Predictions for the Property Market in Australia for 2016
Written on the 17 March 2016 by James Cagney
This article is an addendum to the Property Update published on the 17th March 2016. It has taken into account the Median Prices of houses in Australia over the last 10 years and the last quarter of 2015 (TABLE 1) covered in the Property Update. It has also taken into account the predicted infrastructure planned and committed by the Federal, States and Territories in Australia. read the summary below first and then go to this Property Update for the complete picture and reserach by clicking ....HERE
NEW SOUTH WALES
Now look at the trends and decide which States have more potential. You need to do your research because the infrastructure is not evenly spread throughout the State. In NSW most of the 25 projects are in and around Sydney. The official job figures to year ended January 2016 released shows that 300 000 new jobs were created in the last 12 months. NSW accounted for 56% of the jobs and the majority of those were in Sydney followed by 25% in Qld and 12% in Victoria. Most of the new work was in construction - no surprise there. For more information on the Sydney market read the section below "Sydney property values going down....down....down".VICTORIA
The 7 maybe 8 projects planned for Victoria will stimulate jobs over the period. Melbourne's population is expected to exceed Sydney in the next few years. The major reason is the existing infrastructure i.e. excellent motorways around Melbourne, a railway systems that heads east, west and north and available land for residential housing easily accessible on the outskirts of the city. In addition, as the city grows so does the infrastructure needs grow and so the population growth because of the job creation.
The NAB Residential Property Survey states that Melbourne home values rose by 11.2 percent over the past twelve months. Improving economic conditions in the state are expected to maintain solid rates of employment that will provide underlying support to house prices, although price growth will be more modest than in recent years.However, NAB has lowered its expectation for house price growth to 2 percent in 2016 (from 11.7 percent in 2015). This is mainly due to the anticipated ramp up in supply of units/apartments, and uncertainties over foreign and investor demand, prices for this type of housing are expected to fall 3 percent in 2016.
QUEENSLANDIn Queensland you have a similar situation with South East Queensland (SEQ) expected to benefit from most of the infrastructure spend. This does not please the taxpayers from rural and northern Queensland. However, just like Sydney, the spend is where the population growth is as roads become more and more congested, public transport simply cannot cope with the increasing numbers of daily commuters. In addition, hospitals, medical centres, childcare centres, schools and community facilities need to be built as the population grows.
For more information on the Queensland market see section below " How did my Queensland property predictions for 2015 pan out".NORTHERN TERRITORY
Property prices in Darwin are unrealistic and unsustainable. You can see in TABLE 1 that the market is in correction down 1.3% in value in the last quarter to Dec 2015. With only two major infrastructure projects I expect this trend to continue during 2016. In the 12 months to January rental had declined by 13.1% an ominous sign for property values which are bound to continue to drop as yields fall.Make sure you do your own research into this market before you buy or sell. Don't panic and if you can bear the shortfall hold. Property values follow a cycle and in time the market will rise again.
FACTOR 3 - The Federal & State Governments' commitment to create jobs in a region.We are in an election year and the major parties are in a contest to see how much money they can give away in order to win votes. I wrote an article entitled "Send in the Clowns", which covers how the successive governments are guilty "giving away the farm". Politicians simply cannot afford what they are promising in order to curry favour with the public. Our huge government debt and the ever increasing budget deficit is already putting the country into a very precarious position, which simply cannot be sustained. You need to read this article to get a clearer picture of what is happening right now..
CANBERRACanberra is unpredictable to say the least. Prices in the inner and outer suburbs vary greatly with the inner city property prices extremely high. This makes the percentage rental yields look low - yet rents are high in and around Canberra. It's an election year which will make the market even more unpredictable.
The ACT state government restricts new land release and housing developments in and around Canberra. The officials claim that there is a shortage of land in ACT However, drive around Canberra as i have done over the years and there is plenty of land. These government officials and politicians want to create an artificial shortage of housing because it keeps the prices of their property's' high. Of course, this keeps rents high as well - but I do not need to tell you about the self serving politicians and government officials we have in Australia.Avoid buying an investment property in Canberra for a these reasons:
(1) Land tax is calculated on unimproved value from the first dollar for investment property. I know an investor from NSW who did not know this and he had not paid his land tax for five years. He had not received a notification during that time to pay either. The threshold on unimproved value in NSW was well over $400,000 and he wrongly assumed it would be the same. The ACT State government relentlessly chased him for the money and he had to sell a property in an unfavorable market to pay the land tax.(2) It's an election year and the market will be even more unpredictable - particularly if we have a change of Federal Government. Whatever government is in power there has to be cuts in government expenditure (which includes jobs and rental demand) because of the huge government debt and increasing budget deficit, which needs to be corrected within the first two years of any elected government.. See my article "Send in the Clowns" to read more about this.
