State-by-state property market update

As we are coming towards the end of the year it’s worth looking back to see how things have changed in our property markets… and boy have there been some changes.

We started the year with bad news coming from all directions and the prospect of Australia falling into recession. At the same time many economists were predicting residential property prices would collapse in Australia as they did overseas.

Yet despite all the doom and gloom, property values didn’t fall as much as predicted and the latest figures from Residex show that the recent surge in house prices in all capital cities other than Perth has undone the damage to the property market wrought by the Global Financial Crisis, and that our property markets are on the up and up.

Interestingly, Australia’s overall median house price growth for the year to September 2009 (4.62%) was the same as that recorded for the previous year to September 2008 (4%). Not bad considering all that went on over the last year.

During the last year the unit market outperformed the housing market and this is likely to remain a long-term trend; partly an issue of affordability and partly related to our changing demographics. With more single and two person households, and as our major capital cities mature, more Australians want to live in medium density housing near our major metropolises.

Let’s take a look at each capital city’s performance to get a better idea of what we can expect over the coming months and into the New Year.

Sydney
Median house price: $610,500 – 6.87% increase in last 12 months.
Median unit price: $427,000 – 8.24% increase in last 12 months.

According to recently released market forecasts from BIS Shrapnel; Sydney’s housing market is the one to watch as we approach the New Year. In fact, BIS predict a 21% increase in the median Sydney house value over the next three years.

I thing these forecasts are conservative, considering in the September quarter alone median house and unit prices increased by 5.66% and 2.32% respectively. This suggests that Sydney’s property market is set for a comeback after languishing for a number of years. There are now some great opportunities for investors to get back into the Sydney housing market and make decent long-term gains as things pick up over time.

Some buyers have asked me whether they have missed the boat as Sydney seemingly races ahead of the other capital city markets, but this is not the case, as median prices are still playing catch after virtually six years of no capital growth.

Of course you still have to be selective about where you buy and I would encourage purchasers to look at areas that have good public transport, established infrastructure and amenities and services that attract tenants and owner occupiers like shopping, restaurants and cafes, schools and recreational venues.

Our research shows that some Sydney suburbs have outperformed the average in the last three years; with a number of areas exhibiting up to 20% growth while many areas had median prices falling.

Specifically, some of the better areas that I suggest investors consider around Sydney for investment right now are in the eastern suburbs, the inner western suburbs and lower north shore suburbs, where there’s been consistent outperformance and it’s expected that this will continue in the medium-term.

Melbourne
Median house price: $524,500 – 8.87% increase in last 12 months.
Median unit price: $400,500 – 9.97% increase in last 12 months.

Improved economic activity is expected in Victoria over the coming months as unemployment levels drop and consumer confidence continues to rise. Add to this Melbourne’s ever increasing population and the ongoing housing shortage and things are looking pretty positive for the garden state’s capital city property market.

In fact Melbourne has been the prime performer over the past 12 months, with the median house price hitting a new record of $524,500 in September and median unit prices breaking the $400,000 barrier for the first time.

The Melbourne property recovery was initially fuelled by first home buyers, but now established home buyers are upgrading and investors have returned to the market.

Not surprisingly, leading the median price increase in Melbourne were the inner city suburbs that traditionally attract greater capital growth over the long-term. Investors are well advised to stick with these areas, particularly around the bayside and eastern corridors, as they have lasting appeal for both tenants and owner occupiers and always outperform the average. Again, this is largely due to those infrastructure drivers like transport, shopping and schools.

The upper end markets are making a comeback in Melbourne after stalling for much of the past year, with many blue ribbon areas experiencing increased competition at weekend auctions.

Over the past 10 years Melbourne medians have performed well, with an average increase of 10.16% per annum for houses and 9.88% cent for units.

Can we expect this to continue? With the twin factors of increasing demand and restricted supply, I can see only one way for property values to move and that is up.

Brisbane
Median house price: $452,500 – 1.59% increase in last 12 months.
Median unit price: $358,000 – 1.11% increase in last 12 months.

