INSIGHT

Local property outlook for 2017

April 2017

Local property outlook for 2017

Despite the constant media debate on housing affordability, Australian house prices show no sign of significant slowdown. Data presented in Core Logic’s Housing Market Update1, shows Australian housing market values are continuing to grow in 2017.

The data shows a 0.7% increase in dwelling values across capital cities (excluding Darwin) in January, which continues on from a record annual growth rate of 10.9% in 2016, the highest calendar year growth since 20092.

And with Investors now making up 48% of new mortgages demands nationwide, it’s clear they’re increasingly responsible for all this activity.

Housing market super powers

Sydney and Melbourne continued to dominate in 2016, with annual dwelling value increases of 16% and 11.8% respectively. There have been steady increases in other capital cities with Brisbane sitting at 4.4%, Adelaide at 4.8%, Canberra at 6.7% and a significant rise in Hobart, reaching 7.8% growth.

For Sydney and Melbourne, the jump in dwelling value prices has had little impact on sellers in the beginning of 2017, with auction clearance rates sitting between the high 70s and mid 80s for both cities through January and February.

While the Sydney market remains the strongest in terms of value growth, Melbourne dwellings are spending the shortest length of time on the market, averaging 29 days – down from 36 days in the previous year and beating Sydney’s average of 33 days on market. A solid economy and job creation are the most likely contributors to Melbourne’s market success, with the city enjoying 2.2% population growth in the last year3.

Unit oversupply posing a problem

However, Melbourne is reporting a significant difference between house and unit price growth. Oversupply of units in Melbourne has seen unit values rise by a marginal 2.8% compared to house values at 12.9%. The beginning of the year also saw rental yields dipping to an all-time low with houses averaging 2.7% and units at 4.0%.

Higher pricing has also placed pressure on Sydney’s rental yields, with houses now returning on average just 2.8% and units 3.8%. For investors in both major cities, it’s a matter of weighing up low rental yield performance with high capital gains results.

Brisbane continues to evade its long-predicted emergence as a major growth spot4. While it has enjoyed a steady increase in dwelling values, last year saw a significant jump in average length of time on the market, rising to 57 days compared with 43 recorded in the previous year.

Oversupply is becoming a major issue for Brisbane. New high-rise off-the-plan inner city apartments are minimising unit values. In fact, the city’s annual growth in 2016 is wholly attributed to higher house values, with unit values falling 2.7%. That being said, units are still drawing a fairly attractive yield in Brisbane, sitting at 5.2% compared with houses at 4.1%.

Economic impacts

Hobart’s notable annual growth is being attributed to its affordable housing prices - the lowest in the country, with a median price of $366,000. Time on market dropped to 35 days, compared with 47 days in the previous year, with steady rental yields of 5.0% for houses and 5.8% for units.

Darwin and Perth are still working through post-mining boom side effects5, with dwelling values down by 0.7% in Darwin and 3.2% in Perth. Both cities have also suffered from a greater length of time on market with increases to 65 days for Perth and 86 for Darwin – both up by 13-14 days. It’s expected that recovery in both of these markets will take some time.

The Adelaide housing market recorded small flurries of change in the past year. Length of time on market has remained the same at 43 days, with a low increase in capital gain to 4.4%. Housing rental yields have lowered to 4.0% and there’s been a slight rise in unit yields to 4.7%.

Finally, the Canberra housing market performed strongly last year and dwelling values have continued to gradually increase in the first months of this year. Where house value growth of 6.8% has outperformed unit value of 5.8%, unit yields are returning 5.1% and houses sit at 4.1%.

What to expect for 2017

Overall, Core Logic expects capital city dwelling values to continue to increase – but the rate of value growth is likely to slow down.

Disparate results in capital gain between house and unit values are expected to widen given the number of high-rise developments under construction.

Finally, investors are now responsible for almost half of all new mortgages – while the continuing rise of dwelling prices mean first homebuyers are restricted by ever-increasing deposit requirements. If this trend continues, regulatory change may be on the table - possibly impacting future property investment decisions.

“Investors now make up 48% of new mortgage demands nationally.”

Important Information:

1. https://www.corelogic.com.au/housing-update/

2. https://www.corelogic.com.au/news/capital-city-dwelling-values-surge-10-9-higher-over-the-2016-calendar-year

3. http://propertyupdate.com.au/housing-market-economic-update-chart-pack-february-2017/?inf_contact_key=43d6355b50308d2789ab1d1a0e9428b4cde83f88cdcc8f7f8c5c475d9ef814bb

4. http://propertyupdate.com.au/housing-market-economic-update-chart-pack-february-2017/?inf_contact_key=43d6355b50308d2789ab1d1a0e9428b4cde83f88cdcc8f7f8c5c475d9ef814bb

5. http://propertyupdate.com.au/housing-market-economic-update-chart-pack-february-2017/?inf_contact_key=43d6355b50308d2789ab1d1a0e9428b4cde83f88cdcc8f7f8c5c475d9ef814bb

Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. You should consider if this advice is appropriate for your situation. We recommend you read the Product Disclosure Statement (PDS) or Terms and Conditions, available online or via a Citibank branch, in addition to seeking independent legal, financial and taxation advice on your personal circumstances before acting on the information contained in this material.

This material is for general information only. All opinions are subject to change without notice. This material is taken from sources which are believed to be accurate; however Citibank accepts no liability of any kind to any person who relies on the information in it. Investments are not deposits or other obligations of, guaranteed, or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risks, including the possible loss of the principal amount invested. Investments are subject to risk, including loss of income and principal. Past performance is not an indicator of future performance. Due to exchange rate fluctuations, you risk losing capital if you invest in foreign currency. Some products are not available to US persons and may not be available in all jurisdictions.