Aussie Underperformers in Property
By Pete Wargent on 10 Sep 2013
No Comments yet, your thoughts are very welcome
When I started writing my first book back in 2010, I explained why I felt that of all the Australian capital cities (with the possible exception of Hobart) the city I would be least inclined to buy real estate in would be Adelaide.
The South Australian capital has far weaker population growth than elsewhere (South Australia’s population increased by just 15,600 heads in the year to December 2012, while the states comprising the four major capitals saw increases of 83,000-99,500 persons respectively).
Given the supply/demand dynamic, I couldn’t see any valid reason why property prices would rise faster than household incomes in Adelaide. And I still can’t.
Prices Have Flatly Refused to Budge
Although some have tipped Adelaide as a hotspot for more than half a decade, prices have flatly refused to budge.
Sure, they probably will inch up while interest rates remain at the lowest level in a generation (however long that proves to be), but my question is: what happens when lending rates begin to revert upwards?
Surely it seems likely than any uptrend would rapidly be reversed, or at least, stymied?
I Feel the Same About Most Regional Markets
Their day in the sun has come and gone with the deregulation of lending conditions and an unprecedented increase in household debt in the period broadly from 1990 to 2005.
Since that time, household debt levels have levelled off and correspondingly so have most regional property prices.
How Property Investors Could Outperform in Future
My personal opinion is that the only ways property investors are likely to outperform in the future is if they (a) can find a short-term hotspot (or perhaps time an investment in a mining town skilfully), or (b) if they follow the wave of speculative capital, which is heading to the inner suburbs of the major capital cities.
I grew up in England, and have watched prices in London’s favoured suburbs continue to increase at a dizzying rate for more than two decades, with scant regard for the state of the economy.
It’s true that the UK has few barriers to inflows of international capital. In theory, Australia restricts foreign ownership of established residential stock, but plenty have suggested that the rules are being easily circumnavigated through the use of friends or family members.
The absolute level of Asian capital flowing into Australia is certainly a point for debate, but where it is happening I’d suggest that the likely destination of funds is the major capitals, and potentially some other key coastal Queensland destinations.
Take a Glance at Property Prices Across Australia – is my Theory Starting to Play Out?
Certainly, prices in some capital cities have stalled badly – including, notably, Hobart and Adelaide. Canberra prices may be back at record highs, but the city faces falling demand as public sector jobs are cut. And in aggregate at least, regional property prices have not shifted for years now.
Brisbane has had its confidence knocked more than once, but I personally believe the Queensland capital has better days ahead (a topic for another day).
Melbourne, on the other hand, has been a staggering outperformer. I, for one, have been constantly amazed by the market’s resilience after the tremendous boom in prices since seen from around 2006 to 2011, with median dwelling prices moving more than 50 per cent higher at well above $600,000 today.
Where are Property Prices Going Now?
RP Data has prices up by an eye-popping 6.3 per cent in both Melbourne and Sydney (64,000 jobs created in 12 months, unemployment rate 5.4 per cent) quarter to quarter, with Sydney prices up by around 8 per cent year to year.
Adelaide remains in the red for the past quarter (10,200 jobs lost year to year, unemployment rate rising to 7.1 per cent) and prices have not moved up in the past year.
Will that growth continue in the two major capitals?
Only time will tell.