While Melbourne and Sydney performed well, the Brisbane market has been more subdued, with growth of only 0.06% in the last quarter. This is largely due to its state economy that’s taken a bit of a battering, primarily with a slowdown in its tourism and resources sectors. And this is despite the fact that Brisbane has recorded some of the most significant population growth in Australia over the past year.

All this suggests that Brisbane’s property market has some catching up to do as we head into 2010 and therefore presents some good medium-term investment opportunities.

Unlike Melbourne and Sydney though, where the inner city apartment market generally represents good buying for investors, some of the best opportunities in Brisbane are properties with development potential within a 10 to 12 kilometre radius of the CBD.

Look for old Queenslanders that can be pulled down to make way for apartments, duplexes or townhouses. These development sites currently represent excellent investment potential in Brisbane as the local council is forced to introduce new planning legislation to encourage more medium density accommodation to house the rapidly growing population.

Performance has been well above average over the long-term in Brisbane, at 11.71% per annum over the last 10 years for houses and 10.55% per annum for units and I am confident that inner suburban Brisbane property will continue to outperform over the medium- to long-term.

Adelaide
Median house price: $387,500 – 3.9% increase in last 12 months.
Median unit price: $305,000 – 4.68% increase in last 12 months.

Adelaide has been the surprise performer over the past year and along with Sydney, is another city to watch according to BIS Shrapnel’s market forecast. They suggest Adelaide house prices will increase by 23% percent over the next three years.

Over the last 10 years Adelaide’s median house price increased on average by 10.59% per annum, yet the current median value still sits at a relatively affordable $387,500.

I would suggest that Adelaide’s affordability, in comparison with most other capital cities, has been the biggest driver of property values in the City of Churches and not surprisingly, Adelaide has proven particularly popular with first home buyers looking for cheaper housing alternatives.

Perth
Median house price: $482,500 – 4.42% fall in last 12 months.
Median unit price: $389,500 – 0.60% increase in last 12 months.

Perth was undeniably the star performer over the last 10 years, outshining all other cities with a remarkable average per annum growth of 12.29%. This was of course largely driven by the resources boom that peaked around the middle of this decade.

We know how real estate cycles work – what goes up must come down and Perth’s property markets have been in decline for awhile but this now seems to be turning around with some positive price growth in the last quarter – houses 1.47% and units 4.9%.

Of course prior to the recent decline, house prices increased by as much as 90% the previous five years, so it was only natural that things had to come off the boil.

In fact, when you look at the overall picture for Perth, it’s really only those who bought at the end of the last property boom or over committed financially that will be suffering, whereas people who bought a little while ago are still enjoying good capital growth.

The big question a lot of investors are asking is whether it’s time to get back into the Perth housing market. My response to that would be no, not quite yet, because it looks like the local economy could be heading for a bit of a recession for the remainder of this year and possibly into next year.

While the long-term prospects for Perth are good, with the resources sector starting to recover, I currently see better opportunities on the eastern seaboard.

Darwin
Median house price: $482,000 – 13.35% increase in last 12 months.
Median unit price: $377,000 – 16.52% increase in last 12 months.

We’ll conclude the capital city roundup with Darwin, which has outperformed all other markets over the past year. Somehow Darwin’s property sector was insulated from the Global Financial Crisis, with locals and investors showing continued confidence in Darwin real estate.

This seems to have been a bit of an anomaly because the local economy wasn’t really going gang busters and population growth in the north hasn’t been that significant. In fact, I think Darwin represents a bit of a property bubble for Australia and is probably at around the same stage that Perth was about two years ago.

Prices have come off a very low base and risen to such heady heights that we are now looking at the peak of the cycle, so I would tread carefully if you’re an investor considering buying in Darwin right now.

Yes, there is a shortage of rental properties in Darwin at the moment, which makes for attractively high rental yields. But as we know, you should always invest for the long-term capital growth prospects, over and above high rental yields. In fact I would caution that Darwin property values will drop as we head into 2010, just as we saw occur in Perth two years ago and Sydney six years ago.

Michael Yardney is the director of Metropole Property Strategists, a best selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.