These Two Capital Cities Have A Lot Of Investment Upside

John-McGrath-Resize

John McGrath

Real Estate Expert

With all the continual hype circulating Sydney and Melbourne it’s easy to sometimes forget about Australia’s other capital cities. This year has shown major changes for both Canberra and Brisbane and there are some positives to come out of 2016 you should be aware of before making any real estate investments in the new year. 

Brisbane

South-East Queensland continues to offer outstanding opportunity for growth but a sluggish economy, political upheaval, low population growth and an impending apartment oversupply is delaying significant price growth overdue in Brisbane today.

In our recently released 2017 McGrath Report, we discussed how the end of the mining boom has hit Queensland and its capital city hard. Brisbane is no longer experiencing the strong flow of money that came from regional areas where mining workers earning big salaries were investing in Brisbane real estate or buying family homes in Brisbane for a fly-in fly-out lifestyle.

brisbane1Image via McGrath 

Latest statistics from the ABS and CoreLogic RP Data show Brisbane’s population growth is at its lowest point since 2001*. Continuously strong economic conditions in New South Wales and Victoria and uninspired state management following the Liberal National Party’s removal after one term and now a minority Labor Government provides no incentive for big business to set up and expand into Brisbane.

But through all this, the property market is showing resilience. According to CoreLogic RP Data, median property values (houses and apartments) along the Brisbane to Gold Coast corridor rose by 5.7% to $482,000 in FY2016^ compared to 3.5% growth in FY2015 and 6.7% in FY2014.

Despite all the big picture challenges, the market is currently seen as affordable, safe, steady, reliable and doing well in tough economic conditions.

As always, some suburbs have exhibited exceptional results. Those with more than 15% house price growth in FY2016 include Robertson (25.6%), Darra (23.9%), Wilston (20.3%), Chelmer (19%), Banyo (17.2%), New Farm (16.8%), Sandgate (16.8%) and Carina Heights (16.2%)#.

In the apartment market, Brisbane is facing an oversupply with a two-year pipeline of 44,511 dwellings to be completed, according to CoreLogic RP Data**. This is significant when ordinarily about 30,000 apartments would be sold in this timeframe and that includes a combination of old and new.

The oversupply will be primarily around the city and inner ring areas. Investors are increasingly wary of this and some developers have delayed their projects. However, it does present an opportunity for owner-occupiers with a long term view. The newly boosted First Home Owners’ Grant, up from $15,000 to $20,000 until June 30, 2017 should help young buyers in this market.

brisbane2Image via McGrath

On the Gold Coast, plenty is happening and it’s all positive. Locals who bought highly discounted properties in prime areas post-GFC have now renovated or re-built and are selling with a view to buying again in a better location. They are making money and moving up the ladder through a buy, renovate, sell and repeat strategy.

In the more affordable suburbs, a huge range of buyers including local upgraders, downsizers, renovators, first home buyers and some Sydney and Melbourne lifestyle buyers are targeting up-and-coming areas particularly on the southern Gold Coast.

Buyers are especially drawn to areas such as Miami, Palm Beach and Tugun where good quality houses that are walking distance to the beach are selling for well below $1 million.

These suburbs offer exceptional value and opportunities for growth. A Palm Beach home worth $600,000 is worth $1 million just 9 km up the road in Mermaid Beach. On the beachfront, Palm Beach buyers are paying $2.5-$3 million compared to $5-5.5 million in Mermaid Beach.

In the prestige market, there have been very few sales above $10 million since 2009 but this year six were recorded over the first three quarters alone, reflecting rising confidence particularly among locals.

The biggest deal was the $25 million sale of a Mermaid Beach mansion in September. There was also the $15.5 million sale of a riverfront Isle of Capri residence to Chinese buyers and two other sales in Mermaid Beach for $13.25 million and $11.45 million. There was also an $11 million sale on Cronin Island and a $10.9 million sale at Sanctuary Cove.

We remain very optimistic about the Gold Coast. In the lead-up to the 2018 Commonwealth Games, billions is being spent on infrastructure and the economy is becoming more diversified with health and education jobs supplementing the more volatile retail, tourism and construction industries.

On the Sunshine Coast, there is a lot of demand at the upper end in Noosa and Sunshine Beach. Local upgraders and lifestyle buyers from Queensland, Sydney and Melbourne are spending up to $5 million for properties to either occupy now or use as holiday homes ahead of retirement. A new record for beachfront homes on the coast was set in September with a $9.3 million sale at Sunshine Beach.

