In today’s show we look at our property markets state by state in our annual market wrap.
We asked our experts to tell us what’s on the horizon with development and infrastructure in their state, any issues that might impact the market in those areas, if there are any areas showing potential for investment and also any areas to avoid and why.
As we have done in the past, you will also hear them describe what you can buy for $500,000 and where to look.
Our experts include Peter Koulizos, Damian Collins, Michael Yardney, George Raptis, Shannon Davis and to wrap it all up Dr Andrew Wilson takes an overall look at the national property market.
We have it all covered for you today!
Transcripts:
Peter Koulizos
Kevin: As I said at the start of the show, today we’ll be taking you all around Australia. We’ll look at each of the individual states to tell you what is happening there; we’ll look at development and infrastructure. Of each of our guests, we are going to pose the question, “If you had $500,000 to spend, where would you spend it in that location, whether that’s a state or in the capital city?”
We’re going to start off by heading straight to South Australia. I’ll be talking to property lecturer and author Peter Koulizos. Peter, tell me about the South Australian market. What are you hearing right now?
Peter: I just had a look at some recent RP Data stats, Kevin, and I know a month is not a long time in property, but just the last month, Adelaide was the second best performing capital city behind Sydney and it also had the second highest clearance rate behind Sydney. Sydney is out-performing the country at the moment and has been for the last two years.
Some of the positives for South Australia include the fact that the Aussie dollar is dropping. It’s great for three of our biggest exports, which are manufacturing, agriculture and international students. On the horizon, we also have Holden shutting down, which I think we’re going to talk about later on in the interview.
Here in Adelaide, we are quietly confident. We’re not waving the flags because the stats don’t show that we’re going terrifically. The drop in the Aussie dollar is certainly going to help states like ours and Victoria, which rely heavily on the manufacturing industry.
Kevin: Of course, South Australia has come in for some pretty bad press in the last 12 months to two years over things, like you mentioned the Holden closure. Car manufacturing has been the backbone of that area for quite some time. Is there anything on the horizon that looks like it might replace that?
Peter: We have a lot of major infrastructure projects happening in Adelaide, in particular. I’ve been born and bred in South Australia, and I have never seen so much infrastructure going on as I have seen in the last few years.
As far as road infrastructure is concerned, we have what they’re calling the Torrens-to-Torrens Upgrade, which is from South Road, which is our major north-south arterial road between the River Torrens and Torrens Road, is getting a huge upgrade.
Further south around Darlington, there is a big road upgrade there, as well. That is coming on the heels of the Melbourne Expressway, which was finished a little while ago, and also the Southern Expressway which finished its duplication just a matter of months ago. A lot of jobs involved in that.
Kevin: Those infrastructure developments you talk about, is that opening up more land for the area?
Peter: No, because that is happening in already existing metropolitan areas. One of the great things is the fact that the infrastructure improving within the metropolitan area makes those particular suburbs around it more popular.
Whereas if you have, for example, the Northern and Southern Expressway, which do lead to the edge of the metropolitan area, because there is so much land available there and you can have a huge supply of houses, it doesn’t do a lot for prices.
But if you improve the infrastructure within an established suburb – because you really can’t build too many more houses within that suburb – its supply is relatively limited and even if demand stays the same, prices do go up.
That is certainly a very positive thing for those suburbs, in particular around the Torrens-to-Torrens Upgrade.
Kevin: What are some of the areas that you think are showing some really good potential, and why?
Peter: Suburbs that I would look at include Torrensville, Thebarton, and Mile End. They will be positively affected by the Torrens Upgrade. More importantly, those three suburbs that I mentioned are one, two, or three kilometers from the CBD, and there is a lot of gentrification occurring.
If I can give some interstate examples, it is like the West End in Brisbane. The West End in Brisbane was for a long time, a down-and-out area, but for many reasons – including gentrification of the area – the area is now highly sought after, just like Richmond and Yarraville in Melbourne or Balmain and Paddington in Sydney.
There is a lot of gentrification happening in the inner suburbs of our Australian capital cities, and it is certainly happening in Torrensville, Thebarton, and Mile End. Because they are so close to town, they are also very attractive to the international students because half of their university campuses are in the CBD, and the largest type campus in South Australia is also in the CBD.
Kevin: Balance that up now. Are there some areas we should avoid, Peter?
