Brisbane clocks in near bottom of market

It’s been a bad year for Queensland. Floods, a cyclone and a weak tourism market have taken their toll, and now the April RP Data?Rismark Hedonic Home Value Index ranked Brisbane as Australia’s weakest capital city housing market. House price depreciated by 4.8% during the first four months of the year and by 7.2% over the past 12 months.

These statistics make for gloomy reading for anyone who currently owns property in Queensland’s capital.

However, for investors looking for medium-term growth potential, Brisbane could well present the most attractive opportunities.

It currently sits at 5 o’clock on the Property Observer Property Clock, meaning Brisbane is closest to bottoming out – and importantly, recovering.

Building activity and the resources boom are expected to light the spark of recovery and potentially the next housing recovery.

Next in line is Perth, which has also undergone significant house price depreciation of late.

As for the other capital cities, they’re only just heading into downswings, meaning many of the best investment opportunities in these cities have already passed investors by.

At 12 o’clock the market is at its peak (demand exceeds supply), at 3 o’clock the downswing has set in (an evenly supplied market0,) and by 6 o’clock it has bottomed out (an oversupplied market). At 9 o’clock the market is rebounding (supply is tightening).

Population: 4,575,532 
Median house price: $590,000 
Rental yield: 4.3% 
Property clock time: 1.30

Consensus is that the Sydney market has peaked and is heading into a downswing, though no dramatic collapse in prices is anticipated. 

According to Terry Ryder, director of hotspotting.com.au, the Sydney market has been falling since early 2010, though “long-term prospects are solid”. “The change of state government will help [the market], if infrastructure promises are kept,” he says.

Louis Christopher, founder of property research firm SQM, also anticipates further house price falls as a result of higher interest rates and a downward swing in housing finance approvals. “However, the magnitude of the decline will be minimal compared to most other cities. This is one city that really is experiencing a genuine shortage of rental properties,” he says.

Digging a little deeper into the Sydney market, Chris Lackey, NSW state manager at WBP Property Group, observes two different cycles operating in the Sydney market: “Activity in the top end has slowed, with $1.5 million plus properties currently at 3 o‘clock in the property clock cycle. The middle and bottom markets are also softening and likely to remain flat for the year. There are some select areas that remain at their peak.”

Following publication of the RP Data-Rismark Hedonic Home Value Index for April, which showed Sydney prices up 0.5% year on year on a seasonally adjusted basis, Rismark joint managing director Christopher Joye also highlights the threat to homes at the top end of the market: “Luxury homes in areas like Sydney’s eastern suburbs will continue to face valuation headwinds as banks deal with the new normal of subdued credit growth,” he says.

Adelaide

Adelaide appears to be heading towards a moderate downswing, with rental vacancy rates steady and construction activity levelling off. House price depreciation appears to be accelerating slightly, with RP Data showing prices falling by 0.9% in April and 2.5% for the year to date.

Terry Ryder, who is the most bearish of Adelaide analysts Property Observer spoke with (he puts the Adelaide clock at 4 o’clock), says the market is in a period of “mild decline” though overall prospects are strong, “thanks to infrastructure, defence and resources projects”.

The South Australian capital also has the benefit of cheaper housing overall compared with other capital cities. Bart Quinn, WBP’s SA state manager, says that although prices and volumes have fallen in Adelaide, particularly in the first-home buyer segment, “underlying demand is steady for properties that are priced right”. “Generally, the Adelaide market remains cautious, but there are pockets that continue to remain well supported,” he says.

Louis Christopher says Adelaide vendors are only now cutting their asking prices, and he expects more pain to come. “However, there is a chance the magnitude of the declines will be modest.”

Darwin

Population: 127,532 
Median house price: $470,000 
Rental yield: 5.6% 
Property clock time: 1.45

“After five to six strong years, Darwin’s market has finally paused and there is evidence of price decline,” Ryder says. However, he believes the recovery will be swift, once major gas projects move into the construction phase.

Such sentiments are not shared by Christopher, who says the Darwin bubble has “popped”.

“It is going to be a steep decline from here, particularly if the RBA lifts rates again,” he says.

RP Data-Rismark statistics for April show a 2.9% increase in prices in April, but just 0.3% growth for the quarter.

Canberra

Population: 358,222 
Median house price: $560,000 
Rental yield: 4.8% 
Property clock time: 2 o'clock

RP Data-Rismark research for April shows that the Canberra market has not yet run out of steam, with prices continuing to rise steadily. House prices increased by 1.8% in April, are up 2.2% in 2011 and 2.3% for the April quarter.