(3) Only one infrastructure over $500 million is planned over the next few years. Where will the jobs for ordinary workers and laborers come from?(4) Prices are high and rental yields relative to value low. Rather invest your hard earned money in other markets which have lower price barriers of entry level and subsequent better rental yields. I believe it is far better to have two investment properties, where the tenant, the taxman and you contribute, rather than one high priced investment property in Canberra and Sydney.
TASMANIAUnfortunately the State is very much divided amongst three major parties and the ideals are poles apart. The Greens and the Labour Parties (who need the Greens vote) want to protect the environment and promote tourism to become the major contributor to the economy. The coalition LNP Party wants to promote industry, and in particularly logging and mining on the west coast, as well as promote tourism. This divide and political uncertainty was obvious when Bob Brown, who agreed to logging when he was Premier, was arrested for trespassing on the grounds of a West Coast logging mill for protesting against logging? In Table 1 you will see that Hobart had growth on a low base over the past 10 years, had a reasonable growth in 2015 but could not sustain the growth in the 1st quarter of 2016. Launceston and Devonport have gone through a correction phase in property prices over the past few years.
As limited new housing developments have been built in Hobart, Launceston and Davenport over the past few years there is an under supply. This has resulted in reasonable rental returns particularly in Hobart. However, in my opinion, expect limited growth in property prices in these locations in 2016.SOUTH AUSTRALIA
The long awaited announcement about the construction of submarines in South Australia is not good news to residents in the State who have already experienced job cuts, low economic growth and stagnant property prices for a long time. The big media announcement last year that the Federal and State government was to bring new jobs to the region by paving the way for the expansion of the Olympic Dam mining project is a fizzle. The commodity price slump and the business plans of BHP have put a dampener on this announcement. Besides large projects take time to get off the ground so do not overreact to news. So exercise caution and take your time before making an investment purchase of property in South Australia.WESTERN AUSTRALIA
The State government in Western Australia is taking a huge knock in tax revenue because of the downturn in the mining industry.. In addition, workers will be paying less income tax, buying less luxury items, motor cars, boats, caravans etc. etc., which will add to the revenue woes of the government. Property sales, values rental yields are decreasing and expect it to keep declining. As for those who invested in regional properties like Port Hedland, are going to have it tough for the next few years. Do not jump in and buy up these bargain basement properties just yet I believe they will decline even further as desperate owners need to sell. It is also no point having an investment property if you can't get a renter! It will have a detrimental affect on your cash-flow so you would be better to invest elsewhere.Watch out for an announcement from both Federal and the WA State governments to increase expenditure on major projects in order to get the economy of Western Australia back on track and more important win the next election by appeasing the voters.
This article is intented to give you a brief overview of the property market within Australia. For more information please go to the Property Update published on the 17th March 2016 by clicking ....HERE.I will be going into more specific detail for each of the above cities and towns in the next Property Updates. The next Property Update is due end March 2016. If you are looking to invest in a particular city or regional area within Australia please contact James Cagney and he will gladly provide whatever research he has available.
DISCLAIMERPlease note that the information herein is of a general nature only and is not intended as formal advice for any particular person or entity. The contents of this Property Update has been prepared without taking into account the objectives, financial situation or needs of any particular individual. Information herein includes material obtained from third parties considered to be reliable. Whilst this information has been diligently compiled, no warranty or promise as to its correctness is made or intended. Investors should undertake independent research to satisfy themselves that any details herein are true and correct. In addition, no predictions have been made about an individual's potential profit, loss, capital gains or rental returns.
You should not act solely on the basis of the material contained in this Property Update for your investment strategies. Changes in government policy and legislation occur frequently and without prior notice and financial markets are unpredictable.
Author: James Cagney