Residential property prices are rising in the key capital city markets, as identified earlier this year by Portfolio Management Services and investment property purchasers should note that whilst the Reserve Bank has decided to leave interest rates on hold for the second consecutive month, housing markets continue to rise off the back of low rates with residential investment purchase at its highest level for some years.
A new report (July 1) by economic forecaster BIS Shrapnel found Sydney, Melbourne and Brisbane all have strong price recovery and are on track for further capital and rental growth.
This latest evidence confirms our recommendations that select locations within these cities are undervalued and ready for purchase by astute property investors.
However, the property forecaster warned Australian residential property markets are still patchy with subdued demand expected in some locations, resulting in only modest or no short term price rises. Careful selection of location and housing style will be the key to property markets this financial year.
Improved housing affordability and the long-term housing shortfall are, however, expected to keep underlying demand bubbling along.
SYDNEY RESIDENTIAL INVESTMENT PROPERTY OUTLOOK POSITIVE
The median Sydney house price increased 4 per cent during the year to June 2013, to $670,000, BIS Shrapnel reports.
“The strength in the Sydney property market has been the result of a sustained period of under-building that has resulted in low vacancy rates and strong rental growth since 2007,’’ BIS Shrapnel researcher and senior manager Angie Zigomanis says.
“Demand has been encouraged by improved home loan affordability, with BIS Shrapnel’s measure of affordability indicating that [affordability] is at it’s best level since 2001.
“The improved yields and reduced gap between rental income and mortgage repayments is attracting investors back into the Sydney market in larger numbers,’’ Mr Zigomanis says.
“This is being reflected in the pick up in price growth, as well as off-the-plan sales for new apartments and new apartment construction.”
On the downside, first home buyer activity in NSW have fallen during the past year. This was expected, however, following the successive changes to the first home buyer incentives by the state government, which artificially pulled forward demand during the past few years.
MELBOURNE PROPERTY INVESTORS SHOULD BE SELECTIVE
Melbourne house prices are definitely on the rise again after a hefty 7 per cent price fall in the year to June 2012. According to BIS Shrapnel, Melbourne’s median house price increased 4 per cent during the year to June 2013 to $545,000, a significant turnaround.
The majority of price growth in Melbourne has been concentrated in Portfolio’s target locations for property investors, the inner and middle suburbs.
The Melbourne property market, however, appears to be heading for a two-way split with apartments threatening to underperform, including increased vacancy levels, while housing remains in demand.
“Record levels of new dwelling construction and continued strong supply of apartments have meant that supply is exceeding underlying demand and should result in vacancy rates rising,’’ Mr Zigomanis says.
This split market has led to a subdued forecast for the year ahead, especially for units and apartments.
“Nevertheless, with interest rates at their current low levels and with the prospect for further easing in rates in 2013, there should be enough to edge prices up despite these negative factors,’’ the forecaster says.
BRISBANE PROPERTY INVESTMENT OPPORTUNITIES NOW FROM LOW BASE
Queensland’s capital city recorded lower growth then some cities but at least prices are now going in the right direction.
According to BIS Shrapnel, Brisbane house prices increased 2 per cent, for the financial year, compared with two previous years of price falls. The median house price now stands at $440,000.
During the past few years, the wider Brisbane property market has suffered from a run-up in house prices and construction, as the resources boom started to take hold. However, weak population growth and a subsequent decline in the boom meant some of this excess housing has floundered on the market.
Now, however, conditions in Brisbane are turning, BIS Shrapnel says.
Brisbane now has “an emerging deficiency” as evidenced by residential vacancies falling from 3.9 per cent two years ago to just 2.1 per cent in 2013.
“As a result rents have started to rise,’’ Mr Zigomanis says.
“While the pieces are now falling in to place for the beginning of an upturn in the Brisbane property market, confidence remains weak. However, once it appears that the market has definitely bottomed, turnover will begin to increase, as purchasers seek to enter the market ahead of any further price rises,’’ he says.
If you are interested in purchasing an investment property now and would like to discuss these markets in greater detail, please contact us today or call 03 96211044 and speak to David McMillan or Phillip Almeida.