Peter: I think I alluded to it earlier. The fact that Holden is going to close its manufacturing plant is going to impact on those northern suburbs. Holden is centered around a suburb called Elizabeth. A lot of people may have heard of Elizabeth or Salisbury because they are the cheaper suburbs because they are such a long way from the city. But it won’t be the end of the world.
In South Australia going back many years, we’ve had Chrysler shut down their plant; it wasn’t the end of the world for Adelaide or South Australia. Even more recently, we had Mitsubishi shut down their plant, and it wasn’t the end of the world for Adelaide or South Australia.
Yes, it will have an impact. It won’t be too severe, but for the next few years, I would probably ask for people who are listening to your show to keep that in mind. It’s not just the people working in Holden, but it’s all those other businesses around the area that supply stuff to Holden; they won’t be needing as many workers either.
If there is not as much work in that particular area, it’s going to slow demand for property in that area, which means property prices will slow down, and you might even find rents dropping a little bit.
Kevin: Peter, thank you very much. We are out of time, but I appreciate you giving us that great snapshot of South Australia.
Thank you very much for your time.
Peter: My pleasure. Thank you, Kevin.
Michael Yardney
Kevin: So far in the show, we had a look at the South Australian market. Let’s take you to one of the major markets in Australia now – Victoria.
Michael Yardney joins us. Michael, we should really look at the Melbourne market specifically.
Michael: Victoria is a very large state and the markets are very fragmented. Regional Australia hasn’t performed particularly well with real estate, but boy, has the Melbourne market performed strongly. Last year, dwelling values grew about 7.4%, but interestingly, Kevin, most of the growth was in the last quarter when it grew 4.5%.
Kevin: We know that we have a tendency to want to live in our major capital cities, but what is driving the growth in Melbourne?
Michael: It is a combination of population growth and the wealth of our economy that is doing particularly well. The markets have been driven by owner-occupiers, by investors, by self-managed super funds, and also by overseas investors.
Absent over the last 12 months or so were the first homebuyers, but interestingly, rather than buying their first home, many younger people ended up buying an investment first. This created a very fragmented market. There are pockets of over-supply – unfortunately, there is more stock looming in some of those areas – and there are pockets where everyone wants to live. That is what is pushing up prices in certain locations.
Kevin: That over-supply situation you just mentioned, I’m hearing a lot about that particularly around the Melbourne market. Is that something fairly acute, do you think?
Michael: It’s something that is going to continue on for a number of years, because the development cycle for these very big projects goes over a number of years. The under-supply of properties a couple of years ago created a demand. All these developers got in, and now all are coming on stream at much the same time.
Unfortunately, this is going to cap rental growth, especially in the inner city and the inner suburbs. It is also going to cap capital growth in those locations, and therefore, they are the sort of locations one should avoid.
I think the other thing is, in general, the market is not going to do the heavy lifting this year. This year for investors, correct property selection and the ability to add some value – in other words, manufacture some capital growth at a time when the market is not going to do the heavy lifting – would be a good strategy.
Kevin: With those two things in mind, if you had $500,000, where would you be looking at spending it?
Michael: I would be spending it in those areas where the demographics are going to push property values up, areas where people’s disposable incomes are higher. This is the middle ring suburbs and a couple of the inner ring suburbs – not the inner CBD – where young professionals have higher disposable income and want to live there.
It would be an established two-bedroom apartment in one of the more Money Belt, affluent, southeastern suburbs where you could buy an apartment that you could add some value to. If you can’t afford to do the renovation now, you can just keep something up your sleeve to do it down the track later.
Kevin: I’m talking to Michael Yardney from Metropole Property Strategists specifically about the Victorian – or more specifically, the Melbourne – market as we do our rip around Australia. We’re going to go over the ditch in just a minute and have a look at Tasmania.
Before we leave Melbourne, are there any areas that you think we should avoid if we’re looking at investing in that market?
Michael: Clearly, the off-the-plan market is the area I’d be avoiding. Also, the new house and land packages in the outer suburbs, because that is an area where first-time buyers are staying clear of. But there is still quite a lot of development happening, so there is minimal scarcity, there is the wrong demographics, there are not a lot of buyers.
The other thing is avoiding secondary properties. Over the last couple of years when the Melbourne market was really strong, almost anything sold. Now, as the market is going to be flatter, prime properties, good properties, good floor plans, good layouts, and good locations are going to trump, while secondary locations are going to not sell well or not rent well.
