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Two Australian Cities That Are Defying the Country’s Housing Downturn



Australian Cities That Are Defying the Country’s Housing Downturn

Two years ago, Sydney and Melbourne were two of Australia’s red-hot housing markets, and it seemed as if nothing could stop home values from skyrocketing. But now the party is over.

Tighter lending restrictions on housing investors introduced by the Australian Prudential Regulation Authority (APRA), Australia’s banking regulator, saw credit growth, or the amount banks have lent to from housing investors, slow to record lows. This, combined with a range of tougher regulations for foreign buyers, put the brakes on a booming housing market, hitting Sydney and Melbourne the hardest.

Australian home values fell 4.8% in aggregate through 2018, marking the weakest housing market conditions since 2008, according to CoreLogic. And uncertainty is set to continue, particularly with the opposition Labor Party promising to wind back long-enjoyed tax breaks for property investors if it wins this year’s federal election.

But buyers keen to add Australian property to their portfolios still have several options.

One is to buy in Sydney and Melbourne—the cities most popular with international investors—and suffer some further value falls in anticipation of eventual long-term growth. But this approach will take some gall, argues CoreLogic senior research analyst Cameron Kusher.

CoreLogic figures show Sydney home values fell in aggregate by 8.9%over 2018, and Melbourne values fell by 7%. Home values continue to fall, and it is impossible to predict where the bottom will be.

“Rental yields are rising [in Sydney and Melbourne] as dwelling values fall, so there may be some investment opportunities,” Mr. Kusher said. “However the expectation is that dwelling values will fall further, so for investors, it really is a question of whether you are prepared for some further declines in the market were you to purchase now.”

A second option is to look to the housing markets of other Australian cities which aren’t undergoing downturns of the same magnitude. Two worth considering are Hobart and Brisbane.

Hobart in 2018 went through a housing boom in stark contrast to every other Australian capital city. Growth in home values has eased but is still strong.

Some experts say d Brisbane is at the beginning of a growth cycle, driven by a strong state economy, high levels of inward migration and much more affordable housing prices than Sydney and Melbourne.


The picturesque capital of Tasmania emerged as an outlier in 2018 around the time Sydney and Melbourne began posting annual declines in home values. The city underwent a housing boom in stark contrast to every other Australian capital city, with annual value gains above 10% while other cities fell.

Hobart’s growth has inevitably slowed, and is predicted to slow further due to its declining affordability and the broader woes of the Australian housing market.

But for now, Hobart’s housing market is still leading the nation in by a large margin, with values rising by 8.7% in 2018, roughly the same distance that Sydney’s market fell over the same period, according to CoreLogic figures.

Hobart’s median home price was A$457,523 (US$327,369) at the end of 2018, making it far more affordable than Sydney and Melbourne, which have median values of A$808,494 and A$645,123 respectively.

Detached houses make up the vast bulk of the housing in Hobart, with a small number of terraces and apartments in the city’s inner suburbs. Many of its homes have sweeping views, as the city slopes up from the Derwent River banks.

And while rental yields in Hobart have fallen due to the city’s steep capital growth, they are still the nation’s second-highest at around 5%. A high level of inter-state migration is keeping demand for rental properties high, supporting rental growth.

The city’s property boom has also led to a surge of development in central waterfront suburbs like Sandy Bay and Battery Point, pointing to the possibility of attractive new homes coming to the market.

Economist and prolific housing commentator Andrew Wilson said Hobart’s house prices were “almost irrationally lower than anywhere else in Australia” with a pre-boom median house price that was about a third of Sydney’s. Low interest rates and a surge of migration into Tasmania kicked off the housing mania, he says.

Those looking for quick capital gains could be disappointed. Mr. Wilson believes the Hobart market has “caught up” with other capitals in terms of pricing. Demand in Hobart will likely moderate, bringing the city’s rate of growth lower than where it has been.

However the city still has relatively good prospects, he said. He expects the rate of growth to ease but is not anticipating falls in value. Migration into Tasmania is holding up and rental properties are scarce, ensuring continual demand.

And one strong positive for Hobart is its relatively high proportion of owner-occupiers compared to Australia’s largest cities, which have much higher investor activity. This makes it less vulnerable to the credit squeeze, which is stifling investor activity in Sydney and Melbourne.

“Those markets, particularly Sydney, had a much higher proportion of investor activity,” Mr. Wilson said. “So I think Hobart isn’t exposed to the same sort of withdrawal of investor activity. Even though it’s likely to have that, it’s off a much lower base there.”