* Melbourne leads population growth, CoreLogic RP Data, published April 11, 2016 and Regional

Population Growth, Australia 2014-15, Australian Bureau of Statistics, published March 30, 2016

^ Hedonic Home Value Index, CoreLogic RP Data, published July 1, 2016

# CoreLogic RP Data; 12 months to June 30, 2016; suburbs with a minimum of 40 sales in the year

** Record high unit construction increases settlement risk, CoreLogic RP Data, published May 16, 2016

Canberra

The market has improved significantly in Canberra this year, with house prices rising by almost 10% over the first 10 months of 2016 alone*. This time last year, Canberra was a market still in decline so the turnaround this year has been quite remarkable.

Underpinning this growth is an undersupply of houses for sale; greater stability in Federal Government following many years of unrest; and a very low unemployment rate of just 3.6%^, boosted by the lifting of a two-year hiring freeze in the public service in mid-2015.

In our recently released 2017 McGrath Report, we revealed a distinct new confidence in Canberra’s marketplace following the Federal Election.

canberra1Image via pinterest

Canberra is always directly affected by elections because one in three workers are employed in the public service. Unlike the last Federal Election, there was no threat of mass job cuts on either side of politics so the market maintained its momentum during the long campaign.

The Coalition’s return meant continuing stability for government employees; no changes to negative gearing or capital gains; and a tax cut that would benefit a large proportion of residents, who are among the highest paid workers in the country.

Opens have been well-attended all year and auction clearance rates for houses remained just shy of 70% for the 12 months to June 2016, according to Domain research#.

Interest rate cuts are no longer having a stimulatory effect, with buyers now used to record lows. However, young couples and families are leveraging rates to stretch their budgets further and buy in premium locations close to the best schools.

The $1 billion ‘Mr Fluffy’ buyback and demolition of 1,022 homes across 56 suburbs by 2018 continues and is having a big impact on the market. Approximately 260 homes have already been demolished with 176 scheduled for demolition between July and December 2016 **.

canberra2Image via McGrath

The scheme has displaced hundreds of families who all need to buy or rent. They have been paid well for their homes and the stamp duty concession on their next purchase is giving them extra buying power and the ability to buy quickly and compete strongly at auction.

Some are staying in their area, others are upgrading elsewhere. For example, many ‘Mr Fluffy’ sellers in Belconnen are heading to nearby Gungahlin where they can purchase bigger, newer homes.

Meanwhile, the incredibly rare opportunity to buy vacant land in premium established suburbs following the demolition of ‘Mr Fluffy’ homes is really exciting buyers.

The first 10 blocks were taken to auction in April. Among the sales was a block in Pearce for $605,000 and one in Chapman for $610,000 – both close to the city’s median house price. This signalled to other home owners just how valuable their land has become due to limited release of new supply in recent years.

Original housing stock in Canberra’s prized inner north and south is more than 60 years old and due for an overhaul. Owners are realising the best way to capitalise on their land value is to re-build; and families are out in force looking for knockdown opportunities in prime locations.

Downsizers are among these buyers, with many not ready for apartment living. Townhouses are hard to find so many downsizers are looking to build dual occupancies instead – sometimes in joint venture deals with friends.

The Over 60s Home Bonus Scheme provides downsizers with a market advantage due to a substantial discount on stamp duty. On a $660,000 purchase, just $20 is payable. We are finding that many people are still unaware of this opportunity but once informed they feel incentivised to sell.

Canberra’s apartment oversupply continues, comprising 51.2% of all homes for sale, according to CoreLogic RP Data^^. However, property values and rental yields are holding up well.

The median apartment price has risen 4.4% in calendar year 2016 and rental yields are among the highest in the country at 5.1%*.

The rental market is being supported by extra demand from ‘Mr Fluffy’ sellers as well as usual strong demand from young workers, students at two universities and public service contractors who do not want to settle in Canberra permanently.

* Hedonic Home Value Index, CoreLogic RP Data, published November 1, 2016

^ Labour Force Australia, August 2016, Australian Bureau of Statistics, published September 15, 2016

# Property Research Report for ACT, Domain, 12 months to June 2016

** Houses to be demolished by district and year, Asbestos Response Taskforce, published July 29, 2016

^^ Units are increasingly making up a higher proportion of overall stock available for sale, largely driven by the nation’s two largest capital cities, CoreLogic RP Data, published August 2, 2016

## CoreLogic RP Data; 12 months to June 30, 2016; suburbs with a minimum of 40 sales in the year

Visit www.mcgrath.com.au for more information

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