The emergence of Australia’s five-speed property market

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Even tough pundits said 2016 was the year the Australian housing bubble would begin to deflate, there was very little evidence of this in Sydney and Melbourne where dwelling values rose more than 15% and 13% respectively.

The yearly gains were boosted by a surge in prices over December after more modest gains in November—a result few had anticipated. With capital growth of more than 10% for the 2016 calendar year across the five biggest capital cities combined, it’s easy to see why investors’ demand for residential property has remained strong, despite regulators’ attempts to cool demand by limiting finance.  

Factoring in gross rental yields and capital gains, CoreLogic says that housing as an asset class earned a total annual return of 14.7% based on the combined capital cities index results. 

These returns would have been significantly higher for Sydney and Melbourne (19.2% and 17.1% respectively). Putting this into perspective, the average balanced superannuation fund earned about 7.2% over the same period and the share market was up 7%.

Emergence of the five-speed property market
Last year crystallised the emergence of the five-speed property market. Sydney was the strongest performer, while Melbourne, Canberra, and Hobart were one shift down.

Meanwhile, Brisbane and Adelaide registered healthy but more subdued growth of 3.6% and 4.2% respectively. The weakest performer was Perth, down 4.3% over the year.

Regional Australia limped along, gaining 2.8%. However, there were patchy spots, such as Western Australia where mining town home values have decreased considerably following the end of the mining boom.  

Value gains in apartments were far weaker than in houses
The other aspect to the multi-dimensional property market was that value gains in apartments were far weaker than in houses.

“Melbourne house values are up 15.1 per cent over the year compared with a 1.7 per cent rise in unit values, while Brisbane house values are 4.0 per cent higher over the year, with unit values falling by -0.2 per cent,” CoreLogic reported.

However, the overall strong results for the year show that this housing cycle—which began in 2012—is longer and stronger than economists had expected.  

Some air from the property bubble will leak out in 2017
So how long will growth last? Forecasters are now saying 2017 will be the year that the housing headwinds will get stronger. We’re already seeing signs that banks are starting to increase interest rates on some loans, though this hasn’t happened yet for owner-occupiers.

However, banks are saying this will happen even in the absence of an official rate rise from the Reserve Bank. Some fresh stock in 2017, particularly in the apartment market, will also place some much-needed downward pressure on prices.

While the property bubble is unlikely to burst anytime soon, perhaps a bit more air will leak out in 2017 as growth in prices begins to ease.  


Related stories:
Fact or Myth? What’s really happening in property?
A summary of the 2016 housing market

 

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