Where will 2015’s hottest property be?

21st Jan 2015By: Greville Pabst

As buyer interest heats up in January and February, the residential property market is set to kick-off with a sizzle in many Aussie capital cities.

But it’s unreasonable to assume that all markets will perform at the same pace – take Melbourne and Sydney for example, which grew by a whopping 12.4% and 7.6% respectively in 2014, compared with Brisbane, Adelaide and Perth, which all achieved growth under 5%.

Performance drivers

The growth experienced in these cities and others is largely the work of record low interest rates, and strong interest from the investor class. However, each market and property type is also supported by a unique set of drivers that influence asset performance. In Sydney and Melbourne, these include continued population growth and an undersupply of housing, as well as affordability and unemployment levels, which impact confidence levels. Meanwhile, Western Australia capital Perth is subject to an oversupply of housing and the performance of the resources sector, which is expected to experience further decline this year.

Similarly, the performance of the Adelaide market is sensitive to rising unemployment as a result of a decline in local manufacturing, whereas the Gold Coast, and Brisbane to a lesser extent, are dependent on tourism, amongst other factors.

While each market and property type is unique, established houses and older style units and apartments located within close proximity to CBDs in major capital cities are considered among the best performing real estate. That’s typically because of their proximity to established infrastructure, such as schools, areas of employment, recreational and lifestyle services, shopping facilities and transport networks. In 2015, this sub-sector of the residential market is once again expected to dominate.

State of origin

On a state-by-state basis, Melbourne’s strongest performing sub-sector this year is likely to be established houses under $2 million within 10 kilometres of the CBD, while Sydney’s growing unaffordability means established houses under $2 million within 11 to 20 kilometres of Sydney’s CBD are the likely winners. These sectors in particular are expected to perform well with growth ranging from 5% to 10%, underpinned by population growth and a limited supply of detached housing, which together drive competition and property growth.

Comparatively, established property in Adelaide’s inner and middle-ring areas are tipped to be the best performers in the city, particularly the prestige market and houses under $1 million within 10km of the CBD – due largely to demand for blue-chip property off the back of attractive lending affordability. Likewise, Brisbane is predicted to see moderate growth of up to 5% in established houses in close proximity to the city’s CBD, following steady population growth and improved economic conditions in the state.

Out of all the major cities, Perth is predicted to experience the least growth with the apartment market forecast to experience moderate decline, and limited growth in established houses in the short to medium term as the market absorbs an oversupply of property.

Research rules

Despite a stable forecast in 2015, selecting property that will undergo sound capital growth is a complex process. Many factors, including size, condition, suburb, street, lot location, orientation and broader economic conditions, bear influence on a property’s potential capital growth. Analysing a property’s historical performance is among the most important and effective ways to select an investment-grade property, so be sure to do your research before joining the ranks of a growing number of Australians now investing in residential property.