NEWSLETTER #85

October 2016

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David Koch recently wrote an article which gave a clear synopsis of the two-speed property market that Australia has been experiencing over the past 12 months. He started with the good news for property owners, being that prices across our capital cities rose by 6.2 percent on average over the 12 months to August, according to CoreLogic RP Data, taking this figure to the highest level ever recorded.

Unsurprisingly, the main drivers of this increase were Sydney, where prices went up 9.1 percent during the period, and Melbourne, which went up 7.5 percent. We also saw more modest gains in Hobart (6.2 percent), Adelaide (4.8 percent), Brisbane (3.9 percent) and Canberra (2.9 percent). Hobart in particular is experiencing somewhat of a renaissance, with values rising 17.6 percent since June 2012 thanks to higher demand, tourism and employment opportunities.

Koch highlighted that the really positive news was that our booming major cities are finally showing signs of slowing down, and NOT crashing. According to CoreLogic head of research Tim Lawless, the annual growth in Sydney has more than halved over the past 12 months. And despite a few areas of concern, particularly in the inner-city Melbourne apartment market, it looks like there is still enough demand in our two major cities to support prices while annual growth slows to more reasonable levels. He believes we have simply seen a boom in these markets, not a bubble, and we’re returning to a more ‘normal’ cycle.

On the flipside, the outlook for property markets outside of Sydney, Melbourne and perhaps Hobart is more patchy. Demand for property in the smaller cities and across rural Australia simply isn’t as strong. This means price levels are far more tied to factors such as housing affordability, interest rates, rental yields, lending conditions, and, perhaps most importantly, oversupply, which has a downward pressure on prices. Favourable conditions have made it attractive for developers to build more and more apartments in places like Brisbane, for example, and this forthcoming flood is something to watch out for.

With the mining boom almost confined to the history books, things aren’t looking so rosy in mining dominated cities like Perth and Darwin. Prices in Perth dropped 5.6 percent on average in the 12 months to August, while Darwin prices dropped 7.6 percent, and it’s highly likely we’ll see ongoing falls or weak growth in the next 12 months.

In New Zealand property news, a new report released by global information and measurement company Nielsen has offered up some interesting facts. It found that nearly half a million New Zealanders (484,000) are planning to purchase, sell the property they live in, or sell another property (e.g. investment/holiday home) within the next 12 months.

Over three quarters of buyers (77 percent) are looking to purchase their primary residence while 17 percent are buying for investment purposes, down from 19 percent in 2015. Buyers expect to pay an average of $524,671 for a property, up by 3 percent compared to last year. Tony Boyte, Research Director at Nielsen said, “With interest rates currently at an all-time low, continued migration increases and a housing shortage, especially in Auckland, the demand for property is still pushing up house prices, albeit at a more measured pace.”

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More than one in two property buyers do not currently have a mortgage. Of those who do, ANZ bank is the most popular, holding a 15 percent share of the market, with 12 percent of people saying they are likely to change mortgage provider in the next 12 months. Boyte adds, “There’s an opportunity for those involved in the home loan market to attract those buyers looking for a mortgage and also those not entirely satisfied with their current provider.”

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