Canberra faces its hurdles

It may be experiencing softening unemployment and rental returns, but a closer look at the stats reveals why investors in the nation’s capital should not be deterred

The ACT unemployment rate rose by just 0.1% to 3.9% in July; however, this has become the highest unemployment rate since 4% was recorded by the ABS last year.

Moreover, Canberra Business Council chief executive Chris Faulks has warned that the full impact of the Federal Government’s public service cuts has yet to hit the ACT.

 At the same time, the weekly rent for houses has fallen by 6.3% to $450, according to the latest figures released by Australian Property Monitors (APM). And the average weekly rent for units in Canberra dropped by 6.1% to $385, which means units in the nation’s capital went from being the third most expensive in the country in April to among the cheapest.

 This is probably due to restrained housing conditions which may continue to exist for some time, says Andrew Wilson, senior economist at APM.

“There’s a consistency about the fall over the year for both houses and units, and I do think it’s just generally a lack of demand for rental properties in Canberra,” he says.

And despite there being some major engineering projects underway, there isn’t a strong pipeline beyond 2016, according to the latest Deloitte Access Economics Investment Monitor report.

This could be made worse if the ACT government abandons plans for the $600m Capital Metro light rail project, which is proposed to provide some support for engineering construction beyond 2016. The doubt comes as the 12km train line – the largest-ever capital works program in the ACT – is at risk of time delays and mounting costs.

Light at the end of the tunnel

Despite the testing conditions, the ACT’s unemployment rate is still the lowest trend in the country and remains well below the national average. Additionally, the state’s exporters appear to be doing very well, including the e-commerce digital market, which focuses on markets outside of Canberra.

According to the latest Herron Todd White report, the Canberra property market is still experiencing a steady period of supply and demand, which is producing relatively stable market activity. It recommends that a safe strategy would be to target relatively affordable standard residential property in central locations that are in line with the current median house price of $540,000.

“The current market conditions are predicted to provide good capital growth above standard market growth over the longer five year plus period,” the report says.

One of the suburbs that investors should watch out for is Narrabundah, which the report identifies as being the perennial sleeper suburb in Canberra’s inner south.

The Kingston Foreshore, in particular, is undergoing extensive development, and some of the pockets in the lower Narrabundah have property prices that are not too expensive, but they are close to major thoroughfares and social hotspots.

 “Over time we expect the dated dwellings through this locale to be improved, enhancing appeal for surrounding properties,” the report says.

SUBURB TO WATCH

Palmerston offers big rewards for the patient investor

Families with school-age children love this suburb. Located 9km from the Canberra CBD, Palmerston is centrally located in the Gungahlin district. It’s also just five minutes from the Gungahlin town centre and 10 minutes from Belconnen, where the local markets are receiving $130m upgrades.

And the icing on the cake is that there’s a frequent bus service that can take you to all those destinations.

There are plenty of quality schools in and around the suburb, and small medical, shopping and community centres, which all accumulate to explain why this suburb is such a family magnet.

Investors who are willing to sit tight should see good growth over the long term. Furthermore, as more people seek to get out of the more expensive immediate city areas, Palmerston should become even more popular. Demand for units there is already heating up, as they spend on average just 48 days on the market, which is well ahead of neighbouring Nicholls (115 days) and Ngunnawal (77 days).

The suburb has everything from modern apartments and duplexes to large family homes. As far as units are concerned, the best streets to buy on include Haystack Crescent, Gudgenby Close and Arawang Lane. Buyers tend to avoid streets such as Ella Close, Narryer Close and Figg Place. Beautifully presented townhouses on Haystack Crescent can be bought for less than $450,000 and are close to the arts leisure centre and medical facilities.