While other property markets are weakening, Canberra is seeing price growth – but there are concerns about potential oversupply
The downturn in Sydney and Melbourne has been the main focus of the national property market, but in the meantime Canberra has been quietly turning in a strong performance as one of only two capital cities to report positive price growth in the December 2018 quarter.
According to CoreLogic data, the city also had the highest rental growth of all the capitals in 2018, with rents increasing by 5.6%. CoreLogic’s Quarterly Rental Review for January 2019 also indicates that Canberra’s rental market has become the second most expensive nationwide, with an average rent of $539 per week.
The capital is buoyed by the strength of its local economy, which in turn is supported by a good job market. Nonetheless, this positive streak could slow down soon. According to Geof Snell, principal property economist at BIS Oxford Economics, Canberra could face problems once new housing stock comes in.
“There’s potential for oversupply due to high levels of construction – the moderate levels of undersupply are easing,” Snell says.
He also points out that the economy is heavily reliant on government spending.
“Economically, momentum is also set to moderate slightly in the ACT after their recent strong performance,” he says.
Values ease in premium suburbs
With these potential issues on the horizon, affordability is going to become crucial to sustaining demand in the ACT. The number of suburbs with a minimum median house price of $1m came in at nine as of January 2019 – down from the 10 recorded over 2017 and 2018. Nonetheless, these premium suburbs continue to be beyond the capacity of many buyers. According to Domain data, these pockets are generally centred in Canberra’s inner ring, with the exception of O’Malley.
High property prices have driven first home buyer commitments down: the number of finance commitments from this group fell by 15.1% in February 2019. Year-on-year, the rate of decline was 16.2%.
For those who favour the location of the more expensive suburbs but don’t have the budget, there are other options – namely, the neighbouring suburbs that have considerably lower price tags. For instance, those wanting to buy into Forrest could consider Deakin instead, or Griffith rather than Narrabundah, or Ainslie instead of Reid.
SUBURB TO WATCH
WATSON: Price correction in Canberra suburb
The young suburb of Watson, situated just a 15-minute drive from Canberra, has had a generally positive trend of growth over the past few years, but it may already be starting to turn a corner into correction.
House prices dropped by 6% in the year to January 2019 following growth of 15.7% from 2016 to 2019. This has taken the median value down to under $750,000.
Things are slightly more stable in the unit market, with prices falling by only 0.9%. Given that this sector has traditionally recorded gentle growth, it is not as strongly affected by market movement. It also retains affordability – the median value for units is under $400,000.
Affordability: Units go for just $383,347 – a plus for those looking for convenient access to the city
Units: Units in Watson are doing better than houses, despite seeing gentler growth
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