Research. Research. Research. We are thorough in our discovery of growing markets whilst maintaining the integrity of your brief.
We start with a macro approach to the Australian market, then qualify each state against our pre-requisite markers. We then determine the best regions within these markets that best match your purchasing criteria.
We hand select our preferred markets using the following (but not limited to) indicators (we have benchmarks for each identifier to accurately score each region).
If a particular area passes our benchmark score, we then take a deep dive into the suburbs within and extract as much information as possible through our subscriptions, estate agent contacts, reports, local councils and site visits. Three key indicators we like is planned infrastructure, public transport links and areas affected by the 'ripple effect of growth'.
Property cycles can also play an important role in picking a region to buy in. For reference,
below is what we identify as being the stages of the property cycle:
A full cycle generally takes seven to ten years, and ideally, one full cycle will see the price of property double. You are looking to build a portfolio over the coming years, so it's important to lay the foundation of this with solid blue-chip investments. This is, buying under market value properties in affordable areas where we can manufacture equity and strong organic growth. We build a base now so that in years to come, we can be more aggressive with our approach and look for the robust high yielding x-factor investments. This, however, can't be done, before you lay a solid foundation of blue-chip growth properties.
We are big advocates of purchasing houses - not apartments - in gentrifying regions of major capital cities that are within 15km of the city CBD or major secondary cities. If your budget does not allow us to purchase with these pre-requisites, then we look to major regional centres with good access to a major capital city via public transport and planned infrastructure.
We've seen some interesting changes in the Australian market very recently, below we provide you with a quick snapshot. We also indicate where we believe each capital city sits in the current property cycle (houses only) and our initial thoughts on how they fit with your brief. All data is taken as of December 2017.
Sydney: After five years of robust growth and capital gains of 70.8% (February 2012 - December 2017) the Sydney market has reached its peak in this current property cycle. The city has recorded declines for four consecutive months (September - December 2017).
The cooling of the Sydney market is due to a number of factors, being the tightening of investment and interest only lending by the banks and tightening of foreign investment by the federal government. As a combined market, we predict growth to continue to slow and plateau, there are markets within markets, which due to other factors such as infrastructure, employment and demand will see some areas continue to climb. Rental yields have remained fairly steady throughout the year, hovering around the 2.8% mark, along with Melbourne, the lowest in Australia. However, as the price of property stagnates, we will see the yields climb to reflect this.
On the ground, the CBD and major metro areas are a hive of construction activity, with major roadworks, building and infrastructure projects. Cafes, restaurants and bars are busy, however, we have seen open homes and auctions that were once packed and frenzied reduced to a few people.
For You: Simply, there are no regions in this market that meet your purchasing criteria and goals. We also believe the major cities outside of Sydney are at the peak and not preferable purchases for your strategy. Rental yields are also well under your desired.
Much like Sydney, Melbourne has had a tremendous run in its current growth cycle and in 2018 is nearing the peak of the market. We have seen the rate of growth declining in Melbourne over the past five months with December recording a negative drop of 0.4%. Like Sydney, rental yields have remained fairly unchanged all year.
The difference between Sydney, Melbourne and the slower rate of decline is there are a number of key factors propping the city up. These include high population growth (forecast to be Australia’s most populated), strong jobs growth and (somewhat) more affordable housing.
On the ground, like Sydney, the once robust auction market is now showing signs of thinning out. Agents are now more open to accepting offers prior to the auction, which, until only recently, was not the case.
For you: Like Sydney, the median price points here are well outside of your purchasing range. However, major centres outside of Melbourne still represent great buying. Given the strong growth and predicted future population growth in Melbourne, we see the major towns within a 1hr 30m train commute into the CBD as great investments. Geelong is our top pick, however, a minimum budget of $600k is required to get into the suburbs we have handpicked. Second to Geelong, we like Ballarat. With a population of just over 100,000 and growing year on year, Ballarat presents affordable options in a town with plenty of planned infrastructure and a direct line into the Melbourne CBD by train. We have presented Ballarat as one of your options.
