A round-up of 2013 and and a forecast for 2014

A round-up of 2013 and and a forecast for 2014
Diane LeowDecember 7, 2020

The property market has much to celebrate this year, despite the ups and downs of the industry. We weigh in with industry leaders for a roundup of 2013 and what could be next in the year ahead.

SQM Research director Louis Christopher gives us an overview of how each capital city has performed in 2013.

Sydney

Christopher says that the property market’s performance in 2013, which saw a recovery, was in line with his predictions in 2012.

He notes that Sydney was the fastest-growing capital city. As the year progressed, real estate prices also accelerated in the Sydney market.

Going forward into 2014, Christopher forecasts 15 to 20% capital growth in Sydney, and he notes the data shows it is well on track for that.

“We’re not seeing in the first half of the year that there’s going to be any slowdown in Sydney,” he said.

“We’ve got agents reporting some angst and disenchantment with buyers, which is perfectly normal for buyers to do that if they are missing out on gains,” he added.

After the holiday period, he expects strong dwelling auction clearance rates come February.

Perth

The Perth market has done well this year, and Christopher believes the market is still rising at a rate of 6% per annum.

This year has seen a slight slowdown compared to 2012, where the year saw a 12% growth.

“There’s a slowdown in capital growth, but prices are still rising. Interest rate cuts helped the local market; they have somewhat offset the fall in demand in the loss of mining jobs,” he said.

Conversely, Perth has recorded some issues on the rental front, with rising vacancy rates.

Additionally, the northern end of Western Australia is seeing some large-scale corrections.

“There’s no doubt about it – corrections are taking place in towns like Karratha,” he said.

Darwin

The northern most capital city recorded a slowdown this year, according to Christopher.

“Last year, we saw Darwin getting up to 12 to 13% capital growth. It’s slowed right down in the course of 2013, particularly from mid-year,” he said.

He noted that slight price falls started occurring around July.

“It’s more of a flattening out in the marketplace that’s occurred in the last three months,” he said.

He believes there’s a softening occurring in the Darwin property market.

Brisbane

 

Brisbane is seeing an uptick especially in the second half of this year. SQM has recorded a 2% rise for houses and 1.1% rise in units for the last 90 days.

For the rest of 2013 Christopher notes that it’s been a “relatively flat to modestly growing market”.

He added that the inner city apartment market is seeing elevated vacancy rates.

“It’s a problem that’s come up and raised its ugly head. It’s put an anchor in real solid capital values taking hold in the CBD,” he said.

As for 2014, he believes the eastern Brisbane property market will be “favourable”, with the exception of islands such as Morton Bay. Christopher also expects a recovery in free standing dwellings in Brisbane’s east, and an acceleration of the property market across next year.

See over page for the Gold Coast, Adelaide, Hobart, Canberra and Melbourne

 

 

 



Gold Coast

While there has been a correction from 2008 to 2013, Christopher notes that there are signs of recovery in Gold Coast for free standing dwellings.

“I wouldn’t say it’s occurred yet for the apartment market, they still seem to be somewhat weak,” he said.

He added that there has been a pickup in demand for the region, especially for free standing houses which have risen in price by 5.5% since July.

Adelaide

The Adelaide property market has bottomed, according to SQM Research statistics. The capital city has not recorded much capital growth. Houses are up by 2.4%, while units are up by 1.2% over the year.

Stock on market remains “elevated”, with over 16,000 dwellings available. The normal range lies between 9000 to 10,000 dwellings.

“At this stage we’re not seeing any major recovery for Adelaide for 2014, but the prices have definitely stopped falling,” Christopher said.

Hobart

After a year which saw Hobart’s property market enter the process of bottoming out, Christopher believes it is getting closer to the bottom.

“The for sale market is looking quite weak, though there is a chance of modest price gains in 2014. It has been a slightly falling market in 2013, particularly for units,” he said.

Canberra

Across the year, Canberra has seen price falls of 3.4% for houses and 3.2% for units.

“There’s a lot of stock on market for Canberra, and we believes prices will likely fall on the back of job cuts,” he said. 

He noted that low interest rates have created a buffer in the market, though he forecasts a -1% to -4% decrease in next year’s property market.

Melbourne

Melbourne is always a "challenging" market to interpret and forecast, says Christopher - because of underlying real estate data lags. Nonetheless, the ABS recorded a 6.8% increase in house prices in September this year, up slightly from SQM's prediction of a 2 to 5% increase for the year. 

Christopher advises investors to remain cautious. He noted there has been increased buyer interest in Melbourne's inner ring suburbs, such as Albert Park and St Kilda, evidenced by a "substantial increase in stamp duty collections by the Victorian Government". However, he is concerned about the extremely high vacancy rates recorded. 

"Currently, there are over 40,000 properties on the market as we speak, nearly double the amount of Sydney's," he said. 

Auction clearance rates for 2013 have been higher than 2012, which is an encouraging sign. Taking note of the high vacancy rates in Melbourne, Christopher says, "The market is in a state where neither the buyers nor sellers have control over a market that's at equilibrium."

Moving into 2014, Christopher believes stock levels will fall, and the oversupply of house and land packages will be absorbed. 

"The market (in Melbourne) will do a little better next year, but it will not be at the rate of Sydney," he said.

Turn over page for more expert forecasts

 

 

 


 

PIPA chair and Empower Wealth founder Ben Kingsley shares his insights for the year and his forecasts for 2014.

Capital growth has been dominant in 2013, with low interest rates and pent-up demand pushing values higher.