Kevin: It places an even bigger emphasis on doing your homework, doesn’t it? There’s a great need to do it now.
Michael: Very much so, Kevin.
Kevin: We’re going to take you to Western Australia in just a moment with Damian Collins, but before we do and before I leave you, Michael, I wonder if we could jump across to Tasmania. Give me your view on that market.
Michael: Hobart has had very little value growth over the last 12 months. Median house prices there are about $360,000 and the unit prices are $259,000. But they only grew about 0.6% last year. Over the last ten years, Hobart property values increased on average about 1.7% or 1.8% per annum.
The trouble is the Tasmanian market lacks the drivers of capital growth. It has not got strong population growth and its economy is not doing well, so the people there can’t afford to pay more. While properties are affordable and it is a lovely place to live, it’s not an area where I would be investing. I can’t see any change in that in the near future.
Kevin: Wonderful stuff. Michael Yardney has been my guest as we looked at the Victorian and Tasmanian markets. We’ll have a look at the other major market in Australia – New South Wales – a little bit later with George Raptis.
Michael, I just want to say thank you so much for joining us and for your input.
Michael: My pleasure, Kevin.
Damian Collins
Kevin: Let’s take you to another market now, a market that’s there’s a lot of discussion about right now. You’re going to hear from Dr. Andrew Wilson later in the show, too, but I want to take you to Western Australia and talk to Damian Collins, who is a man we talk to whenever we want to know what’s happening in that market.
Damian, of course, is from Momentum Wealth; they’re buyer’s agents in WA. Damien, thank you for your time.
Damian: Pleasure, Kevin.
Kevin: Let’s have a look at the WA market, I guess more particularly the Perth market. How’s that looking right now?
Damian: The Perth market is pretty flat at the moment. In 2012 and 2013, we saw some reasonable rises in the market. It tapered off over the end of 2014, and we’re back to what we consider a balanced market where we’ve got about 13,000 properties for sale, which is around about what we consider balanced.
Overall, the market is flat, but there are some bright spots still out there.
Kevin: If it has flattened out, as you say, and the equilibrium there with listings is starting to top out, that might augur well for the future, I would have thought, Damian.
Damian: Yes, it has flattened out. If we start to see listings rise to 16,000 and 17,000, that would be a concern, but at the moment, we’re still looking at small gains. Last year, the market did 4%. This year, we’re not expecting a lot. We’re expecting it generally to be anywhere from 0% to 3%, a pretty flat market overall. If listings do rise significantly, that would certainly be a concern.
Kevin: What is the feeling like, the mood like there with consumers in that area? Is there much happening with development and infrastructure?
Damian: Overall, the consumer confidence is definitely down. There’s still plenty of people buying, albeit certainly down on what they were two years ago. There are some few key infrastructure projects going ahead. Certainly, there’s the Gateway project around the airport, upgrading of all the highways and roads around there. It’s certainly making that Forrestfield area and surrounds certainly a lot more accessible. That should be done in the next few months.
Elizabeth Quay, which is in the city, is more a city project, and we have a new stadium, as well, at Burswood. Look. There’s a lot of infrastructure to come over the years ahead. It just depends on how many the state government is willing to invest.
But what we’re seeing, Kevin, at the moment is anything with development potential, that’s where the real demand is. If it’s just a standard house or villa, the market is pretty flat, but anything with development potential, there’s still a lot of activity, a lot of investor interest in those properties.
Kevin: What about some of the areas that you’re seeing that have showing great potential? As you say, they’re probably surrounded by those that offer development potential, but are there any areas that you can highlight for us?
Damian: For the last five years, we’ve been following the up-zoning or up-scaling of an area because what we’re expecting in Perth is it’s going to double to about 4 million people over the next 25-ish years, depending on whose forecast you see, so there’s a lot of infill coming. The way our clients have been making money is by getting on the front foot when we know an area is going to be up for proposed rezoning, buying in those areas.
We’re still seeing in Forrestfield, for example last year, even though the overall market did about 4%, a lot of those properties took 15% to 16%. There are still good opportunities even in those flat markets.
If you’re investing in Perth now, that’s generally what you want to target. Certainly, over the next 12 months, that’s where your growth is going to come from – anything that has redevelopment potential even if it’s not now, longer-term. Still, longer-term, the fundamentals are good for Perth over a five-plus-year period. The next 12 months as a general market as a whole is going to be relatively flat.