Canberra has been the quiet achiever in 2017 with continued capital growth throughout the year. We forecast the detached housing market to have another solid year of capital gains circa 8%.
There are a number of key indicators that point to consistent capital growth being; in the latest ABS (Australian Bureau of Statistics) population data, the capital had an increase in population by 1.8%, second only to Victoria. ACT tourism numbers have also hit record highs with 2.649M visitors up from 2.518M since June 2015. Lonely Planet also named Canberra the third best global city to visit in 2018.
Infrastructure projects include the light rail construction (connecting the CBD with the outer suburbs) which is now in full swing. The opening of the international airport terminal, with Singapore Airlines flying daily from Canberra to Changi (via Sydney) as of May this year and Qatar Airways operating a daily flight to the Middle East from this February. Unemployment is also the lowest in the country at 3.8%, combined with the highest median income in the nation, fuelled, by the professional services sector.
On the ground, the city and surrounding regions are a buzz of activity with new hotels, restaurants, cafes and bars opening or scheduled to open. Open houses are busy and once government housing areas are showing signs of gentrification. Good rental properties are in high demand, with vacancy rates at 1%.
For You: We are big advocates of the Canberra detached housing market, however, for your budget range the only entry points are units. Due to a looming oversupply in the apartment market we don’t recommend investing here.
The Brisbane detached housing market continues to see steady growth with houses recording a gain of 3.1% (to note units dropped 1.2%) in 2017. Although the overall figures show slow and steady annual growth there are regions performing well above that range. Our key economic indicators are seeing a boost in infrastructure projects, employment and migration, all positive signs. The major price discrepancy between Sydney and Brisbane property prices has seen interstate migration to QLD from NSW triple in the past three years. If it continues, mid-2018 will see Queensland’s population exceed five million for the first time. Definitely a positive for house price growth.
Unfortunately, we are seeing apartments purchased off plan at the commencement of Brisbane's unit construction boom (mid-2011) currently selling for losses of up to 36%. More than 5,300 units have been completed in the capital this year, with another 11,000 being built. We expect to see declines in the unit sector continue as these come onto the market and are resold.
Regionally there are many options to consider; Gold Coast, Sunshine Coast, Townsville, and Cairns to name a few. The Gold Coast and Sunshine coast have outpaced the Brisbane metro market in recent years, however, generally with single economic drivers like tourism, they're markets we prefer to sit out of at this point in time. This is the same for Townsville and Cairns who are both seeing some troubling times with the downturn in mining investment and tourism numbers well down. We understand the new Adani mine is going to generate jobs, however, given this is a single driver for growth, we don't recommend investing in these markets.
There is a hive of activity in Brisbane, with state and federal infrastructure projects in full swing. Demand in great investment grade suburbs is becoming more stronger and evident as Queensland's southern neighbours look for the blue skies and a relaxed lifestyle.
For You: There are markets in Brisbane's North and North West that we like, however not within your budget range.
The standout performer and best performing capital in 2017 has certainly been Hobart, with annual growth of 12.9% in the detached housing market. The city is currently experiencing the highest annual growth rate since 2014 and is also on track to have another strong year of growth
Why are we seeing such growth? The housing market is being fuelled by interstate investors who have used their Sydney and Melbourne property windfalls to purchase investment properties. The cost of housing remains incredibly low compared to other capital cities and it’s still the most affordable capital city with a median dwelling price of $403,800.
Tourism numbers are also increasing YoY as Hobart offers a vibrant lifestyle filled with history, picturesque scenery, rugged wildlife and a fantastic food scene. The Museum of Old and New Art (MONA) opened in 2011 and has been a huge tourist drawcard, having been credited in many circles as the southern states renaissance. Since opening, 1.7M people have walked through its doors.
