As a former property valuer I certainly love data and we spend much of our time pawing over graphs and charts that help us piece together the puzzle that is the property market. When the latest corelogic data comes out our research team go into overdrive to see where the best opportunities lie and what to avoid.
In this installment of unlocking the property market, we want to share some of this with you and give you an overview of how the capital cities are performing.
What we consider to be the perfect statistical storm for investors is positive growth for the black line that represents the 12-month growth, and the yellow line about 5% on the trend line. This shows it is starting to move into the growth cycle or is actively in it and not declining, but there typically hasn’t been too much growth that you are behind it and missed the boat.
Keep in mind though… and here is where we throw in a quick disclaimer… this is just ONE thing we assess and there are many other factors we take into consideration for each individual investors personal circumstances.
Sydney & Melbourne have seen strong 12 month and 10 year growth. Looking to the yellow line, this shows the average annual growth on a 10-year cycle, revealing Sydney and Melbourne having seen about 8% pa on average for 10 years. Compounded this is statistically more than a doubling in value over a 10 year period. So this indicates that these markets are certainly at or very close to their peak. With some suburbs in Sydney starting to see negative growth trends come through in the past 12 months, areas like Sydney’s Inner West and Sutherland Shire to name a few this would be the first signs of a cooling market. Although the negative growth stats coming through are typically only 3%-5% retraction, this still shows that there isn’t the 15%-20% annual growth that has been seen in the years gone by. We are also finding that the price point in Sydney for most investors is becoming unattainable and the returns are very low. Typically having to go in at $800,000 + to secure a quality property in Sydney and $600,000 in Melbourne metro, most investors just don’t want to buy at that level.
However, there are certainly opportunities in some areas outside of Melbourne that are within an hour of the CBD and are commercial hubs in their own right that you can invest in for as little as $400,000. The growth is just starting to come through these areas and we see they will perform strongly off the back of buyers being priced out of Melbourne metro.
Where the best opportunities are, and how to avoid a costly mistake
Adelaide, Canberra and Brisbane are only about half way out on the growth matrix for the 10 year cycle and are experiencing positive annual growth. So this can certainly present opportunity for an investor that wants to buy at the early to active stages of a growth cycle. As we said before, the perfect storm.
Adelaide has some major investment into infrastructure projects at the moment with the hospital tipping in at $2.1 Billion, reportedly being the most expensive building in Australia and the third most expensive building in the world right now. As well as the submarines, frigate fleet and corvette’s that are all military boat projects tipping in at $39 Billion combined. The government data is suggesting that Adelaide can expect nearly 4,000 new jobs for the city between now and 2020. A good budget for Adelaide is around $450,000-$550,000 but you can get into some pockets for as little as $300,000.
Canberra is a very consistent growth performer with some of the lowest rental vacancy rates in the country. Units however, do not perform very well in the Canberra market so this is a property sector to avoid as an investor. Canberra is surprisingly expensive though. A good budget for a quality property in Canberra is upwards of $600,000. So you need to have some good capacity to buy in the Nations capital.
Brisbane has some opportunity for growth, and on the ground we see it actively coming through. However there are a few traps for young players in this market. The CBD unit market is very oversupplied and with 50,000 new units set to be completed in the next 2 years this is expected to continue to put downward pressure on values and rental returns. With the oversupply of units and a lot of interstate investor activity in Brisbane market across all property sectors this is increasing vacancy rates. So investors need to be cautious they don’t end up buying a property that will sit vacant for months on end. There are also a lot of investors paying too much for properties as they are uneducated in the Brisbane market and this is creating some significant disparity in values and sales evidence. There are also many uneducated investors buying into flood zones and getting stung on insurance premiums, we have heard of some as high as $13,000 pa for insurance premiums due to the house being in a high-risk flood zone.
Further to this, we highly recommend buyers exercise caution when buying more than 25 minutes out of Brisbane city. Areas like Ipswich, Logan Shire, Gold Coast, Toowoomba and the like. These areas are very investor driven markets at the moment with some suburbs reporting up to 70% of the demographics being investors. This is a volatility that underpins the market and at suburbanite we would always recommend a better investor/owner occupier balance.
This is also starting to show through in some of the growth data. Inner metro suburbs are growing at a rate of 5%-12% pa at the moment, whereas Booval a suburb of Ipswich was reported by Corelogic to have sustained -5.8% downturn in values for the 12 months of 2016. So this is the underlying volatility starting to show through.
There are a lot of investment firms out there that will recommend buyers snap up an off the plan unit in the CBD or house and land package in Logan or Ipswich but usually when you dig a little deeper you will find these firms are getting a kickback from the developer to recommend these poorly performing properties, because the developers can not sell them to the local market. This is certainly something to be wary of. The price point for a quality property in Brisbane is quickly increasing and we would not take any clients into Brisbane with less than $500,000 these days, preferable more like $600,000.
Perth & Darwin
As shown on the growth matrix, these capital cities are retracting by about 10% for the past 12 months. They are moving through the correction phase of the cycle with high unemployment, high vacancy rates, retracting values and low buyer/seller sentiment. So these are markets to avoid for the foreseeable future as there is still a lot of pain for these markets to push through before they stabilise. Some people see this as opportunity, but they will likely go backwards more before they go forwards and the road to market recovery can be long.
We are always a little cautious of Tasmania as it typically lacks employment and migration drivers. We do see some great opportunity there for a yield play as it has some of the highest returns in the country for property, but this is primarily because there has been little growth in the market for many decades thus allowing the rental market to keep pace with growth. So this can be a volatile market and is not the strongest growth play an investor can make.
If you are thinking about buying an investment property and want to be sure your at the forefront of the market research, chat to our team today.
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