Kevin: If I came to you with $500,000 and I wanted to spend it in the Perth area, where would you direct me, and what sort of property should I be looking at?
Damian: I’d be buying, Kevin, a development potential site in Forrestfield. Forrestfield is one of those areas that’s going to benefit from the Gateway project. All the roads are going to be basically freeways, access right into the metropolitan area. Also, longer-term, there’s going to be a train line out there underground under the railway line. Because of all that, the local council proposed to increase the zoning in a lot of areas, and I still think that’s got some good legs to run over the next 12 to 18 months. That’s where I’d be putting my money right now.
Kevin: What would I buy in that area for $500,000? How much land would be attached to it?
Damian: You would get an 800- or 900-square-meter block, and look, it’s only 14 kilometers out of the city. I was in Melbourne and Sydney recently, and you certainly don’t get anything like that for that sort of price and that close to the city. You get a good 800- or 900-square-meter block only 14 kilometers from the city.
Kevin: What would the zoning be on that block?
Damian: Generally, the zonings are now R20/40 or R20/30, so they’re dual zoned. There are certainly additional criteria you’ll need to meet to get to the high zoning, but generally it’s relatively easy. In an R40 site, if you’re allowed to build apartments, that could be six or eight apartments. If you do it as a villa or townhouse, an R40 site would be three villas or townhouses.
Kevin: In that area, what would be the site cost, and is it calculated on the number of units that I can get on that site?
Damian: Site costs are not too bad generally in Perth, because most of that area is flat and we’ve got a very sandy soil base by and large for most of metropolitan Perth except the areas that are near the river, where it’s a bit more clay. Site costs are never a huge issue in Perth. You can generally get away for $20,000 or $30,000 a site without too much problem.
Kevin: Great advice. Damian Collins, of course, is from Momentum Wealth buyer’s agents in WA.
Damian, thanks again for your time.
Damian: Pleasure, Kevin.
Shannon Davis
Kevin: In this break in the show, we’re going to look at a couple of the really big markets around Australia – “they” being New South Wales and Queensland. In a moment, I’ll be talking to George Raptis, who will look at the New South Wales market, more specifically, Sydney.
Most people seem to be talking about Sydney when we talk about the health of the market. But another equally as important market is Queensland, and so far we’ve looked at WA and South Australia. We’ve also looked at Victoria and Tasmania.
Joining me now to have a look at the Sunshine State, none other than Shannon Davis from Metropole Properties in that state. Shannon, thanks for your time.
Shannon: G’day, Kevin.
Kevin: What is the news from the Sunshine State? How is the market looking?
Shannon: It’s been a very busy start to the year. I think mostly there’s lots of out-of-area interest, but I think upgraders are really driving the market. I think there’s been a lot of people taking advantage of low interest rates and wanting to make that upgrade to maybe a bigger home or something more special that they’re after.
They’ve been quite active, and we’ve unfortunately been up against owner-occupiers who are just wanting to pay whatever it takes to get the property, so it’s been hard work for buyer’s agents at this stage.
Kevin: Upgraders: are these people in the local market or are these people coming from other parts of Australia?
Shannon: There has been local interest, but also buyer’s agents and out-of-area investors have been very prevalent. They’ve been looking at properties that we’re interested in. A lot of people flying in sort of thing and making offers and with a relatively short due diligence. It’s just showing you the sign of where the market is in its cycle.
Kevin: It’s a pretty hot market. Are you getting a lot of competitive offers?
Shannon: Yes, definitely. It’s something that we’ve been up against. As agents you can see… We had recently 45 people on a deceased estate property that we were after on the first open. From there, there were subsequently 10 offers. That’s a sign of what type of market we’re in. It’s definitely a seller’s market.
Kevin: It’s very important, then, to keep your head firmly on your shoulders and make sure you don’t get carried away. I guess in this kind of climate you could pay too much?
Shannon: Yes, definitely. I think we generalize too much. “The market is hot, everything is hot.” In Queensland and Brisbane specifically, there are some pockets where there’s an oversupply of apartments at the moment, quite high vacancy rates, and you don’t want to be buying into those areas.
It might look like it’s an area on the move because there are lots of cranes and lots of building activity, but what that can mean is supply is increasing at a rate that demand can’t keep up with, and you might be buying an inferior investment grade property.
