March 2019 Property Market Update

Since mid 2017 Australia's higher-priced markets (Sydney and Melbourne) have recorded their worst falls in price since the 1980's. On the flip side, the more affordable markets are holding their value and in some cases recording double digit growth. As always, we remind investors that there are 1000's of sub-markets across Australia all at different stages of their economic cycles.

 - Sydney (Declining) – Sydney has fallen in value by 14% since July 2017, which is the greatest fall in prices since the 1980's. The Sydney market is getting punished by affordability constraints, low yields and lending restrictions. Negative sentiment is prevailing, heightened by the constant stream of scare mongering from the media outlets. It’s important to put things into perspective. Namely, Sydney has grown by 83% from February 2012 to July 2017. A 20% or so fall back is not only due, it’s healthy for the market in the long run. We predict the market to bottom out in mid 2020 followed by a sustained period of flat growth.

- Melbourne (Declining) – Melbourne has fallen in value by 9% since its peak in 2017. It's expected this trend to continue throughout 2019. What makes Melbourne even less attractive to potential investors is it has the lowest yields in the country. The reduction of easy bank credit is putting downward pressure on Melbourne property prices.

- Brisbane (State of Recovery) – In contrast to our two largest cities, Brisbane's freestanding housing market is looking particularly healthy. Population growth, infrastructure spending, and affordability are the main capital growth drivers helping prices increase in Brisbane. With twice the affordability of Sydney, it’s not hard to see why net migrations levels out of Sydney and into Brisbane are at record highs. This is creating extra demand for housing and pushing prices up. We believe this is a good market for long-term growth accompanied by strong rental yields.

- Canberra (Rising) – With average incomes roughly 30% higher than Australia’s second highest average income city (Perth), it’s clear this is creating stability in the Canberra market. Low unemployment, affordability, and positive investor sentiment are helping Canberra’s prices to increase. We expect Canberra to perform well over the next three years. Rethink Investing is considering commercial properties in this market due to high yields and the government abolishing stamp duty for commercial properties under $1.5 million, however is not active in the residential market due to low average yields and unfavourable land tax policies.

- Perth (Declining) – Perth has fallen by over 12% in the last three years. High vacancy rates, poor investor confidence, tougher lending conditions and the void left over from the last mining boom have continually pushed prices down. Rethink Investing is not considering investing in Perth just yet due to high vacancy rates, unattractive yields and poor market sentiment. We believe this market will remain flat for some time yet.

- Hobart (Approaching the Peak) - This market has been booming over the last 36 months. However, the last three months saw the slowest quarterly growth for Hobart since 2016. Hobart is now one of the most unaffordable capital city markets in Australia in terms of income. Prices are likely to flatten as investors no longer see the value that used to be there. After buying over 80 properties in Hobart since 2014, Rethink Investing stopped investing in Hobart last year due to these unaffordability constraints creeping into the market. Currently 60% of all loans are owner-occupied. So, until incomes rise that 60% will struggle to pay more. However, other parts of Tasmania are looking ripe for strong growth over the next three years.

- Adelaide (Rising) – A stable market, strong yields and low prices are attracting investors here. No sharp growth is expected for Adelaide in the near future. Rethink Investing would only consider this market if the property was well below its market value. One of the big headwinds for this market over the next few decades is the fact that Adelaide has the highest percentage of manufacturing jobs in Australia. As manufacturing gets outsourced overseas, it will be important to work out what types of replacement jobs will be available. This uncertainty will keep Rethink Investing out of the market for the time being.