Investment Property update 2017

The ‘Local Economy’ continually proves to be the Key Factor In Driving Property Markets

 

What continues to drive Australian Residential Property?

There is a strong correlation between the strength of a city’s economy and price growth in capital city housing markets

You may have noticed how NSW performed in the number 1 position whilst Victoria ran second followed by ACT, TAS, QLD, SA , NT and lastly WA (in order)

Cities was Sydney at number 1 followed by Melbourne, Canberra, Hobart, Brisbane, Adelaide, Darwin and then Perth (in order)

This CommSec report recently published continues to show that Sydney has the strongest economy hence 4 years of Sydney growth which is widely reported having slowed down and Melbourne continues to grow in value. Canberra continues to have pricing emergence with Hobart still touted to continue its recent growth run being driven by the local economy

Another blatant factor for growth is Government Investment into Infrastructure which creates jobs and invites industry to invest who also create new jobs. These new jobs attract population growth which places upward pressure on the supply of dwellings. Increasing demand for dwellings to own or rent is a major cause of property value increases and also increase in rental yield

Demonstrating that ‘infrastructure spending’ is a big influence on property markets, especially in the Transport, Education and Health arenas with the value of projects in the September quarter which are either underway or committed value up to $356bn. Australian commitment in providing much needed infrastructure to meet its fast growing population rate. There is a further $116bn in transport projects alone in the planning  

QBE Australian Housing Outlook report forecast housing price growth over the next 3 years for Canberra at 16%; Hobart 11%, Melbourne 10%, Brisbane 7%, Adelaide 7%, Canberra 7%, Perth 3%, with no change to Sydney but Darwin dropping by 1%

QBE report is touted to be conservative by nature as there is wide expectations for higher growth across capital cities except Sydney which will experience slight corrections for 2 years and possibly renewed growth in 2020

Houses continue to outperform Units for capital growth yet the demand for Units continues to grow on the back of affordability and choice of lifestyle and where to live. Most people in any capital city want to live 8 – 15km from the CBD but affordability does not allow them to purchase a house, thus the shift towards a townhouse or an apartment in the suburb of their choice (to own or rent)

On the back of this the rise of the “Rentvestor” continues to strengthen with investors who wish to get into the growing market Rent where they want to live and Invest where they identify growth opportunity on the back of low vacancy rates and strong rental yields

If one is considering a Unit as an investment, it is prudent to avoid areas with over supply or planned further unit developments compounding future oversupply. Media continue to portray wide oversupply of units however if you break down their noise into postal codes there is a high supply of units in Melbourne CBD (including Docklands, Southbank precincts) and Brisbane CBD. Banks tend to undervalue the property in these locations which is a strong indicator of their current value and potential for low or no capital growth in the coming years. Whilst suburbs outside of the CBD have a low supply and high demand; it is important that you carry out your own due diligence in choosing your preferred investment location

Population growth is another major factor causing property values to increase with Victoria being a number one location increasing by 127,000 with no sight of a slowdown ensuring that Victoria is required to build 2.2 million new dwellings by 2051. That equates to an astounding 66,666 new dwellings per annum. Where is the oversupply the media go on about?

The increased flow of residents into Queensland from other states is one of several reasons why many commentators are predicting strong price growth in property markets in Brisbane and South-East Queensland. A recent phenomenon occurring in South East Queensland is a renewed population growth primarily driven by interstate migration due to unaffordability in Sydney and Melbourne plus new job prospects being created on the Billions of Dollars being invested by the Queensland Government into Infrastructure

Following on from media’s continual scaremongering around oversupply and property crashes (based on no evidence) our take is that the supply of land available to suit development in the CBD and inner ring suburbs is becoming more scarce. Sydney had a drop of 23% in approval levels for apartments and Melbourne a large drop of 35% with Brisbane dropping by an astounding 57% in approvals

Only a potential of 14,400 units could be completed by 2020 with JLL’s report stating that fewer than half of these units will actually be built. Melbourne completed only 9,000 units this year with another 9,100 under construction and Brisbane completed only 4,500 units and 8,600 are under construction

Keeping in mind continued population growth figures (and no plans to slow this down) the demand for units continue to strengthen due to affordability to buy or rent where one wants to live

 

 

 

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