so this is the place that people want to come through."

Now, combine all of this good press with the attached housing boom predicted from the election and we have the perfect storm for buyers to invest in Mackay.

See all three articles here:

  1. Airport Upgrade
  2. Daunia Mine Creates Over 900 Jobs
  3. Abbott will Trigger a Housing Boom

Specific Property Advice - Press Release

Friday, September 06, 2013

Here is a press article link about HNW Planning and an exciting initiative with direct property:

http://www.wealthprofessional.com.au/news/firm-delves-into-property-advice-178917.aspx .

It’s mostly but not entirely accurate. 

There will be education and professional membership standards required before you can start to provide Specific Property Advice. We will publish these details as soon as possible. We are trying to time the publishing of details, re-writing of Controlled Documents and other requirements to a second important initiative that’s being explored. 

Being able to offer Specific Property Advice may be a great way for you to increase your revenue. There are many clients who need specific property advice and there is no real source of that professional advice that is not otherwise limited in what that adviser can say or do OR who actually represent the vendor. Examples may include:

  • How to manage a property in old age (aged care) scenarios
  • Young couple seeking a strategy to enter the property market (buy big now or buy little and upgrade later)
  • Mature investors
  • Up-graders looking for strategies to minimise their personal debts when transacting on properties
  • SMSF property investors.

Significant Opportunities

With two thirds of wealth in property, opportunities are significant. 

And because you'll be able to advise on old and new property you’ll be able to strike up meaningful relationships with suburban real estate agents. 

Note that there are no exclusive arrangements as implied in the article but those mentioned in the article have been of great assistance to the process of gaining the new PI Insurance. 

Remember - Specific Advice can’t be done without training and professional membership. Details to follow as soon as possible. 

Kind regards,

 

David Hamblin

Operations Manager

 

HNW Planning Pty Ltd AFSL 225216

Look Beyond Population Growth to Supply Side Criteria

Friday, May 24, 2013

Some advisers recommend the PIE buying formula – P.I.E. being Population growth, Infrastructure and investment, and Employment opportunity and diversity.  

The theory is that a location with those three elements at work will deliver real estate growth. As a method of reducing principles down to a digestible and easily-understood formula, it’s a reasonable approach.  

But some base their investment strategies on the P only. They believe that following population growth is the key to successful property buying. That is not only simplistic, it’s dangerous.  

I often receive emails from investors questioning why certain high population growth areas don’t feature is my hotspotting reports. They’re bemused because someone has advised them to buy in the population boom locations.  

They're making the mistake of looking at only one side of the equation - demand. The other side of that equation is supply - and that's where the problem lies.  

Developers invade the high-population-growth places - and often build too much new product. No matter how high the population growth rate, it won’t create capital growth if developers generate an over-supply.

That’s why many of Australia’s leading population growth areas have some of the worst-performing property markets. You could almost argue that rampant growth in resident numbers is a signal for property buyers to stay away.

The Gold Coast is the most obvious example. It has been a national leader on population growth for 20 or more years, but is a habitual under-achiever on capital growth thanks to over-building by developers. It is currently showing glimmers of recovery, after five dreadful years, but I would hesitate to recommend it to investors because we can be confident developers will do it all over again, as they have many times in the past.  

Five years ago I was interested in the Wyndham and Melton municipalities in Melbourne, because they had many of the growth-generating factors I look for in a hotspot. After initially delivering good real estate performance, they declined as developers moved in and over-supplied those markets with house-and-land packages.  

Today, both those locations have poor capital growth rates, well below city averages. Over-building has meant vacancy rates have been 6% or 7% or higher for much of the past three years (although more recently vacancies have come down to more acceptable levels in both Melton and Wyndham).  

The same syndrome is now impacting a couple of Queensland’s boom cities. Both Gladstone and Mackay have sharply rising vacancies, despite their myriad growth factors, because developers have overshot again.  

Both places have strong futures, thanks to their links to the resources sector and their expanding export facilities, but right now investors need to be cautious and selective.  

The overall message for investors is that they need to look beyond population growth and ask deeper questions – including questions about vacancy factors and the amount of new housing supply in planning.

 

Author: Terry Ryder  

Independant Professionals Agree with WFS Strategies and Advice

Monday, May 13, 2013

An investment journey begins for Wholistic Financial Solution clients - Glen and Natalie Dickie. These two clients have made it into a 4 page article in the Australian Property Investor Magazine where professionals have agreed with Catherine’s advice and strategies!

Click here to read the full article!


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