Conversely, rental yields have not done as well this year.

“When you see city areas with above-trend growth in values in quite a short period of time, the rental yields actually fall away and they only start to improve a couple of years later, when values cool down and stabilise,” Kingsley said.

Regional areas tell a different story. Improved growth in capital cities have driven investors to purchase properties there. As a result, the larger regional centres have not seen the traditionally high levels of interest or buyer activity. This is especially for mining centres, where a slowdown in capital expenditure has seen mining jobs reduce in supply. 

In Kingsley’s view, regional centres close to capital cities have done better, as they have benefitted from the positive sentiment from the capitals.

“Take for example Ballarat; the yields have probably come off slightly from a consistent 6% range in entry level stock 12 to 15 months ago, to now be around 5.5% for this type of stock. But the reason for this is that values have moved ahead - not because rents are falling,” he said.

For investors who are watching yields closely, Kingsley thinks the areas that have performed better on the yield front are the larger regional towns which have diverse economic drivers.

“They have performed better because the hype around the booming mining and port centres lead to a mini property construction boom and therefore caused an oversupply of rental accommodation in some regional centres and when there is a glut of rental properties, real rents fall in value.  

On the other hand the regional centres that have had steady population growth and a general shortage of available rentals have seen stable or growing rental yields, if their local economies are also experiencing growth, because the 'relatively' reliable employment opportunities are there and so is housing affordability when compared to capital cities,” he said. 

He warns that the risks are very much increased when property investors chase high yields, which are particularly evident in mining towns.

“It's a simple case of these mining towns being part of the boom and bust cycles experienced in the mining sector since the industrial age.  When mining is profitable, companies need workers and will pay a premium to attract them to these remote centres. But these workers prefer to rent, as the remoteness of the location doesn't pass the lifestyle test for them to choose to buy and settle. Instead they prefer to rent and they pay a premium to do so, creating a window of opportunity for wonderful yields for investors. But when the jobs dry up, the workers are gone almost overnight, leaving investors high and dry with long-term vacancies and many jump off the sinking ship and take a bath on the property values that plunge also,” Kingsley explains.

He notes that investors chasing yield need to keep a “very close eye” on the economic development of the regional area and also on the supply of properties.

Going into 2014, Kingsley is “more optimistic than pessimistic about the overall market”. He believes there will be increased activity amongst first home buyers and some “modest price growth across the board”. 

He also forecasts that the RBA will increase interest rates to cool the market when properties in the mortgage belt and regional areas begin to over-inflate.

Lastly, Kingsley advises all investors to tailor their investments according to their financial and personal goals – and look out for a tailored strategy to their needs instead of focusing on a singular trend.

Trends

Buyer’s Advocate Secret Agent director Paul Osborne spoke to Property Observer on his forecasts for 2014 in Melbourne.

He notes that a trend that has been happening for the last couple of years is a continuing urbanisation across the capital cities and even internationally.

Osborne is seeing an increase in density in Melbourne.

“The city of Melbourne has a small population base compared to other cities, but it is now densed up with new towers,” he said. 

He believes the next decade will see a lot more people living in the city, together with different demographics.

“Empty nesters used to move out from the inner city to the suburbs a couple of decades ago. That is now reversing, people are downsizing to live in the city centres as lifestyle and transport options take hold,” Osborne said.

Additionally, he believes Self-Managed Super Funds (SMSFs) will continue expanding, unless government policy changes come into place.

“The idea that people control their own destiny by choosing where they invest that money is an Australian tradition. We’re seeing that really come on in the last six months, and in the next year it will continue to accelerate as people become more sophisticated in how they manage their money,” he said.

He notes that with more Australians investing with SMSFs he expects inner-city living to become even more popular.

Besides local investment, foreign investment is set to grow next year in Osborne’s opinion. 

“Particularly if the Australian dollar comes back in value, we might see a lot more strong interest coming from overseas,” he said.

At the moment, foreign investors are particularly interested in CBD properties as well as the eastern suburbs for larger properties. Osborne notes that Australia could see a lot more interest from China and Malaysia as well.

Lastly, Osborne has seen another trend where a lot more people are looking to live solo.

“With higher divorce rates, there are less people per household,” he said.

Referring to ABS statistics, he said people are looking to live in smaller, one bedroom or studio units closer to the city.

“Traditionally, the mentality is always: Don’t get a one-bedroom unit. That’s not true. We’re starting to see a lot more one-bedroom properties becoming more attractive because of that formation,” he said.

But investors should not rush to purchase any one-bedroom property just yet. 

“It has to be in the right setting (to do well). With big towers, small apartments, that will put pressure on rental yields because of supply. What we look out for are one-bedrooms with a bit of an aspect, like a nice balcony or something different about them. I’d pick a one-bedroom with a nice courtyard over a two-bedroom without outdoor space,” Osborne said.

Additionally, Osborne noted that residential properties will not necessarily net high yields. 

“Yields aren’t that good for residential – you still can get some decent yields on commercial properties,” he said.

“With more supply coming on in terms of CBD apartments and city fringe apartments, it will put pressure on the rental market. Tenants aren’t as selective as owner-occupiers and will make their decisions based on price, putting pressure on yields,” he added.

dleow@propertyobserver.com.au

Diane Leow

Diane has spent her entire career in the world of digital. She is passionate about delivering the best content to a world that is becoming increasingly jaded by the news. She also believes in the importance of great journalism and how it can change the world. Oh, she also drinks a lot of coffee.

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