Increasing supply may temper capital growth in the medium term, but now is an excellent time to buy for yield and hold for the upturn.
While Canberra’s strong underlying fundamentals mean there’s no need to panic, a looming shift in the supply to demand equation may cool the property market in coming months.
Herron Todd White Canberra director David James explains that the increased supply of residential land that’s been made available to the market through the ACT’s land development agency in recent years is starting to affect the market.
“The other world events that are occurring at the moment also temper demand and, at the same time, that supply is still consistently increasing,” he says.
“We’re seeing major housing groups like Defence Housing Australia and Housing ACT looking to the market to acquire properties, because it’s a good time for them to be purchasing.”
All of which makes it an excellent time for investors to be buying, he adds, as Canberra’s stock levels provide both choice and bargaining power to the canny investor.
Century 21 City Walk principal Brian Nancarrow believes that, for the time being, demand is still outstripping supply. He adds, however, that the market is price sensitive. The RBA’s 0.25% Melbourne Cup day interest rate cut, therefore, was a timely move that may create a spike in buying activity on the back of increasing affordability in loan repayments.
While he believes that the Canberra market is only at year two of its seven to 10-year cycle, the rental market remains a major drawcard. “Incomes are high, thus rents are high. So there are returns for investors,” he says.
New units show strong returns
James believes that new units, in particular, are performing well on the rental front.
“For units you should still see a return of around 5.5%. The older the stock the less the return, and the new developments are showing good returns at the moment,” he says. “There are also tax depreciation benefits.”
He suggests targeting areas close to educational facilities, such as the Australian National University and the University of Canberra, as well as the main employment hubs of Woden, Belconnen and the city.
“There are new developments there,” he says. “And there’s a good opportunity to buy, given the volumes of units coming to the market.”
“We’ve never had a great level of rental accommodation available for people, and not good quality stock either, so there’s always the opportunity to get a good rental return,” he adds. “It’s a good opportunity to buy, but with the expectation that capital growth would be five years away.”
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