Property investors looking for their next purchase might be finding it difficult to decide on the market in which to invest.
Has any one else noticed that it’s been a very mixed year so far for Australian real estate investors? It’s a genuine tale of two halves at the moment.
On one hand we have Perth showing signs of flattening one week and sinking the next. Perth vacancy rates are still very high historically, and the stock coming on the market is not showing signs of reducing any time soon.
The commentators (some with vested interests) are telling investors that the worst is behind the Perth property market and now is the time to snap up a bargain at the bottom of its cycle. Are they right? Well, we are monitoring the Perth market very closely but are not convinced there will be any price growth in the short term. (Remember, it’s all well and good buying at the bottom; however, many an investor has bought at the bottom and waited many years for the property value to rise.) We like to see growth signals before we start start buying and the way we see it, Perth has got a number of hurdles in front of it before it starts its next growth cycle.
So what about the other smaller markets of Adelaide, Canberra and Tasmania? Well this year has shown that they have been relatively decent performers. Clearance rates across Canberra and Tassie in particular have shown some solid numbers with some capital froth to boot.
When looking at Canberra, we see much of the same: relatively low stock levels coming to market and demand is decent, however a question mark always sits over Canberra in an election year and that typically weighs on investor sentiment for public sector jobs.
Adelaide has shown over the decades to not really outperform or underperform other markets, and ticks along with 3 to 4 per cent average annual growth (30-year averages). Some distinct hurdles for the Adelaide market in the coming years are the imminent closure of some large manufacturing plants coupled with net migration numbers not showing any signs of increasing. This will keep the demand relatively low and buyers will continue to have a wide range of choice. Vacancy rates in the middle to outer rings of Adelaide are also looking to be a little soft in the coming years.
Tasmania has shown some very sound growth over the past 12 months and data suggests some good growth ahead. The key with Tasmania is investing in the essential services sector housing – areas that are populated and have larger employment hubs (public and private sector). Although migration numbers are not increasing dramatically, Tasmania is very affordable comparatively and total mortgage debt-to-income ratios are some of the lowest in the country. The biggest barrier for Tasmania in the long term are the job opportunities, but there are good signs in the short term.
So what about the big three? Well, the eastern seaboard cities of Melbourne, Sydney and Brisbane are currently in a distant changing phase.
Melbourne has overtaken Sydney and leads the country for auction clearance rates this year, however there are some real warning signs for Melbourne both in the inner and outer rings. We have all heard about the unit oversupply issues in Southbank and Docklands by now, however we also see some tough times ahead for the more affordable suburbs. Particularly in the western corridor and towards Geelong, with the imminent car manufacturing plant closures coupled with the housing approvals and stock levels. We see a fluctuating couple of years ahead for Melbourne.
Sydney has really performed like a teenage rock band this year. We have seen some suburbs, particularly in the east, inner west and south, show strong clearance rates and tight vacancy rates. However, some of the star performers in the north-west, west and south-west have softened and clearance rates have diminished significantly since mid-2015. Investors have left the more affordable markets and are now focusing their attention north towards Brisbane. I see Sydney entering a sustained phase with some small growth patches and small price reduction patches over the next three to five years. Sydney does have some very strong migration numbers to sustain the demand in the mid term and this will be a driving factor in keeping the city in a comfortable position in the decades to come.
Now for Brisbane. For hardened property news readers, you would have seen Brisbane as the next boom suburb as early as 2013. Well, it hasn’t exactly boomed. It’s been more of a slow burn (which I much prefer). Brisbane has some distinct obstacles ahead of it. The inner ring has a supply problem in regards to units and we don’t see that improving in the short to mid term. The middle and some outer rings both north and south/south-west are enjoying some solid growth and selective purchasing in these 15 to 30 kilometre rings of Brisbane will provide some good yields into the next five years. The real risks we see are in the off-the-plan house and land packages both north and south, as the supply issues really don’t warrant the $100,000+ price points compared to three to 15-year-old houses near by.
Bottom line: as always, the Australian real estate market can be compared to any number of analogies. There are markets within markets within markets. So before you invest, ensure you have a clear goal and reason as to why here or why there. This will give you confidence and will make you a better investor.
Paul Glossop is the founder and director of Pure Property Investment. Paul has built a substantial property portfolio, focusing on the fundamentals of property investing. He founded Pure Property Investment to enable investors to experience a truly holistic approach to property investment. From the initial consultation to the acquisition of the property, Pure Property Investment is a true partner for its clients through the entire journey. We specialise in sourcing properties Australia wide that are below market value, positively geared and primed for capital growth.