The tables are turning: Has Canberra reached its peak?
Increasing stock and limited population growth have led to disappointing rises in unit values and subdued rental yields
Botched off-the-plan construction and the Mr Fluffy buyback scheme could have had a hand in increasing the ACT’s recent market strength, although experts warn Canberra may have reached the peak of its cycle.
After cutbacks to the public sector in 2014 caused a population drop-off and a resulting slowdown in the market, burgeoning employment opportunities and a surge in confidence in the local economy have been giving the ACT housing market a good bump in the right direction.
The median value of units in Canberra was virtually unchanged over the year to December 2015, increasing by just 0.46%, while houses performed with surprising strength, according to Eliza Owen, market analyst at OnTheHouse.com.au. “Price movements suggest increasing demand for dwellings in the ACT. The median ACT house grew in value by a steady 5.53% to $577,500,” says Owen. However, there are some problems with supply.”
Owen is referring to the Mr Fluffy scheme: the purchase and demolition of houses insulated with loose-fill asbestos by the ACT Government. The consequence is twofold: an unexpected supply of available blocks in prime locations, and a decrease in housing which, coupled with reports of new construction failing to meet code as some builders take advantage of self-regulation procedures and choose profit over quality, may be creating a temporary shortage in homes, says Owen.
The disappointing growth in unit values and subdued rental yields, which CoreLogic RP Data reveals are at a record low of 4%, is likely due to a combination of increasing stock levels and limited population growth, according to Herron Todd White’s February 2016 Month in Review
. “[This] has resulted in softening in rents by as much as 10% across the board, with investors being forced to adjust rental expectations to avoid an increase in vacancy rates as well as facing more stringent lending criteria,” the report states.
Ron Bell, CEO of REIACT, confirms that after factoring in “costs like levies and land tax, the return on investment is not all that good – although, in saying that, there are areas where the gearing is positive”. For example, Flynn, a suburb northwest of the CBD, is currently recording rental yields of over 5% and a median house value of just under $500,000. The vacancy rate in Fadden
, to Canberra’s south, has more than halved to 2.38% year-on-year and the suburb enjoys a rental return of 4.62%, according to REI.
Bell says “detached housing is proving to be the real winner. Townhouses are in short supply”. And while the risk for oversaturation in the inner-city market is very real, with 10,000 new units in the pipeline for 2015–2020, Bell says “those in close proximity to town centres are selling well and, in the case of investors, they all seem to be renting at good prices”.
But Herron Todd White’s February report predicts Canberra is at the peak of its cycle, with houses already starting to decline. While this may spell good news for buyers, off-the-plan purchasers should beware buying at a time when dwellings could drop in value by the time of settlement, particularly as unit supply expands.
SUBURB TO WATCH
Big plans turns Kingston into a local hotspot
A suburb that has defied the effects of unit oversupply is Kingston, a locale with waterfront properties 4km east of the Canberra CBD. Rejuvenation due to new residential and retail development is quickly transforming Kingston into a sought-after suburb with a dynamic and lively foreshore.
Formerly an industrial zone, the Kingston Foreshore is the newest development within the suburb which, according to the ACT Land Development Agency, “is well on its way to becoming Canberra’s premiere destination for the arts, culture, tourism and leisure. The overall vision for the Foreshore is to create a mix of retail, commercial, residential and recreational areas while preserving the area’s overall historical significance”.
The numbers confirm Kingston’s potential, with investors seeing a median return of 5.2% for the average unit valued at half a million. While professionals account for over 45% of Kingston’s residents, according to ABS figures, the suburb still draws families who enjoy the proximity to schools and parks.
While some new apartments can set you back $2m, there are plenty of units just a couple of streets back from the Foreshore in the more affordable range of $400,000 for a two-bedroom, one-bathroom unit.
Can you afford to buy in this suburb? Find out how much you can borrow