The Australian property markets have, for the most part, produced some pleasant surprises this year.
The latest data from Corelogic shows that house values in capital cities have increased by 7.7 per cent over the last 12 months, while unit prices have risen by 6.3 per cent.
But looking at the figures from state to state we see a fragmented picture:
Change in capital city dwelling values, 12 months to Oct 2016
- Combine capitals 7.5 per cent
- Canberra 7.9 per cent
- Darwin -3.8 per cent
- Hobart 5.0 per cent
- Perth -3.7 per cent
- Adelaide 2.5 per cent
- Brisbane 4.1 per cent
- Melbourne 9.1 per cent
- Sydney 10.6 per cent
Here is a little more detail on each of these numbers:
Sydney has seen a 2.9 per cent increase in home prices over the past three months, ending up 10.6 per cent higher than this time last year. Annual growth has slowed, having peaked at 18.4 per cent in July 2015.
Despite a slight retracement at the start of the year, property values in Sydney have experienced sustainable levels of growth and the year should end with growth in double digits. Drivers of this growth are Australia’s strongest economy, a population growing by around 1,100 each week, demand from wealthy owner-occupiers moving house, and demand outstripping supply in the investment market.
Melbourne home values have experienced growth of 4.6 per cent over the past three months alone, bringing year-on-year growth up to 9.1 per cent. Annual growth peaked at 14.2 per cent in September 2015 but has since slowed.
Melbourne’s solid population growth of approximately 1,400 each week combined with a relatively strong economy creating more jobs has contributed to its strong performance over the past 12 months.
Home values in Brisbane have risen by 1.3 per cent over the past three months and are 4.1 per cent up on the previous year. There has been growth of 17 per cent in Brisbane home prices over the past five years.
Despite being pegged as the place to be this year, Brisbane’s annual capital growth has come in well below the combined capitals average, dragged down in part by the oversupplied Brisbane unit market falling by 1.4 per cent over the year.
Overall growth may be sluggish, but certain areas in Brisbane are still performing respectably and show good investment prospects. Meanwhile, the significant oversupply of high rise new and off-the-plan apartments seems to be impacting markets in the inner-city area and nearby suburbs.
Approximately 9,000 new apartments came onto the market in Brisbane this year, a 200 per cent increase from 2015. These numbers hardly make it an attractive prospect for investors at the moment.
Adelaide has experienced a 1.3 per cent decrease in home values over the past three months but is still 2.5 per cent up over the past year. The past five years have delivered just a 7.5 per cent increase in values.
Despite a promising flurry at the start of the year, Adelaide’s property market has now stalled. With unemployment at 7.2 per cent – the highest of all capital cities – there are few growth drivers present in Adelaide currently.
Hobart home values have dropped by 2.8 per cent over the past three months but remain 5.0 per cent higher than this time last year. There has been a total increase of 11.4 per cent in Hobart home values over the past decade.
Hobart’s minimal population growth and slow economic growth leave little reason for property values to rise substantially, although there has been some suggestion that it’s a good place to invest “because it has to catch up”.
The growth spurt at the beginning of this year barely made a dent in a decade of underperformance in the Hobart market.
Perth has seen a 1.5 per cent drop in home values over the past three months and is 3.7 per cent down over the past year. After peaking in December 2014, values have fallen by 9.7 per cent.
Still in a slump as it works its way through the excess of the mining boom, Perth’s property values continue to fall, driven by a significant oversupply of properties for sale. In fact, properties for sale in Perth currently outnumber those in Sydney.
In the Perth rental market, rents are falling because of an oversupply of rental properties.
Darwin recorded a 4.0 per cent increase in home values over the past three months but they remain down 3.8 per cent year-on-year. Values have fallen by 9.2 per cent since their recent peak in May 2014.
Like Perth, Darwin property values have dropped over the past year and there is likely more fallout to come.
Canberra home values are up 5.6 per cent over the past three months and have increased 7.9 per cent over the past year. There has been a 15.8 per cent increase in home values over the past five years.
Canberra’s property market has outperformed many other locations this year but the market still has an oversupply of new apartments.
Australia’s property markets are in a fragmented state as a result of local factors including employment rates, population growth, consumer confidence and supply and demand. This is despite a relatively strong economy and low interest rates.
It’s likely that in 2017 the Melbourne and Sydney property markets will once again outperform the other states thanks to sustained demand from investors and wealthy home owners.
However, inner-city property values are likely to be pulled down by the looming apartment oversupply in Brisbane, Melbourne and Sydney, and it remains to be seen how the RBA will handle interest rates for the coming year and what impact any changes may have.