ACT Exerpt from the May 2010 Market Report


Despite a fall in unit values, experts are predicting strong capital growth for Canberra in the year ahead. Could 2010 prove to be a better year for property investors? Lauren Barker reports.

The ACT residential property market has experienced both a rise and fall in January 2010. The steady growth of 2009 has hit a snag for units in 2010, with the median value dropping from $393,000 in December 2009 to $386,500 in January 2010 – a fall of 1.65%. The average house value, however, has seen growth of 0.18% over the month, rising from $493,500 to $494,500.

Matthew Bell, economist with Australian Property Monitors, predicts that though price growth may soften in the first quarter, he expects “2010 will be a relatively strong year for house and unit prices in Canberra. I think it will take until later in the year, or even 2011, for interest rates to get high enough to dampen demand”.

Ben Phillips, senior economist with Housing Industry Association (HIA), goes as far as to predict that “2010 is shaping up as a better year for the property investor”.
“Property investors will be buoyed by the expectation of strong capital gains and rental growth,” he says. “Investors should also have confidence in the general state of the economy and property in general, which was missing through much of 2009.”

Phillips says that HIA expects continued growth in 2010, though perhaps a little weaker than experienced in 2009, on account of higher interest rates and the loss of first homebuyer grant subsidies.

Affordability takes a dive
These high property values, however, are having a negative impact on those wishing to enter the housing market for the first time. The HIA-CBA First Home Buyer Affordability Report has found that Canberra was among the top four Australian cities with the largest falls in affordability.

Phillips says the median price of a dwelling in Canberra is only slightly less than one in Sydney, Australia’s most expensive city.

But this isn’t necessarily bad news for investors. As housing prices continue to rise, rents are expected to climb with them. “Without the required new home building to keep up with underlying requirements, house prices and rents are expected to continue pushing upwards through 2010,” says Phillips.

Rental yields have increased from 4.65% for houses and 5.31% for units in December 2009, to 4.75% and 5.4% respectively, in January 2010. Bell says that although rental yields in Canberra dropped in the past year as a result of price growth outpacing rental growth, he expects yields to only weaken slightly “as rental growth increases in 2010 and price growth moderates”.

Growth on the top shelf
Bell explains that price growth in the Canberra property market has predominately come from the more expensive suburbs, as is the case across the board.

According to Bell, the top half of the market experienced far more capital growth than that of the bottom half. “Median prices in that top bracket of suburbs fell from $650,000 back down to just under $600,000, and now sits at about $711,000,” he says. “So it’s been partially a recovery of losses suffered at the top end during the global financial crisis, but has now gone well beyond that recovery to outright growth.”

Top spots for investment
So where are the hot spots ripe for investment? Bell says that houses in the suburb of Narrabundah are looking good right now. “Both average days on market and stock levels fell in the six months to December 2009,” he says, “and [Narrabundah] hasn’t experienced the same rise in prices as the rest of Canberra over 2009, with median prices actually falling by -0.2%.”

According to Australian Property Monitors, average prices in Narrabundah for the 12 months to February 2010 stand at $617,500 for houses and $406,000 for units. Average days on market are 66 for houses and just 21 for units.

Bell also picks inner-north Braddon as a suburb to keep an eye on, noting that units have had their days on market and stock levels falling, and are currently yielding 5.6%

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