How residential property is shaping up for 2015

28th Jan 2015By: Louis Christopher

The prospects

Sydney is still looking strong. Over recent summers (including this one) we have been getting the usual commentary from the usual suspects stating the market is about to slow down, is slowing down, etc. It is increasingly feeling like the boys who cried wolf. Sooner or later they will be right but right now, a slowdown currently happening in Sydney? Hardly.

I frequently speak with trusted agents in Sydney and I spent the Christmas period doing just that. All were reporting active buyers even right through that Christmas/New Year week. Business was strong for them.

If you were buying an investment property I probably would stick with Sydney. It’s really quite expensive but our forecast for this current financial year is 8-12% and I see nothing in the market to suggest it will be below that range. If the rate cut comes it will be yet another bull market for Sydney for the full calendar year.

Invariably a slowdown will come. The market cannot keep growing at a rate of 15% forever but from what we can see it’s not slowing at this point in time.

My forecast for the opening of the Sydney auction season is that clearance rates will rise from the closing levels of the high 60’s in December. The Sydney auction market will most likely open up in the early to mid 70’s.

Melbourne is looking a little stronger. There was a big fall in stock on market December (which is common) but the important point is stock levels are clearly lower than levels recorded a year earlier.

There has been, for quite sometime, significant concern about what is coming onto the market in Melbourne with regard to new stock. And yes, in the inner ring those concerns are warranted.

But overall the citywide trend shows vacancy rates having peaked, and if anything, have slightly trended down in the last two years.

Hobart remains one of our investment picks for 2015. I like how vacancy rates have trended up and rents have risen. And I like what I see on the sales market. Nothing over the Christmas/New Year period has made me change that view. A lower Australian dollar helps the Hobart ecotourism sector and also helps with their agricultural economy,

The also-rans

Perth, on our numbers, is recording come conflicting signals right now. On one hand vacancy rates are high (for Perth) and continue to trend higher. On the other, asking rents have recently trended up again. The sales market in Perth has been very flat/steady this year. Not a great surprise really given the commodities downturn. With stock levels on the rise though, we don’t think we will see anything but an ongoing slow market for Perth in 2015.

Brisbane is doing ok. We’re not seeing anything amazing on the rental front. There is going to be even more stock coming into the market over the next 12 to 24 months in the CBD areas and we don’t think there’s going to be a major boom in Brisbane because of that surplus stock.

I think we’ll see more sales activity in the holiday locations surrounding Brisbane like the Gold Coast and the Sunshine Coast.

The rest

Late last year, I had the impression that perhaps Canberra was having a bottom in its rental market. Now that we have the result in for December, I am not so sure anymore. The result was a big jump in vacancies back to 2.3%.

That said, the sales market appears to be strengthening as stock on market is trending down, implying that supply is being absorbed by homebuyers. Potentially there might be quite a few buyers who are taking advantage of rate cuts and what was a very weak market.

The Darwin market is in a full-blown slump.

The negativity going on in Darwin has been getting worse. Vacancy rates have continued to rise over summer, rents on our numbers are now down 14% and are in a clear downtrend.

Looking ahead

Overall there is currently no one national market that is in sync with itself. However there are waves sweeping through the market influencing the regions by various magnitudes. Clearly the rate cuts of recent years have influenced the east coast more than the west coast. There are also local events, which are having a greater influence on each region and I see it remaining that way for the foreseeable future.

For property investors, these are not bad times to operate in, if you do your research and study how each region is moving and what is influencing those movements. The threat of a rapid rise in interest rates now seems remote. Of course the threat of higher unemployment is there but that’s where a study of the local market would help.

*Louis Christopher is founder, owner and managing director of SQM Research http://www.sqmresearch.com.au/, an independent property advisory and forecasting research house.