The bubble in Melbourne is rapidly deflating due to over-supply of units while Sydney is not as exposed the stalled growth of income means affordability is in crises. As a result offshore investors need to be relied to maintain the heat in the market – is that sustainable.
Meanwhile in Perth when allowing for inflation house prices are lower now than they were 10 years ago and most of the other capitals are not much better. Of course many mining dependent towns are in serious decline with values crashing.
The two tiered growth evident across Australia’s property markets continues with Sydney and Melbourne still on turbo boost. However there is some indication that auction clearances are easing off. The recent clamp down on investment lending by APRA could cause further easing however it could have a damaging impact on regions that have not enjoyed the recent boom.
Another area of concern is the off-the-plan market where approximately 90,000 units are under construction. A significant number of buyers would have been aiming at a 90% LVR and may now find themselves seriously struggling to find that kind of lending in the current market. We do have a few options available but suggest you get your finance sorted sooner rather than later.
The normally subdued winter property market has been anything but chilled – in fact Sydney and Melbourne continues to be what can only be described as over-heated. With Melbourne joining Sydney reporting a median house price over $1 million – these two cities are rapidly approaching New York level of property prices.
Sydney properties average only 26 days on the market with Melbourne close at 31 days. Added to this has been an ongoing fall in listings with 13 percent fall in Sydney and 11 percent in Melbourne. These issues combined with the historically low interest rates have sustained the market activity.
However BIS Shrapnel reports that falling population growth matched to a construction boom with 210,000 starts in 2014/2015, will see an oversupply of housing in both Victoria and Qld in the near term with Sydney tipped to follow in the next couple of years.
So while low interest rates and offshore investor demand have fed the current boom – it would appear that the market itself may be able to do what both the RBA and APRA have so far failed to achieve.
The June Property Market update by Residex shows some alarming figures for house affordability across Australia and Sydney as would be expected is the least affordable. But more alarming is that after tax income for the median family earning median income and purchasing a median house at 80% LVR shows a net after mortgage income of only $821 per week.
Meanwhile the report also shows that Brisbane despite being a long way behind by comparison to Sydney and Melbourne over the last 12 months, is still performing and in fact in May showed better growth than both the of the bubble capitals. Surprisingly Brisbane’s Greenbank region around Logan has shown a massive 19% capital growth in the 12 months – albeit coming off a very low base the rental yield of 4.83% is one of the best metropolitan returns in Australia.
I read an article today naming Cremorne on Sydney’s north shore as this week’s HOTSPOT and if you look at recent figures you have to agree:
- Median 12 month growth:10.46%
- Median 3 year growth: 15.74%
- Median 5 year growth: 32.74%
However the 10 year average growth is only 4.07% and if you take the average inflation rate since 2004 is around 2.75% then the real return is only 1.32%. You can then add the rental yield which is claimed at 4.09% gross, so net will be around 3.50% so actual return over 10 years is 4.82%, not much different to what you would have made on cash….. I read elsewhere some advice that the old adage that “time in the market” is not as valid as many believe and that “timing the market” over a short term 3 year predictable forecast is much more important and likely to result in better returns. On that basis it may be that Cremorne should have been on the radar 3 years ago rather than today.