Kevin: On that point, what are some of those areas that you should watch out for?
Shannon: I think the postcode of 4007 at the moment has some oversupply issues in the Hamilton region.
Kevin: Hamilton. We’re talking about that Prestige area, are we?
Shannon: That’s right. There are lots of apartments there, and that’s got a quite high vacancy rate. There are also lots of apartments being built in around that Bowen Hills and Newstead apartment. Hub suburbs like Mount Gravatt and Chermside, again, have big supply issues at the moment. I think all those areas will be good in the medium and long term, but in the short term, you’ll probably expect some soft rents and soft capital gains.
Kevin: We spoke to Michael Yardney earlier on the show. One of the things he said was to make sure that you’re not buying off the plan. Would you share that view?
Shannon: Definitely. People are attracted to a small deposit now and being completed later, but like buying a brand new car, there’s a big premium paid and often a lot of middlemen commission to project marketers, which if anyone has a change of circumstance, they have to sell quite quickly, can set a really bad precedent for the building. It’s not the best form of investing.
Kevin: If I came to you with $500,000, the question we’re asking everyone today in the show, where would you suggest I buy and what should I be looking at? Is it a house, a unit?
Shannon: With $500,000 I would probably go for a townhouse in around that 6 to 8K ring. You get three bedrooms, two bathrooms, and one car park configuration, but I think it’s a good option for upsizes from apartments, downsizes from houses. I’d look for low-maintenance style living, a good courtyard, and ease of transport and employment hubs, as well. Look for the CBD, airport, hospitals, universities. All those are good for employment hubs and make sure that your property is always in demand.
Kevin: Okay. Ruling out some of those ones you mentioned earlier, some of those areas where there are a lot of cranes right now. Certainly they come within that 6 kilometer radius, but just be careful of those and particularly the new ones?
Shannon: Yes, definitely. I think sometimes people can be sold on “this is a really fast-growing area,” and that is good for developers and builders and construction workers, but not necessarily good for the end investor. It’s sometimes easy to be caught up in that hype.
Kevin: It is indeed. Shannon Davis from Metropole Properties in Brisbane taking a look there at the Queensland market. Just before I leave you, about 30 seconds if you could, Sunshine Coast and Gold Coast, what are you hearing about those two markets?
Shannon: They’re holiday destinations, and they will do better in a rising market as will most areas in Australia, but because of the level of discretionary property up there – meaning not a necessity, it’s a holiday home – they can be quite elastic. They do well in good areas, and I expect them to do well now, but in a financial contraction or correction, you can see those areas more exposed.
Kevin: So go to those areas if you’re specifically looking for a holiday home?
Shannon: Yes, or lifestyle reasons or something like that, but if it’s for investment, a lot better investments than holiday homes or apartments.
Kevin: You would be looking more at the Brisbane market?
Shannon: Yes. Somewhere where people don’t have to drive more than half an hour for work. That’s a good rule of thumb that you’ll have lots of tenants moving into your property.
Kevin: Always good talking to you. Shannon Davis from Metropole Properties. Thanks for your time, mate.
Shannon: Thanks.
George Raptis
Kevin: We’ve left the big one till last, and by “the big one,” I’m referring to New South Wales, more particularly Sydney. There’s been a lot of talk about what’s happening in Sydney. Those ripples have gone right through the country. We’re seeing politicians scrambling now to come up with different ways to get people into property.
But let’s find out what is happening on the ground in Sydney, talking to buyer’s agent George Raptis from Metropole Properties. George, what are you hearing? Is it as bad as what we’re hearing?
George: Hi Kevin. Gee, you can’t pick up a newspaper today without seeing what’s going on in the Sydney property market. I guess it’s splashed all over the front pages everywhere on the media and so forth.
Look, Sydney still remains the standout performer of all the capital city markets. I guess what we are experiencing is stock levels that are at an endemic low. Where we are struggling is we’re struggling with a chronic undersupply of property.
Properties that are being advertised currently are being sold at a faster rate than what they’re being added. Obviously, that creates a bit of a furor out in the marketplace. We finished the year strong 2014. 2015 has picked up where we’ve left off. Auction clearance rates around that mid-80% band. Some areas are probably in the low 90s. Sellers are confident. They’re reading in the papers every Sunday how things are selling above reserve and what have you.
