Market Report - ACT (July 2007)

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The rental shortage continues in the ACT, with inflated rental prices equal to Sydney levels at an extraordinary $390 per week. Unlike Sydney, however, property prices in Canberra have yet to reach the sky-high brackets of its coastal counterpart – and it's this relative affordability that is luring interstate investors into the nation's capital.

The ACT recorded a median house price of $403,000 in the March quarter, with capital growth in the same period at 1.19%, according to Residex.

While the growth rate appears sluggish on paper, Michael Wellsmore, deputy president of the Real Estate Institute of the ACT (REIACT), insists that the slow increase in property prices is not reflected in the market. “We're actually currently seeing a very strong market," Wellsmore says. "It's being fuelled by the fact that there's very strong growth in the federal public service, and they are the major employers in Canberra. We're still getting a handle on how extensive that growth will be."

Although the current rental crisis in Canberra is putting pressure on the government to address affordability issues, it's great news for investors. The extremely low vacancy rates are pushing yields up, and with median rents at $390 – equal to Sydney – investors are achieving excellent returns.

"In dealing with our members, I can't find anyone with a vacancy rate above 0.5%. I spoke to one of our members the other day – one of the largest agencies in Canberra, and they said their vacancy rate was 0.3%. Others are at 0%," Wellsmore says. "If you look at the driving factors – it's supply and demand."

The high-income earners in Canberra are also impacting the rental situation, Wellsmore adds, because the capital has "the highest paid workforce in the nation, so people are able to pay".

Wellsmore says that the government will need to address the issue by attaching mandates to future land releases, forcing some land to be locked into lease contracts. "Out of a land release of 1,000 blocks, between 200–400 will need to be leased for four or five years to alleviate the issue that we have," he says.

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