Australia's three most underrated growth markets

Australia's three most underrated growth markets
Australia's three most underrated growth markets

Generalised reporting of major markets is the curse of investors trying to find out what’s really happening. The growth figures published in mainstream media, with a single figure to describe an entire city, mislead more than they inform.

It’s one reason why few people I speak to can be convinced that it’s worth considering Adelaide, which I regard as Australia’s most under-rated market.

The generalised figures suggest little price growth - but, as is often the case, individual locations are doing better. 

Figures from realestate.com.au show that some Adelaide suburbs are selling homes quickly - and other data shows that many of these locations are recording above-average price growth.

According to realestate.com.au data for the six months to April 30, Gilberton has Adelaide’s fastest-selling houses. Houses in the north-eastern fringe suburb have a median time on market of 13 days – up there with the best in the nation.

Gilberton’s median house price has grown 19 percent in the past year to reach $1,090,000.

Houses in Hyde Park (median price $1,370,000, up 5 percent in 12 months) and Sefton Park (640,000, up 21 percent) have a median time on market of 17 days.

Clarence Gardens ($630,000, up 7 percent) and Melrose Park ($552,000, up 8 percent) houses sell in 18 days.

Realestate.com.au chief economist Nerida Conisbee said Adelaide’s market is performing strongly and sale times will likely go down as stock levels typically drop over winter.

“On average we typically see homes selling in around 40 days so you are looking at a pretty speedy market,” Conisbee says.

This confirms our view that the Adelaide market is stronger than the generalised price data indicates.

And I think it will get stronger, as the state economy delivers on the considerable promise it is increasingly showing. 

The unemployment rate for South Australia has risen slightly in the latest official data, but it remains healthy at 5.9 percent, compared to 6.5 percent in Queensland and Western Australia, and 6 percent in Tasmania. Only NSW (5 percent) and Victoria (5.3 percent) have better jobless rates than SA. 

The state economy is showing great resilience, despite some negatives such as the Holden factory closure, and this is under-pinning real estate markets.

Adelaide is the innovation capital of Australia and increasingly major businesses are relocating to the SA capital for that reason. SA leads on the nation on alternative energy and projects under way or in planning total many billions of dollars. 

And the big enterprises to create vessels for the Navy are also in the pipeline.

Canberra is another capital city that flies under the radar screens of most investors, despite everything it offers.

The ACT has the nation’s fastest-growing economy, according to Deloitte Access Economics’ business outlook, which says the ACT went to the “top of the leaderboard” in 2017, with gross state product rising 4.6 percent.

Deloitte partner Chris Richardson says low interest rates have given the ACT’s “massive mortgage belt” some breathing space. “There’s two big levers at play in Canberra: the size of the public service and interest rates,” he says.

After weathering government cutbacks in recent years, the public sector is now “in the sweet spot”.

The State of the States report from CommSec has the ACT in third place overall in a study of the states and territories on eight economic indicators. 

The ACT trailed NSW and Victoria overall but ranks first on housing finance (up 28% on the long-term average), second on unemployment and second for annual population growth, up 1.8%. The ACT’s home building starts were up 16.5% on decade averages, placing it third. It’s a strong report card and is a key factor in the steady rise in prices and rents. 

The latest figures from SQM Research confirm the very low vacancy rates in Canberra.  The firm’s mid-May report recorded a vacancy rate of 0.8%, compared with Sydney (2.3%), Brisbane (3%) and Perth (4.1%). 

Only Hobart (0.7%) has a lower vacancy rate, according to these figures.

Not surprisingly, rents are rising. In annual terms, the weekly asking rent index is up 7.6% for houses and 4.1% for units.

The Domain Group has also published figures showing strong annual rises in Canberra rents, with houses overall up 6% and units up about 5%. 

Domain chief data scientist Dr Nicola Powell says: “This data echoes what we have been seeing in the Canberra market and that is rents are rising across the board.

“House rents have been growing since mid-2015 and unit rents have been growing since the end of 2015.”

Some forecasters have tipped Canberra to lead the capital cities on price growth in the next three years. I’m not sure it will be No.1 but I expect it to be a contender.

For my third under-rated market, I could nominate pretty much any of our major regional cities.

Organisations whose goal is promoting themselves rather than informing the public like to publish average growth rates to compare capital cities with the regions. The regions will always lose in this comparison because the regions include struggling mining towns and other areas suffering from negative events such as drought.

It would be more valid to compare the capital cities with the largest regional centres like Newcastle, the Gold Coast and Geelong - and this comparison would produce a very different result.

Many suburbs in both Newcastle and Geelong have recorded median price growth above 20 percent in the past 12 months. Several other regional markets, including those close to Melbourne and to Sydney, have had serious growth in the past couple of years.

But under the general heading of under-rated I’d go for Ballarat. Whenever I speak about cities like this, I get that kneejerk reaction about regional centres never delivering growth.

But consider what a city like Ballarat offers. Virtually every suburb has a median house price below $450,000, including several with medians in the $200,000s. It’s not too hard to find rental yields above 5 percent. And there’s been serious price growth recently.

The suburbs of Soldiers Hill, Buninyong and Black Hill are up more than 20 percent I the past 12 months. Others have grown 10-12 percent.

The city is underpinned by a strong, diverse local economy, a growing population and good transport links to Melbourne. 

It’s feasible to buy a good home there at a fraction of Melbourne’s prices and commute to work somewhere in the state capital (keeping in mind also that some of Melbourne’s biggest jobs nodes are on the northern fringe of the metro area, closest to cities like Ballarat and other attractive Hill Change towns in Victoria).

But there are plenty of jobs within Ballarat itself, which is attracting growing numbers of buyers from Melbourne, seeking more attractive prices and a different lifestyle.

Terry Ryder is the founder of hotspotting.com.au

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Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

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