ACT Excerpt from the 2012 May Market report

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Canberra’s still a star but worries over supply and the upcoming federal budget could dim its luster

Canberra has been the star performer throughout the last year or so of hand-wringing over the country’s property market, and recent data shows it has maintained its position among the nation’s hot spots.

But there are several signs that supply is starting to catch up following record levels of unit development around the city centre.

“That’s something we’ve been keeping our eye on for the past 12 months or so,” says Angie Zigomanis of forecasting firm BIS Shrapnel. “And as you can see, there has been a huge swag of big apartment developments coming through – it’s a record level and it’s probably ahead of what’s being required by population growth, and over the next two years you’ll probably see vacancy rates go up.”

Good fundamentals

Canberra currently boasts the tightest rental market of any capital city, and rents are among the highest in the nation – two reasons that have consistently made Canberra a favourite among investors. Canberra’s fundamentals are also good on the income side – it was recently ranked number one in terms of housing affordability, but that had everything to do with the capital’s high household income, because house prices are also the dearest of the nation’s capital cities.

But Zigomanis warns that the high prices and median rents at $510 per week (up 5% on the year) have spurred a glut of development that could slow rental growth and especially impact the unit market. “We expect an oversupply to start coming through as all of these projects reach completion and are made available to the rental market.”

Federal government watch

Zigomanis says an added element that his group is keeping an eye on is the federal government’s progress towards their goal of bringing the budget back into surplus.

“They keep talking about cutting costs and up until now it hasn’t had a huge impact because it doesn’t seem to have affected employment,” he says. But he warns that that could change now that stimulus spending has phased out and the Labor government faces continued pressure from the Opposition. “So, if they do manage to follow through with their objectives then employment growth in Canberra will slow and may go backwards, and that should have an impact on the housing market as well.

“We saw a decade and a bit ago when the Howard government came in, they had a lot of cuts in the public service and the Canberra market went downhill for quite a few years,” he says. “Depending on what the federal government does now, or if a new government comes in [in 2013] and decides to do a bit of slashing and burning, then you could see a similar impact on the Canberra market again.”

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