Interestingly, buyers are still confident. But what I’ve noticed is that your first-time buyers have really dropped off, and we’ve had that surge of investors that are entering the market and coupled with what we would call the change-up buyers – in other words, people in a position where they are up-sizing, down-sizing, that sort of thing – so it’s a bit of licorice allsorts, really.
Kevin: There’s a bit of talk also about wanting to put some prudential controls in against agents in terms of under-quoting and so on with restrictions on that, even talks of banning “offers over” and things like that. What’s your view on that, George, as a buyers’ agent?
George: Look, having been on the other side of the fence, I can understand looking at it from both perspectives. Look, it can only be a good thing. At the end of the day, we want buyers to be protected, we want people to get realistic information.
The last thing you want to see is people being in a position where they’re traipsing from one auction to the other, spending good money after bad on Strata Reports or Pest and Building Inspections and end up at the auction and do get blown out of the water on the first bid. So I can only see it as a good thing and that’s something obviously the various real estate institutes are working towards.
Kevin: I want to find out from you, too, about some of the no-go areas in New South Wales – you may even want to focus on the Sydney market – and also look at some of the areas that you think might be worth our while investigating.
George: No-go zones would be where we’re going to see a bit of an over-supply of properties, especially in those old commercial, industrial estates where they’ve gone by the wayside and have been replaced now with big, monstrous high-rise developments where they’re building thousands and thousands of these new things. I’d advise to keep well away from those sorts of things.
Also where there’s abundance of land where they’re unlocking new estates, where they’re building new properties and selling them off to would-be investors or first home owners and then unlocking the next estate and so forth. I’d be keeping away from those.
With regards to some good opportunities, especially in Sydney, if we’re talking apartments, there are some good little pockets of property where you can still get into something under that $500,000 threshold, which by Sydney standards I think is very good.
Little pockets in like the south of Sydney, places like Bexley, which are about 12 or 13 kilometers from the CBD, showing you can still buy a good two-bedroom unit there for under $500,000. Places like Penshurst, which is about 16 kilometers south of the CBD, but on that Illawarra train line, where you can still buy two-bedroom apartments for under $500,000. I think it’s good value by Sydney standards.
Kevin: What would that be renting at? What sort of returns would you get?
George: It depends on the price, it depends on the quality of the property, and so forth. But look, you should be getting somewhere in that 4% or 4.5% rental yield.
Kevin: That’s good. And still getting reasonable growth on those units?
George: They’re showing some really good growth, because what people are looking for is a bit more bang for buck but they still want to stay within the parameters of their comfort zone – in other words close to their jobs, friends, close to infrastructure, transport hubs, recreational facilities, and so forth.
Kevin: Good stuff. Always great talking to you. George Raptis from Metropole Properties. That’s the wrap on Sydney. Thanks for your time, mate.
George: Thank you, Kevin.
Dr. Andrew Wilson
Kevin: As we wrap up a pretty big show, having taken you all around Australia, let’s have a look at a national overview, not market-by-market. Joining us to do that, the Chief Economist from the Domain Group, Dr. Andrew Wilson.
Andrew, I know it’s a difficult task to talk about a national market, but what’s your view nationally and any issues that you may even see state by state?
Andrew: Look, Kevin, certainly we’ve started the year better than where we left it last year. Generally, housing markets have shown some renewed energy. Of course, that Sydney market has been strong, now entering its third year of boom time conditions. But I think the cut in interest rates over February really worked its way into confidence.
There wasn’t obviously much of an improvement in affordability with that 0.25% drop in rates and mortgage holders just got a little bit of relief in terms of their balance sheets, but I do think it’s worked its way into confidence.
We’ve seen strong auction activity all the way down the Eastern Seaboard – Brisbane, Melbourne, and Sydney all with near-record numbers of auctions for this time of the year, and certainly higher clearance rates. That Sydney market keeps churning out those 80%-plus weekend rates, and Melbourne even recorded an 80% rate there, though February tracked back into the mid-70s.
Look, Melbourne, Sydney, and Brisbane certain started off on the front foot this year. I think increased confidence from those lower interest rates has worked its way into those housing markets and offsetting, obviously, concerns about our economic issues.
I also our other capital city markets are doing reasonably well. Adelaide, certainly middle bar, middle price ranges and upper price ranges in Adelaide continue to be quite solid as they have been over the last year. Canberra similarly, and even the Hobart market is picking up now and looking to have a good year.
