Capital growth picks up speed in 2015

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The 2014/15 financial year has finished with dwelling prices in Australia’s capital cities up almost 10%.

Figures from CoreLogic RP Data’s June Hedonic Home Value Index show that dwelling prices in Australia’s eight capital cities rose 9.8% over the 2014/15 financial period, a slightly smaller result than the 10.1% growth seen over the 2013/14 financial year.

The figures show that price growth picked up speed in the second half of the 12 month period, with 5.1% growth seen over the first six months of 2015 compared to the 4.1% growth seen over the last six months of 2014.

Head of research at CoreLogic RP Data, Tim Lawless said the higher growth rate over the start of this year was likely buoyed by Reserve Bank decisions on interest rates.

“With the RBA cutting the cash rate in February, there was an instant buyer reaction across the Sydney and Melbourne housing markets where auction clearance rates surged back to levels not seen since 2009,” Lawless said.

“Capital gains once again accelerated and we are now seeing Sydney and Melbourne homes selling in record time; Sydney homes are selling in just 26 days and Melbourne homes are selling in 32 days,” he said.

Over the 12-month period detached houses again outperformed units in terms of capital growth, with house prices up 10.4% compared to unit growth of 5.6%.

Melbourne had the biggest disparity in terms of growth between detached dwellings and units, with houses recording growth of 11.2%, while units could only manage 2.4% over the year, with Lawless highlighting an over-supply of units as the main factor.

Only in Hobart and Darwin did units outstrip houses in terms of capital gains.

The index again shows that Sydney and Melbourne are the main contributors to the combined capital city growth rate, with three tiers of markets now present in Australia’s capital cities.  

Sydney and Melbourne have seen dwelling values increase by 16.2% and 10.2% over the financial year respectively while  every other capital city has seen growth of less than 5%, with dwelling values down over the year in Darwin (-2.9%) and Perth (-0.9%).

“It’s no coincidence that New South Wales and Victoria are recording the strongest economic conditions coupled with the strongest rates of migration which is fuelling housing demand. These states are more sheltered from the mining sector downturn and have benefited from the strong multiplier effect of housing construction as well as a vibrant financial services sector,” Lawless said.

“The Perth and Darwin markets are weakening in line with the downturn in the resources sector and an associated weakening in infrastructure investment and a marked slowdown in migration.

“Brisbane, Adelaide, Canberra and Hobart are seeing softer economic conditions and population growth compared with Sydney and Melbourne.”

While property owners are likely to be pleased by the rate of capital growth, the price rises have caused the rental yield rate to drop.

The current gross yield for a capital city house is at at 3.5%, which is equivalent to the record low last recorded in 2007.

The average gross yield on a capital city unit also fell over June to 4.4%; the lowest gross apartment yield since 2010 and not far off the all-time low of 4.3% recorded in 2007.

Brisbane is now recording the highest gross rental yield for apartments, at 5.4%, and the only capital city where gross rental yields have improved over the year has been Hobart.

“It looks likely that the pace of capital gains will remain higher than rental growth which will push rental yields even lower over the coming months,” Lawless said.

“Melbourne continues to hold the unfortunate title of the lowest yielding capital city, but if current trends continue, it won’t be long before Sydney overtakes Melbourne due to the substantially higher rate of capital gain in the face of comparatively low rental appreciation.”
 

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