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Australian Capital City Property Rankings

Australian Capital City Property Rankings
May 27, 2020 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

When evaluating property market potential, it’s important to ignore generalisations, personal biases, and to always (properly) explore the credentials of every location across this incredibly large and diverse country of ours. Right now, Propertyology considers that Canberra has the best outlook of Australia’s eight capital cities over the next year or so.

Quite the contrary to the perceptions of some, Propertyology is neither pro-regional nor anti-capital city. We’ve helped everyday Aussies to invest in both before and will continue to do so into the future. Importantly, Propertyology prides itself on considering the entire field (as opposed to just the eight capital city options) and in being completely objective in our analysis.

The facts are that Australia’s best-performed property markets over the last five years have not been the biggest cities. Official data confirms that various regional locations, along with Hobart, were streets ahead of all other capital cities for both capital growth and rental return.

Propertyology expects lower profile property markets to continue to be Australia’s strongest performers for years to come!

Since early March, when this annoying germ disrupted every Australian’s life like never before, the focus within the real estate sector has largely turned towards the direct impact of COVID-19. Understandably, Propertyology is regularly asked how this changes the outlook for capital city property markets.

Step One to answering that question is considering the property market fundamentals pre-COVID. Step Two involves adding in the new layers created by the germ’s impact on each city.

Canberra has shot to the top of capital city rankings. This forecast is for detached houses – Propertyology believes that Canberra’s attached dwellings has a soft market outlook for many years to come.

The primary reason for Canberra’s housing market elevation is an anticipated lower economic impact from COVID-19.

Canberra’s economy was already strong before the germ arrived. And with approximately 100,000 of its 213,000 workforce in the public sector (source: ABS as at 30 June 2019) it will be significantly shielded through the COVID job lock-down period.

Logic would also suggest an expansion of Canberra’s public sector workforce will be needed to help administer the federal government’s record $320 billion COVID-19 support packages.

Brisbane’s property market is in second spot. Propertyology has been publicly critical of our home city on more than one occasion over recent years – proof of our impartiality – and we remain unchanged from our long-held view that Brisbane’s soft private sector job growth is an important missing link for otherwise solid fundamentals.

Hobart – where Propertyology stopped investing in 2016 – still has reasonable medium-term credentials, including this month’s commitment from the state government to embark on the biggest construction program in the state’s history.

In reality, there’s daylight separating Adelaide, Hobart and Brisbane.

Perth may well become Australia’s best-performed capital city property market over the next couple of years. That said, its distinct lack of economic diversity represents an investment risk that Propertyology is not prepared to take.

Perth’s heavy economic reliance on mining is a concern at the best of times but, China purchases more than 50 percent of Western Australia’s exports so Perth will always be highly susceptible to a no-notice property market downturn. Those contemplating investing in Australian real estate can do better elsewhere [refer here].

The property markets of Australia’s two largest cities have slipped to last and second last on Propertyology’s capital city rankings.

As flagged by Propertyology just a couple of months prior to COVID-19, the property market fundamentals of Sydney and Melbourne were already softening.

Unfortunately, Sydney and Melbourne have drawn the COVID property market quadrella:

 

  • large exposure to Australia’s $39 billion international tourism market,
  • a similarly big chunk of the $40 billion international student market,
  • a freeze on overseas migration (which contributed a net increase to Sydney and Melbourne’s population over the last 2-years of 151,000 and 155,000 respectively), and
  • Australia’s highest household mortgages (in an economic sense, COVID-19 is an attack on incomes).

 

Ranking Pro’s Con’s
Canberra
  • it is Australia’s most insulated economy from COVID-19 with 50 percent of jobs in the public sector,
  • Anticipated expansion of public sector to service the many federal government support packages released in response to COVID-19,
  • Probable beneficiary of the pending regional bushfire rebuild,
  • Rental market strength,
  • A balanced supply of (detached) housing.
  • COVID-19 impact on international students,
  • Poor performance of attached dwelling market (71 percent of all dwellings approved over the last decade),
  • Australia’s third most expensive capital city median house price,
  • Significant portion of Canberra residents originate from Sydney and many will have property assets in Sydney, likely to be one of Australia’s biggest casualties from COVID-19
Brisbane
  • A balanced supply of housing,
  • Consistent beneficiary of internal migration from Sydney and Melbourne’s affordability constraints,
  • Rental market strength (ex inner-city),
  • Affordable housing
  • COVID-19 impact on international students,
  • Weak private sector job growth for the last decade,
  • The highest government debt of all states and territories,
  • No vision or community engagement in a plan that residents embrace,
  • Low business and consumer confidence,
  • Poor treatment of mum-and-investors over the last few years,
  • Totally squandered opportunities from the 2012-19 global tourism boom
Adelaide
  • Very liveable city,
  • Affordable housing,
  • Rental market strength,
  • Future economic development plans in STEM, defence manufacturing and Space sectors
  • COVID-19 impact on international students,
  • Consistent failure to attract interstate residents,
  • Freeze on overseas migration (the primary driver of Adelaide’s population growth),
  • A long-term uninspiring economy (similar to Brisbane)
Hobart
  • Very liveable city,
  • Low housing supply,
  • Rental market strength,
  • Manageable household mortgages,
  • Recently announced major construction program,
  • Lowest government debt of all states and territories,
  • One of only two capital cities currently attracting a net population increase from internal migration,
  • Economic strengths include science, agriculture, manufacturing, and domestic tourism (once state borders open up),
  • City Deal government infrastructure commitment,
  • International airport due to be completed late-2020
  • COVID-19 impact on international students,
  • COVID-19 impact on international tourism
Perth
  • Housing affordability,
  • Good rental yields,
  • Easing rental vacancy rates,
  • Momentum in mining sector (job creation)
  • Enormous economic concentration risk with China,
  • Lack of economic diversity,
  • Connectivity to east coast
Darwin
  • Sentiment boost through winning the COVID-19 premiership (the first state / territory to come out of lock-down),
  • Housing supply is starting to balance out,
  • Housing affordability,
  • Good rental yields,
  • Easing rental vacancy rates,
  • Casual lifestyle,
  • Important geographically for national security
  • No vision,
  • Job decline pre-Covid,
  • Concerning decline in population,
  • Project pipeline is bare
Melbourne
  • A very liveable city,
  • A large population base and global profile,
  • Victoria was ranked Number One (equal with Tasmania) in CommSec’s latest economic report card, immediately prior to COVID-19,
  • Recently announced $2.7 billion construction program to propel the economy out of COVID-19
  • COVID-19 impact on international students and international tourism,
  • Freeze on overseas migration,
  • Inner-city vacancy rates of 13%,
  • A significant pipeline of more apartments to come,
  • Structural integrity reputation risk to be a drag on local construction sector,
  • Housing affordability constraints (bigger mortgages are more vulnerable to the COVID-19 income crunch)
Sydney
  • A large population base and global profile,
  • Development of Sydney’s second airport will have substantial long-term benefits for the city’s economy
  • COVID-19 impact on international students and international tourism,
  • Freeze on overseas migration,
  • Already lost 52,000 residents to internal migration over the last 2-years,
  • Inner-city vacancy rates of 13%,
  • A significant pipeline of more apartments to come,
  • Structural integrity reputation risk to be a drag on local construction sector,
  • Housing affordability constraints (bigger mortgages are more vulnerable to the COVID-19 income crunch)

 

While the COVID-19 isolation program is unpredictable, Propertyology believes that, if the 3-Step isolation plan outlined by Federal Cabinet on 8 May is fully implemented, there’s a better than average chance that median house prices will increase (albeit mildly) over the year in Canberra, Brisbane, Hobart, Adelaide and Perth.

On the balance of probability, the median house price in Sydney and Melbourne is likely to produce single-digit declines over the next 12-months. The most vulnerable parts of their markets are inner-city apartments, university precincts, hospitality hubs and luxury homes.

We acknowledge that Propertyology’s forecast is in stark contrast to the plethora of bearish forecasts recently published by Australia’s Big-4 banks and various economists.

Throughout these last few months, Propertyology has consistently stated that record low interest rates and sensible credit policy will continue to support housing demand.

We also anticipate further government stimulus, with domestic tourism and the real estate sectors the most logical candidates to help reboot Australia’s economy.

Official data also confirms very tight supply in large parts of Australia (supply of properties for sale, rental supply and the new construction supply pipeline).

Incredibly low supply of dwellings listed for sale means that fewer than normal buyers are required for there to be pressure on real estate values.

Outside of Australia’s biggest cities, the pipeline for new dwellings supply has been low for a several years. And many of Australia’s major regional cities have rising housing demand. Propertyology’s buyer’s agents has observed this first-hand in multiple states.

As for rental supply, the recent spike in vacancy rates is largely contained to inner-city apartments and holiday hotspots. Fortunately, this is expected to be a temporary situation, although Sydney is likely to be Australia’s problem child for quite some time.

I have a contrary opinion to the lemon-suckers who (strangely) seem to enjoy popping an extra dose of sour in to their Twinings whenever there’s a chance of doom. I have a lot of faith in the power of human spirit. I believe there is such a thing as a competitive streak which stops most humans from accepting defeat. Humans are good at fighting their way through adversity – our war veterans and sporting heroes are shining examples of it. Human spirit is also what brings communities together to rebuild after a natural disaster. It’s this same stuff in our DNA which Australians drew upon to bounce back from the 1991 recession and the 2008 GFC. Lemon-suckers always seem to overlook it!

We walk-the-walk. Here’s a recent example of our work for a client:

Propertyology is Australia’s premier property market analyst and award-winning buyer’s agency. Every capital city, every non-capital city, we analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

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