Those markets have been in catch-up mode to some degree over the last few years, but I think gradually we’ve seen confidence and those perceptions of still good value buying in those markets and driving changeover activity. I think they’ll have another couple of solid years or another solid year for those Adelaide, Hobart, and Canberra markets.
Perth has been flat – no surprise there. It’s had a real shakeout in the local economy, the end of the mining boom, and we’re seeing a fall in iron ore prices, too, which is a little concerning for that local economy, and that will work its way back into the housing market.
But I’m not as pessimistic on Perth as a number are this year. I think it will be a flat year, but I’m not sure the prospect of falling house prices are realistic. There’s still a lot of first homebuyer activity in that Perth market, and even though certainly the economy is not performing as well as it was a year ago or years before, it’s still quite a reasonably strong performance from that economy.
Look, generally a better start to the year for most housing markets. Lower interest rates work their way into confidence. Of course, it is the local factors that are driving markets. Investors still at record levels in Sydney, and with lower rates, that’s likely to continue. It really is mid-price to upper-price range market driven activity levels in most capital city markets with those budget price sectors still a little flat except in the Sydney market.
Kevin: Just before talking to you, we were talking to George Raptis and his rap on the Sydney market. It almost seems to me as if the politicians are scrambling to get some kind of solution, because that’s obviously a market that would seem to me – my words – out of control.
Andrew: It is a very strong market, Kevin. Third year of boom time conditions in prospect now. If anything, the market lifted this year compared to last. It’s even tracking higher than where it was a year ago, which was coming off of those extraordinarily strong results at the end of 2013.
Look, another strong year in prospect for the Sydney market. Strong local economy, very high levels of migration due to that market, and of course, the thing that drives the Sydney market is an under-supply of property.
That keeps pressure on rents, on prices, it keep investors interested, and the changeover buyers continue to be active in the market, and why wouldn’t they be seeing those double-figure price rises year on year.
It’s no surprise in an election environmental that New South Wales has been in that politicians are starting to tap into some of the concerns of perhaps unsustainable prices growth in the Sydney market – the perceptions, anyway, of unsustainable prices growth – and also trying to get more first homebuyers in the market.
Look, I’m not a great advocate for demand-side policies, in other words, throwing money at buyers who are disadvantaged. I think we have to really increase supply in the Sydney market. That’s the big problem, and unfortunately, that’s really going to be a long-term journey to get supply up to demand.
Even the announcement of tens of thousands of new building blocks in the outer fringe of Sydney is really not going to address the problems in terms of first homebuyers because a lot of those new home and land packages are being snapped up by changeover buyers.
Kevin: We’re almost out of time, Andrew, but I know all eyes are going to be on the RBA, the announcement coming out this Tuesday. Any tip on that before you leave us?
Andrew: Look, the economy really needs to have more stimulus, it’s restricted in terms of fiscal policy with the high government budget deficit, so we can’t really spend our way out of trouble. It really has to be monetary policy that does the heavy lifting.
I think we will get more cuts in rates, but there is a threshold below which I believe we can’t go – it becomes a negative for the economy with low interest rates – and that’s probably about 1.5%, but I do think there are a couple of interest rate cuts in the gun. A lot will depend, of course, on how the economy performs, so we need to watch those unemployment numbers, and hopefully they’ll start to go down.
Kevin: A question I’ve asked of everyone in the show this morning is if you had $500,000, where would you be spending it? I’m going to ask you that question but ask you to couch it in terms of whether you would spend it in a cap city market or whether you would look at the regional markets anywhere in Australia?
Andrew: We’re seeing some regional markets certainly activate – Wollongong is very strong at the moment – but that Sydney market keeps on keeping on. A lot of enthusiasm and confidence – in fact, record levels of confidence and enthusiasm – keep driving that market.
I think entry-level property in Sydney will remain a very good bet, because first homebuyers and investors are really fighting it out in that market, and I think we’ll continue to see prices growth at still a reasonable entry level into that very strong Sydney market, which will continue to outperform all other capital city and regional markets, in my opinion.
Kevin: Always good talking to you, Dr. Andrew Wilson, Chief Economist with the Domain Group.
Thanks for your time, Andrew.
Andrew: My pleasure, Kevin.