With the increased tourism numbers, there is now a lack of hotel accommodation. This has seen a spike of properties being purchased and put on short-term rental sites like Airbnb. In 2017, a number of new hotels got the green light for construction and also not forgetting the airport’s 40M upgrade. Due for completion in early 2018, the upgrade will allow for direct passenger flights to Asia and Europe, direct export flights to Asian markets for seafood, fruit and other fresh produce. And strengthening Hobart's position as the preferred Antarctica gateway.
Yep, things look great for the Hobart property market. However, Hobart is definitely a market that needs to be keenly monitored, with our greatest concern the reliance on tourism driving the market. We are seeing millennial’s move interstate once they graduate and baby bombers move for a nice relaxed retirement. Long-term growth and sustainability is still a concern in our eyes. However, for those budget conscious investors looking for solid returns, a play at the free-standing residential market is an option. To note, we are really excited about the Hobart City Deal that was announced this month. This will certainly aid in moving away from a one-paced economy.
On the ground, properties are scarce! Houses often hit the market on a Tuesday with the 1st open on Wednesday. By Thursday, the biggest decision for vendors is whether to go to the Saturday open or accept one of the many offers already received.
For You: We like it. Given your budget excludes other regions in larger capital cities that we like, we had to look for other opportunities. Hobart is in the middle of a strong growth cycle, so although we have already seen sustained growth in the past 24 months, we still feel like there's plenty more left. The key to this market is getting a freestanding house as close to the CBD as possible. We will look to properties where we can add value, however, we might need to look at something that is move in ready too.
Much like Brisbane, Adelaide prices have held steady in 2017 with little movement at 3.3% for detached houses. There are positive signs from the federal government with new naval building contracts bringing jobs to the area and the state government has put aside 50M in grants to incentivise SME’s and startups to conduct business in the state. The return on this is more jobs and less stress on the social welfare system – which currently, is a substantial issue.
The success of the Tesla lithium-ion battery installed near Jamestown has seen really positive press. It’s the largest in the world and will provide solar energy for 30,000 South Australian homes. Funnily enough, making the state one of the most progressive for renewable energy.
On the ground, besides the light rail extension in town, there’s not a lot of major infrastructure happening. It’s not a hub of activity just yet, but given the recent state government wish-list to Canberra, this may change in years to come.
For You: We do like regions in Adelaide, however, the price point is upward of $700,000 for these detached dwellings.
Perth has seen another year of consistent losses (2.6%), however, this is slightly better than the 2016 figure of -3.5% for detached housing. The rate of declines are subsiding with this year being the smallest decline since May 2015. The Perth economy is starting to improve and so is the real estate market, property listings have dropped by 12.7%, showing the supply vs. demand ratios are starting to shift. The average time to sell a property has also dropped to 59 days from 68. Whilst these are good signs, it’s still too early to call as to when the bottom will actually arrive.
We are starting to commence our 6-month on the ground research to ascertain the best suburbs/regions for growth. However, we don’t anticipate purchasing here until late 2018 at the very earliest.
For you: We're not quite ready to invest in this market. Whilst it fits your purchasing range and is a good long-term prospect, we still believe there are another 12 months of stagnant - limited capital growth so not quite right for growth portfolios.....yet.
Unfortunately, the Darwin market still doesn't show any signs of bottoming out, with prices continuing to drop at a consistent rate. The one positive for this housing market is rents are yet to drop in line with house prices, creating the strongest yields in the country.
For You: Definitely steering clear of Darwin for short and long-term investing at this stage.
As ranked below, our 1st recommendation is to purchase a detached house in Hobart. This would be rented out as is, with a renovation completed when you have the funds available or, if we find the right property, cosmetically renovate immediately and then lease. Our 2nd preference is to buy a detached house in the suburb, Soldiers Hill in Ballarat. This would follow the same approach to Hobart - dependant on the exact property as to renovating immediately or in the future.
So, now that's all said and done, we'd love to get your feedback on our findings. Please click on the buttons above to see our detailed findings in each region. Please take the time to review our feedback and we will put a time in the diary to catch up to discuss your thoughts further.