Every capital city has seen an improvement in dwelling values, however some cities have performed remarkably better than others. Sydney has been the absolute stand out for capital gains, making up for a relatively weak long-term cycle where dwelling values increased at the sluggish rate of just 3.5 per cent per annum over the past decade. The past financial year has seen Sydney lead the pack with values moving almost 15 per cent higher, which equates to a typical dollar value gain of about $85,000 for the typical Sydney home owner over the year.
Despite having recorded the second-most substantial capital gain, Melbourne started to show some market weakness towards the end of the financial year. Dwelling values are up 7.9 per cent providing a ballpark dollar value gain of $37,176 to the typical Melbourne home owner.
Brisbane was the third-best performer with values up 6.8 per cent ($29,280) followed by Darwin at 6.6 per cent ($31,780), Perth at 5.3 per cent ($27,120), Adelaide at 3 per cent ($11,480), Hobart at 2.3 per cent ($7,310) and Canberra at 2.2 per cent ($10,770).
With inflation tracking at 2.9 per cent, we can see that Hobart and Canberra values have declined when adjusted for inflation, while Adelaide values remained virtually flat.
Outside of the capital cities, we have broadly seen a reversal of fortunes, with lifestyle regions finally emerging from their post-GFC slump. Resource-driven markets are staging a downturn as commodity prices move lower and the pipeline for significant infrastructure projects associated with the mining and resources sector winds down.
The coming financial year is unlikely to show the same level of capital gains as the previous financial year. While interest rates are likely to remain at their current low levels, at least until early to mid-2015, affordability pressures are slowing buyer demand in Sydney and Melbourne, and rental yields have compressed to very low levels in these markets as well. Sydney’s median house price is now higher than $800,000, while Melbourne is showing a lower median house price of $612,000, although this is still the second-highest of any capital city by some margin.
Rental yields in both cities have also reduced substantially. The typical Melbourne house is returning a gross yield of just 3.4 per cent, while Sydney houses are returning a slightly higher 3.8 per cent gross yield.
It’s likely we will start to see investor demand migrating away from the two largest cities towards markets where the growth cycle isn’t as advanced and where rental yields are stronger.
Brisbane is the obvious alternative, with values still below their previous 2009 peak and rental yields substantially higher at 4.6 per cent gross for houses and 5.4 per cent gross for units.
Hobart is another contender for stronger growth after staging the largest correction in dwelling values of any capital city. Dwelling values have been trending higher in Hobart over the past five months, suggesting that this market is finally in recovery mode.
Adelaide is also showing signs of values moving higher, although the uncertainty around the local labour market, particularly the manufacturing sector, is likely to temper the level of housing demand.
The other capital cities appear to have already moved through the peak of their growth cycle and are likely to record lower levels of growth over the coming financial year.
Tim Lawless, research director, RP Data
Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia.