For a bit of fun, this time last year I produced a report which was akin to a property investor’s footy tipping competition.
On the premise that each and every year there seems to be a footy team that catches fans off guard and rises from oblivion to be among the contenders, I made an attempt at picking one location from six states where I thought their property market would significantly improve.
2019 Tipping Results
Before I share my tips for 2020 property market bolters, let’s first review last year’s tips against the ladder placings.
According to official data from our friends at Core Logic, with the exception one (Noosa: it produced no change in value) the median house price over the 12-months ending October 2019 in all of these locations increased at a greater rate than most, if not all, of our eight capital cities.
Of the 2019 property market bolters that I picked for each of Australia’s six states [refer here], I’ll give myself a ‘pass’ for four of those.
Whyalla started 2019 having seen its median house price declining by 13.4 per cent during the previous 12 months and followed up with a 23.3 per cent increase over the following 12-months. Now that’s improvement!
Burnie was one of the strongest markets in all of Australia during 2019 (7.4 per cent growth) and Bunbury showed much more improvement than its state capital (from -9.1 per cent to +0.2 per cent).
Unfortunately, just a few weeks after making my tips last year, a 1-in-100-year flood hit Mount Isa in February and rendered its economic artery (the valuable rail freight connector to Townsville) useless for several months. While, at the time, it felt like a tipster’s curse akin a footy team’s star recruit being sidelined with a knee reconstruction, Mount Isa’s 2019 results still managed be significantly improved on 2018.
Parkes (4.1 per cent growth in 2019) and Bairnsdale (1.2 per cent) performed satisfactorily when compared to 2019 capital city results, however the purpose of the exercise was to tip improvement on the previous year, so I failed there.
2020 Tips For ‘Biggest Improver’
Whether a sporting team, a business, or the property market of an individual town or city, there will always be situations where prolonged periods of disappointing results suddenly become impressive.
That improvement doesn’t occur by accident or because it’s the next party’s ‘turn’. Good results will only come if relevant stakeholders (first) have put in a considerable amount of good work to lay the foundations for strong performance. In the world of property markets, I refer to that process as the ‘Propertyology Wheel’.
Before revealing 2020’s likely Big Improves, the locations that I believe are likely to produce the highest median house prices capital growth rates during 2020 (aka ‘Australian real estate premiership contenders’) include Launceston, Bendigo, Glenorchy, Melbourne, Mackay, Orange and Whyalla.
Related article: Property market outlook beyond 2020
With production expected to ramp up across much of Australia’s natural resources sector, I think several traditional mining locations will also be very strong in 2020, including Port Hedland (iron ore), Moranbah (coal) and Kalgoorlie (gold).
As for who has the potential to replicate what my beloved Brisbane Lions AFL did in 2019 by rising from the doldrums, I think the list of locations that will be big property market improvers in 2020 is longer than ever.
To be frank, I feel very confident that the next five years in Australian real estate will be significantly stronger than the last five years. Not only will rates of price growth be higher, the location beneficiaries will be more widespread and the annual cash flows will be better than anything that Australians have ever seen.
I’m anticipating that each of the locations that I nominated in early 2019 for significant improvement to perform well in again in 2020.
In a country with 185 individual towns and cities that have a population of 10,000 or more, it is no easy exercise to narrow it down to ONE location per state that is likely to show the biggest improvement in 2020.
Victoria – WARRNAMBOOL
Median House Price: $360,000
Capital Growth YE Oct 2019: 4.3 per cent
Property Growth Drivers: 3-hours south-west of Melbourne, Warrnambool is part of the beautiful Great Ocean Road tourist strip. For much of the last five years, real estate price in Warrnambool have been largely flat. The local economy is currently steady and a recent federal government funding announcement for the local Deakin University’s renewable energy hub is further good news. Rents increased by a significant 8.8 per cent over the last 12 months, the number of properties listed for sale has fallen by 27 per cent, and vendor discounting is very low – these are signs of pressure building within a property market. I’m anticipating an increase in buyer activity during 2020 to place further pressure on property prices.
Queensland – CAIRNS
Median House Price: $420,000
Capital Growth YE Oct 2019: 1.2 per cent
The state where the sun shines but the economy has struggled to grow for more than a decade is reflected in the disappointing property market performance right across the state, with the exception of Noosa and Sunshine Coast. Underlying property market fundamentals remain strong, but the result of October 2020’s state election will have a significant bearing on how Queensland property markets perform over the next 3 to 5 years.
Property Growth Drivers: Cairns is Australia’s sixteenth largest city and it has the strongest economy out of every Queensland location. Residents from other parts of the country are being drawn to Cairns for its fantastic lifestyle and to support a jobs boom that commenced a couple of years ago. Transport infrastructure projects to commence in 2020 include an expansion of the Cairns airport, seaport upgrades and major highway projects. Construction is due to start in May on a world-class convention centre. A couple of new luxury hotels just opened in 2019 and there are a few other major initiatives recently approved that provide confidence for Cairns’ tourism sector to expand. When these ingredients are combined with low supply of new housing, a tight rental market, low interest rates, and a median house price of $420,000, it shouldn’t be difficult for people to conclude that’s an incredibly healthy property market outlook. Propertyology is bewildered that Cairns hasn’t produced much price growth before now – fundamentals are too strong for it not to occur in 2020.
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South Australia – VICTOR HARBOUR
Median House Price: $360,000
Capital Growth YE Oct 2019: 1.4 per cent
Property Growth Drivers: A pretty seaside township that’s only an hour south of Adelaide, Victor Harbour is a lifestyle location that is also very popular for local tourism. Federal and state government investment in new highway infrastructure, approval of a new $40 million hotel and conference facility in 2019, and the recent opening of a new shopping centre are indicative of the potential for town. The property market has been flat for a few years, although household rents increased by 9.5 per cent last year while the supply of dwellings for sale reduced by 19 per cent. Within South Australia, I foresee more potential for a sub $400,000 investment budget in Victor Harbour than the state’s capital city.
Tasmania – KINGBOROUGH
Median House Price: $550,000
Capital Growth YE Oct 2019: 1.9 per cent
Property Growth Drivers: Tasmania ended 2019 as Australia’s fastest growing economy (its GDP was ranked number one and double the national average) and it has strong internal migration. Of the eight capital cities, Hobart had the second highest increase in job advertisements last year and housing supply remains at an all-time capital city low. When the collective sum of key metrics are objectively analysed, Hobart still has Australia’s best overall fundamentals. Only 12 kilometres south of the city heart, Kingborough is one of seven municipalities that make up Greater-Hobart, officially Australia’s best performed property market for the last 3 to 5 years. Buyer activity started to accelerate again in the latter part of 2019, vendor discounting is understandably low, and rental yields are strong (and rising). Suburbs such as Kingston and Blackmans Bay are particularly popular.
Western Australia – NEDLANDS
Median House Price: $1,480,000
Capital Growth YE Oct 2019: – 8.2 per cent
Property Growth Drivers: Property prices in the inner-west Perth municipality of Nedlands are lower today than 10 years ago. Perth’s economy has been slowly improving over the last couple of years and the previous over-supply of housing is mostly absorbed. Vacancy rates have reduced significantly and are now back to a balanced position. While I’m not expecting Perth’s property market to set the world on fire any time soon, I do feel confident that 2020 will produce its first year of growth for some years. While Nedlands was one of Perth’s worst-performed municipalities in 2019, there are a few metrics suggesting improvement in the back half of the year, hence my selection for its potential as a 2020 big-improver.
New South Wales – FORBES
Median House Price: $250,000
Capital Growth YE Oct 2019: – 6.3 per cent
Property Growth Drivers: While the central-west New South Wales township of Forbes (population circa 10,000 people) might be small on stature, a 5.3 per cent average annual growth in median house price over the last 20-years is proof that it is a location of substance. Like many Australian regional townships, Forbes has a fascinating history (gold rush, bushrangers, Cobb & Co), and that history still plays an important role today for its tourism trade. Agriculture and gold mining are key industries while development of the $10 billion Inland Rail Project will also benefit the local economy. Forbes’ property market produced a 6.3 per cent decline over the 12-months ending October 2019 however, sales volumes and rents were accelerating by the end of the year.
For those contemplating investing in Australian real estate during 2020, you’d be wise to base your decision on property market potential for the next 3 to 5 years, not just the year ahead. Instead of getting consumed by what the consensus believes and short-term metrics such as auction clearance rates and changes in median house prices, focus on these fundamentals.
As we see with footy teams, growth in some property markets develop quicker than others. But progress is inevitable when a good foundation has been laid.
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