Sydney's flattening pushes investors to Canberra: RiskWise

A buoyant Canberra housing market is leading to healthy long-term investment options for savvy home buyers, according to RiskWise Property Research.

While the Sydney market goes flat, many Sydney-based investors and buyers’ agents are looking to Canberra as a solid long-term property market that delivers both capital growth and solid rental return.

Less than 300 kilometres south-west of Sydney, Canberra has enjoyed solid capital growth of 23% over the past five years and 10% in the past 12 months.

RiskWise Property Research CEO Doron Peleg believes it is a trend which is set to continue, particularly for houses.

"This will be driven by ongoing population growth due to the strength of the local labour market and its growing status as a city of choice for a growing number of Australians,” Peleg said.

"Canberra is a rapidly expanding city with a stable property market that offers relatively affordable housing (in house-to-income terms). In addition, ongoing infrastructure projects, such as the Canberra Light Rail Network, will bring significant benefits to the area.”

RiskWise assessed the risks and opportunities in the ACT property market to help investors and professionals better understand it.

Peleg said while housing in the ACT was enjoying healthy capital growth, the same could not be said for off-the-plan units which carried a higher degree of risk in the short-term.

However, he said, the impact of the additional supply was likely to be reduced in the medium and long-term which showed capital growth of 4% in the past five years and 5% in the past 12 months.

Detailed report on the property market for both houses and units:

Canberra Property Market Under the Microscope - Strong labour market and population growth the major growth drivers

• Employment

The ACT has a strong labour market. The unemployment rate of 3.9% is low - even below the NSW average. This is unsurprising given the strength of its labour market and that the Federal Government is a major direct and indirect employer. This is also supported by the relatively low underemployment and the low effective unemployment rate across the ACT.

• Population growth

The ACT enjoys consistently strong population growth, particularly over the past six years. It also recorded a population growth rate of 1.7%, the second highest rate growth across the country according the latest ABS data. The attractiveness of the local labour market has been a key driver force behind this population increase and this growth trajectory is likely to continue.

• Capital growth – houses v units

While both houses and units enjoy good demand, the demand for houses is very strong and houses enjoy, consistently solid capital growth of 23% in the past 5 years and 10% in the past 12 months. That has significantly exceeded the capital growth of units that delivered 4% in the past 5 years and 5% in the past 12 months.

• Median rental return

The rental return for houses and units are 4.2% and 5.1%, respectively - these rates of returns are significantly higher than the rental return in Sydney.

• Units in the pipeline – short term risk

The number of units in the pipeline for the next 24 months is 5290, being an addition of 8.1% to the current stock.

Investors who purchase off-the-plan properties are exposed to risk of poor capital growth and lower rental returns than expected in the short to medium-term as the area adjusts to the additional supply level. However, general high demand for units across the area is likely to reduce the impact of the supply increase in the medium and long-term. This is primarily driven by the strong labour market and population growth in the ACT.

In conclusion, the ACT delivered strong property price growth over the past few years and is likely to deliver strong growth, particularly for houses.

This will be driven by ongoing population growth due to the strength of the local labour market and its growing status as a city of choice for a growing number of Australians. While off-the-plan units carry a higher degree of risk in the short term, the impact of the additional supply is likely to be reduced in the medium and long term.