A shortage of available property relative to demand, a tightening rental market, a fair demand for new houses and a steady volume of new home building are all keeping the housing market buoyant. However, this is offset by declining sales volumes and the second highest capital city prices after Sydney.

Terry Ryder says any dip in the market is likely to be small. “Canberra remains our most reliable city market, buoyed by strong incomes and low unemployment,” he says.

A bullish outlook is also held by Louis Christopher: “Stock levels are rising, however this is also another city where the magnitude of the declines may well be modest as the ratio of income to house prices appear to be fair.” 

Melbourne

Population: 4,077,036
Median house price: $535,000
Rental yield: 4.1%
Propety clock time: 2.25

Experts are in agreement that an oversupply of houses in Melbourne is contributing to the market heading into a moderate downswing, though no crash is expected. RP Data's April figures show Melbourne house prices are down 0.5% for April and down 3% for the year to date.

Brendan Smith, valuations manager at WBP, anticipates “tempered growth over the next 12 to 18 months” in Melbourne compared with what has transpired over the past decade. “This is due to the decline in the population growth of the region and the current oversupply of listed stock and property under construction,” he says.

However, Smith says auction clearance rates averaging around 60% to 65% for the first quarter of 2011 are further evidence that there is unlikely to be any “crash” or “bust” in the short term, but rather a return to more measured and sustainable growth.

Louis Christopher notes that stock levels in Melbourne have increased 105% during the past 12 months. As a result, he says vendors have just started to drop their asking prices, and he anticipates a 5% decline in house prices in 2011.

Hobart

Population: 214,705 
Average house price: $322,800
Rental yield: 4.8%
Property clock time: 2.30

Terry Ryder calls Hobart “the city with the weakest prospects”.

“The state economy and population growth is weak and political situation is unhelpful,” he says. “The market likely to fall further.”

Hobart prices have fallen 2.4% this year to March (because of the low volume of sales in Hobert, RP data on Tasmania are a month behind) according to RP Data-Rismark data, with demand for new housing soft and a decline in new home building approvals.

“Hobart stock levels are rising,” Louis Christopher says. “However, this is also another city where the magnitude of the declines may well be modest, as income-to-house prices appear to be fair.” 

Perth

Population: 1,696,065 
Median house price: $481,825
Rental yield: 4.2%
Property clock time: 4.40

According to RP Data-Rismark, Perth prices have fallen further than prices in any other capital city and the downward swing is accelerating, as reflected in Perth’s position on the property clock. For the 12 months to April, house prices are down by 7.3%. For the first quarter of 2011, they’re down 3%, and for the month of April they’re down 1.5%.

Analysts Louis Christopher and Brendan Aylmore, WA branch director at WBP, both highlight Perth’s sensitivity to interest rates. Christopher says another interest rate rise could send the property clock back to 2 o’clock, pushing back Perth’s recovery.

Aylmore says Perth’s housing market has been soft for an extended period, and although a slight lift in rental rates could result in an increase in first-home buyers “looking to exit the rent rut”, buyers remain cautious about upgrading, given the possibility of further rate rises and unstable economic conditions abroad.

Terry Ryder is more bullish and expects the market to recover on the back of the resources boom and government infrastructure spending.

Brisbane

Population: 2,043,185
Median house price: $449,250
Average weekly rent: 4.5%
Property clock time: 5.20

RP Data ranked Brisbane as the weakest performing capital city in its April index, with home values down 3.1% in the April quarter. For the year to date, home values are down 7.2%. RP Data research director Tim Lawless says Brisbane along with Perth have undergone a significant correction in home values, whereas other capital city markets have flattened out.

But Brisbane could be the next capital city hotspot once rebuilding efforts get into full swing. Experts anticipate a turnaround in the next 12 to 18 months.

Terry Ryder notes the impact of the floods on the market but expects Brisbane to show signs of recovery before the end of 2011. “The rebuild program and the resources boom will spark revival. Investor activity will pick up in the second half of 2011, with prices attractive and rents strong,” he says.

Louis Christopher is more bearish and says the downswing has another 12 months before the market bottoms out. “There is over six months’ worth of stock on the market,” he says. The Sunshine Coast and Gold Coast are basket case situations.”

WBP Queensland state manager Daniel Lewis has a more positive outlook and does not expect prices to fall any further. “Increasing rental prices are a positive sign for Brisbane moving forward, with hopes that this positive development will lure investors back into the market. Another positive factor is the relative affordability of housing when compared with other Australian capital cities,” he says.