Brisbane—the sunny riverside capital of Queensland—didn’t take off like Sydney and Melbourne in recent years. The decline of the Australian resources boom since 2012 hit Queensland’s economy, and a more recent building boom has left the city with an oversupply of apartments. From 2014 to 2015, net migration was its lowest in 30 years, Mr. Wilson said.

But energy is now returning to Queensland’s economy. Strong jobs growth and a surge of major infrastructure projects are enticing buyers to the state once again. Inter-state migration into Queensland is now the strongest of all the Australian states, Mr. Wilson said, driving down rental vacancy rates.

Residential building is winding down, and Mr. Wilson said the city’s housing oversupply is fast being soaked up.

Brisbane home values climbed by 0.2%in 2018 according to CoreLogic, taking its median value to A$493,568. That makes it Australia’s largest city that showed capital growth in the past year.

The bulk of homes in Brisbane are detached homes, many of them iconic “Queenslander” houses built on stilts. But the city also has a large number of apartments, with the more luxurious developments offering views of the Brisbane River.

Brisbane’s rental yields are also on the rise, taking some of the burden off investors who are planning to hold their properties for the long term. Gross rental yields are hovering around 4.5%, according to CoreLogic, and that’s well ahead of Sydney and Melbourne, which are around the 3.5% mark.

These factors have led experts to predict the Brisbane housing market will be among the strongest performers. Insurer QBE, in partnership with BIS Oxford Economics, predicts in its QBE Australian Housing Outlook 2018-2021 that the Brisbane median house price will rise nearly 11% in the three years to June 2021.

Mr. Wilson argued that Queensland’s recovering economy and clear affordability advantages will bode well for the state’s housing market.

Brisbane also has a large and well-established luxury housing market that offers much more “bang for your buck” than other cities.

“For A$2 million to A$3 million you can buy something that in Sydney would cost you well over A$10 million, and in Melbourne, well over A$5 million,” Mr. Wilson said.

But property market analyst and buyers advocate Catherine Cashmore, director of Anderson & Cashmore Real Estate Advocates advises that people should be wary of apartments in Brisbane for now and stick to houses, as this is where the demand and price growth is likely to be.

“Unlike in Sydney, there are more options [to live in a house] in Brisbane,” Ms. Cashmore said. “You don’t have to live in an apartment unless you want to live in the middle of the city. Most people want to get into a family home and get close to good schools.”




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How good an investment is south-east Queensland



How good an investment is south-east Queensland

Why do we believe we’ll see increasing investor interest in this market? Strong population growth, a diversified and growing economy, and substantial investment in infrastructure should combine to boost demand.

We expect that these factors will swell the number of white-collar jobs – increasing demand for office space, which in turn will push down vacancy rates and raise rental incomes. This should be good news for office property investors – especially those like Centuria Metropolitan REIT (CMA) that are already well-positioned in the market.

A significant and growing population

South East Queensland (SEQ) stretches from the Gold Coast up to the Sunshine Coast and across to Toowoomba in the west. As Australia’s third-largest population zone, the region has been growing significantly, particularly Brisbane and the Gold Coast. Interstate migration figures show a pattern of steady net migration, with Queensland the only Australian state with consistent net inflows of people from other states. In the five years prior to the 2016 Census, over 220,000 people moved to the Sunshine State – mainly to SEQ where nearly 90% of population growth occurred. This is important for property investors because of its implications for demand, but the trend is interconnected with other favourable factors.

A diversified economy poised for growth

Queensland’s economy is diversified across a range of industries including agriculture, resources, construction, tourism, manufacturing, and services. Over the past two decades, its economic growth has consistently exceeded the national average – and in our view this is likely to continue.

The resources sector is gaining momentum, and a significant pipeline of major infrastructure and development projects is helping propel economic and jobs growth, in turn increasing interstate migration and driving demand for both residential and commercial property.

Investment in infrastructure

A strong infrastructure program delivers more than business and consumer amenity – it generates jobs, drives investment, and facilitates population growth. The pipeline of infrastructure and development projects announced in the past few years is likely to have a material impact on the region – substantially improving its accessibility and amenity – most notably, Brisbane’s Queen’s Wharf precinct and the Cross River Rail.

Queen’s Wharf, touted as a “world-class entertainment precinct”, is an integrated resort development costing $3.6 billion and covering over 26 hectares with retail, dining, hotel and entertainment spaces. As Queensland’s biggest ever tourism project it will be a game-changer for Brisbane, attracting overseas as well as local visitors.  Estimated to contribute $1.69 billion annually to the economy, it will employ more than 2,000 people during construction and an estimated 10,000 once operational.

The Queensland Government’s number one infrastructure project, the $5.4 billion Cross River Rail, comprises a new 10.2km rail line between Dutton Park and Bowen Hills, which includes a 5.9km tunnel under the Brisbane River and CBD. It’s the first major rail infrastructure investment in the inner city since 1986 and is set to generate urban renewal, economic development and the revitalisation of inner-city precincts.

Outlook for commercial office property investment

These factors indicate a region poised for growth – and for growing commercial property demand. CMA’s portfolio has a significant exposure to the area in general (six SEQ assets with a combined book value of over $480 million), with many of the individual assets located in those parts of Brisbane set to benefit most from these developments.

Our view is that Brisbane office markets, where five of CMA’s assets sit, are continuing to improve, with vacancies hitting a five-year low – indicating increasing tenant demand – and continued yield compression, demonstrating strong investment demand. Office sales hit the highest level in a decade during 2018 (at $2.35 billion), increasing 60% from 2017.

With the strong outlook for SEQ, we expect the region will continue to attract tenants and investors alike.




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Brisbane apartment market to outperform nation: Moody’s



Brisbane apartment market to outperform nation Moody’s

BRISBANE’S apartment market is predicted to outperform the rest of the nation over the next two years as it bounces back from a supply glut.

BRISBANE’S apartment market is predicted to outperform the rest of the nation over the next two years as it bounces back from a supply glut.

In good news for property investors, apartment values in the city are forecast to grow nearly 1 per cent this year before jumping 5.8 per cent in 2020 and climbing a further 5.3 per cent in 2021, according to Moody’s Analytics.

Areas like Ipswich, Moreton Bay and Logan are expected to see the biggest gains in apartment values in the next two years.

Brisbane apartment market outperform nation Moody’s

The latest quarterly CoreLogic-Moody’s Analytics Australia Home Value Index Forecasts report predicts a modest 0.6 per cent correction for house values in greater Brisbane in 2019.

But that’s much better than the 9.3 per cent fall in house values forecast for Sydney this year and the 11.4 per cent drop expected for Melbourne.

The report by the ratings agency sees Brisbane’s housing market recovering in 2020, with a 1.9 per cent increase in house values forecast, followed by a further 2.3 per cent growth the following year.

Brisbane apartment market to outperform nation Moody

But not all of Queensland’s housing markets are expected to soften this year.

Moody’s Analytics is predicting home values in the Mackay and Whitsunday region to grow 2.3 per cent in 2019, followed by stunning growth of 8.2 per cent and 9.1 per cent in 2020 and 2021, respectively.

The report’s authors write that the “recent uptick in commodity prices and tourism has sparked recoveries in areas such as Mackay”.

Brisbane apartment market to outperform the nation Moody’s

Cairns home values are also set to rise modestly this year, while Ipswich house values are expected to increase 1.5 per cent in 2019.

Houses in East Brisbane are also set to buck the trend, with a 0.4 per cent rise in values predicted this year.

MORE: Size matters for buyers

The Moody’s Analytics report revises down its predictions for the nation’s property market.

In January, the agency forecast a 3 per cent fall for house prices across the country through 2019, but it now believes they could drop as much as 7.7 per cent — led predominantly by falls in Sydney and Melbourne.

It expects a more modest correction for apartment values, which are forecast to take a 4.3 per cent hit to growth.

Brisbane apartment market outperform nation Moody

Universal Buyers Agents director Darren Piper said the forecast recovery in Brisbane’s apartment market presented “great buying” opportunities for investors who knew what to look for.

“The apartment market has been more sluggish in the face of excessive supply levels,” Mr Piper said.

“However, unit values have started to pick up recently, perhaps hinting that the rough patch for the Brisbane apartment market is likely over now.

“Since the unit construction peaked back in 2016, supply concerns are not a pressing point now.”

It comes as CoreLogic’s quarterly rent review released this week revealed rental yields are rising in Brisbane and rents increased 0.8 per cent in the first three months of the year to a median of $436 a week.

Originally published as Brisbane units are safe as houses




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Property downturn spells the death of the ‘dog box’



Property downturn spells the death of the ‘dog box’

As the property downturn picks up steam, apartment developers are going to the wall — and our cities could soon look a lot more like Paris.

The property downturn may finally spell the end of the “dog box”.

As local and overseas investors flee en masse, property developers are struggling to get funding from banks, with a growing number of apartment buildings being delayed or abandoned altogether.

Non-bank lenders are increasingly stepping in to fill the gap — and the focus is turning away from the 20-storey high-rises and tiny one-bedroom apartments favoured by investors to larger units in smaller-scale developments targeted at owner-occupiers.

“There is a tailwind in terms of the demographics, especially the baby boomers who have more capital, as they make that transition to apartments for lifestyle reasons,” said David Chin, founder of investment advisory firm Basis Point.

“The larger two- and three-bedroom apartments still have a market. In Europe and (places like) Paris, it is quite common for apartments to be very large, three bedrooms, almost like homes. It sets the higher density living in three- four-, five-storey buildings, not high rises. It works and I think that will be more common in Australia.”

Mr Chin hosted a Deloitte seminar this week titled “Preparing for Pain and Gain in Western Sydney”, which discussed the coming “fast and furious times” amid the property downturn, slowing Chinese capital flows and US-China tensions.

Speaking on a panel discussing the role of non-bank lenders — both Australian “old money” and new “Chinese money” — Dorado Property co-founder Peter Packer highlighted the role of the sector in cushioning the falls in Brisbane.

“We were reading headlines about how that was going to crash and burn,” he said.

A number of major banks had funded construction projects without being covered by sales, which “meant you had expiring bank debt at completion of projects”.

“But us and a number of private lenders jumped into that market and refinanced that debt, usually with 18- to 24-month terms, putting requirements on the developers to slowly sell down their stock,” Mr Packer said.

“What it meant was that market never had the crash that (people) were talking about. That’s where non-bank lenders can help.”

Dorado Property is currently funding a number of projects in Perth and Brisbane. Mr Packer said successful developers were turning to “smaller projects, more boutique, higher-density areas, good locations”.

“They’ve generally moved away from investor focus (which meant) internal bedrooms, small floor plans,” he said.

“You’re getting more light, bright, airy apartments, they’re getting larger. Well designed, good apartments that owner-occupiers want to live in, but smaller-scale projects where you don’t have to go out and get a huge number of presales. That’s typically what needs to happen in a down market.”

Property downturn spells the death of ‘dog box’

Property downturn spells the death of the ‘dog box’

REA Group chief economist Nerida Conisbee said the flood of investors and offshore buyers had “led to a lot of projects starting that would have otherwise not been able to start”.

“In many cases, particularly in Melbourne, developers selling to Asia were able to get projects up and running from that buyer group which from there have been sold more broadly into the market,” she said.

Concerns about apartment quality, amenity and overdevelopment have led to a number of states implementing minimum size requirements in the past few years to clamp down on so-called “dog boxes”.

Ms Conisbee said the changing environment meant developers were now having to set their sights on the three owner-occupier groups — first homebuyers, downsizers and upsizers.

“Downsizers are a key market, what they’re looking for is often quite bespoke apartments. They want greater choice in the layout, bigger apartments, they’re a bit more fussy about the type of fit-out,” she said.

First homebuyers, while more price driven, are also more discerning. “The better developers at the moment are looking at more communal areas, more places to hang out,” she said.

“They’re trying to create places that people want to live in as opposed to small apartments that don’t offer the best sense of community.”

David Mao, executive director with real estate investment firm White & Partners, told the Deloitte conference he still saw plenty of opportunities in the falling market.

“We see value everywhere — western Sydney, the north, the south,” he said. “We’re maintaining our discipline as long as we find the right asset at the right price.”

White & Partners sees the market as “not so much a down market but more of a moderating market”. “The run-up particularly in the last five years has been quite tremendous because of the low interest rate environment,” Mr Mao said.

“You saw asset prices reach historical highs. What we’re seeing currently is not so much that it’s down but it’s moderating such that the long-term average is reached.”

Paul Zahara, executive director of Austar Fund Management, was optimistic about the outlook for the market.

“I think we’re in a fortunate position where if you look at previous downturns there’s been grave imbalances between the supply and demand situation,” he said.

“We’ve got generally a balance between supply and demand at the moment. Even though we’ve got affordability issues, the supply and demand situation isn’t bent out of shape. That’s a dramatic contrast to previous downturns, 1991, 1974.”

A property cycle can come off a peak in one of two ways. “It’s like a balloon, you can either pop the balloon or you can let the air out,” Mr Zahara said.

“This time we’ve done a pretty good job of letting the air out of the balloon, we haven’t seen the major pop. For me 1991 was a major, major crisis. We’ve done a very good job this time of managing that decrease in the property market.

“The banks pulled back, the government’s gotten involved, developers have realised what’s going on.”




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