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binnari Research

Is the property market about to crash?

With record house prices in Sydney and Melbourne, a royal commission into the banking sector and talk of a crackdown on mortgage lending – are we starting to see a cool down in the Australian property market? Well, to answer that question we need to look deeper into how the Australian property market actually behaves.

many markets in markets

The simple answer is no. The Australian property market is made up of many smaller markets that are not necessarily interrelated. For example, the tightly held apartment market in Coogee is not likely to be impacted by the heavily supplied apartment market in Green Square, despite being located only 6kms from each other.

In fact, even within the same suburb, there can be multiple markets impacting the performance of varying housing types. Take for example two areas in Melbourne – Doncaster and Fitzroy. Doncaster, located only 15km north east of Fitzroy has 2,577 apartments coming online (either awaiting council approval, has been approved or currently under construction) versus only 475 houses and townhouses. Conversely, Fitzroy has fewer than a fifth of the number of apartments in council – with only 470 apartments and 17 townhouses to be built. The graphic below highlights the upcoming supply of dwellings in Melbourne. Areas coloured in orange and red (like Doncaster) denote heavily supplied areas of apartments; whilst yellow and green represent suburbs with tight supply (like Fitzroy).

Fitzroy Doncaster

In this example of the Doncaster market, we have shown that apartments in general have performed poorly with minimal (and even some backward) annual growth; whereas the housing market has done reasonably well. This is probably attributed to its limited or tight supply amongst owner occupiers.

When it comes to the Fitzroy apartment market, the reverse is true. In the above table, you’ll notice the annual growth on apartments has been solid. We can only assume this is because of council or planning restrictions that limit the number of levels and supply of units in the area. Couple this with Fitzroy’s close proximity to the CBD and enviable lifestyle, property in these kinds of areas are far more likely to flourish than property in high rise building with a backlog of approved apartments waiting to be built.

Source: RP Data and Secret Agent

If the property market doesn’t behave as one, why does the media report it that way?

Negativity sells, baby! Have you ever watched the news and realised that most of the content reported tends to be biased towards negative events that are taking place around the world? Sure, it’s great to know what’s happening to our fellow human beings, but there are not too many stories about the retiree who is living a comfortable life or the young family who just purchased their dream home. Why? Because it doesn't sell. We are conditioned to react and respond to negativity, so that’s what the media feeds us.

Take for example a recent article released by the ABC headed 'Property prices drop for ninth straight month''. What the article goes on to say is that the median house prices for Sydney, Perth and Darwin had fallen over the last 12 months, however the five remaining capital cities and territory had increased in value. That same article could have been released as the “Australian property market on the rise in 5 of the 8 cities and territories”, but let’s be honest - that doesn’t have the same shock value.

Darwin - 7.7%
Brisbane -5.1%
Perth - 2.1%
Adelaide - 5.3%
Sydney - 4.5%
Canberra - 6.9%
Melbourne - 1%
Tasmania - 18.3%

Influencing factors that determine property performance

Speak to most real estate agents in Sydney and they’ll let you know that the property market has probably reached its peak for the current cycle. But, does that mean all property markets around the county will follow suit? Well, to understand this answer we need to look at what drives property markets. So, let’s compare Sydney and Brisbane in the following key areas:

Median house price 2011 - 18: Sydney & Brisbane

Sydney vs brisbane

Previous market performance

Whilst the Sydney market appears to be cooling off, the Brisbane market has been relatively flat for the last 7 years. From 2011 to 2018, the median house price in Sydney has doubled from $575,000 to $1,150,350, representing a 100% growth. Coincidently over that same period, the Brisbane median house price only grew from $450,000 to $557,214, which is less than quarter that (24%).

Median house price growth; Sydney& Brisbane 2002 -11 and 2011-18

If you take a deeper look at the performance of the two markets from 2002 and 2011, you'll see from the chart alongside that prices have a habit of evening out over the long term.

From 2002 to 2011, the median house price in Sydney only grew 27%. Coincidentally over that same period, Brisbane was the clear winner, growing from $185,000 to $450,000 which represents a 143% growth.

Sydney vs brisbane

Infrastructure spending and job growth

But, what underpins job growth? Major infrastructure spend creates thousands of new jobs, not only during its peak construction stages but also ongoing employment. This too, can have a significant influence on net interstate migration. Take Sydney and Brisbane for example again:

Sydney
  • Since the current Liberal Government was elected in March 2011, Sydney has gone on a major infrastructure binge with key spending including:
    • The WestConnex road project
    • Sydney ICC
    • The Barangaroo development
    • Sydney Metro and Light Rail, to name a few.
BRISBANE
    1. Brisbane Airport expansion - $3.85 billion
      • New runway creating 2,700 construction jobs & 7,800 ongoing jobs
      • Brisbane Airport is expected to provide 51,000 full time jobs by 2034
    2. Queens Wharf - $3 billion
      • 2,000 construction jobs
      • 8,000 ongoing jobs
    3. Brisbane Metro - $1.54 billion
      • Anticipated to create 7,700 jobs
    4. North Shore Hamilton precinct
      • Anticipated 15,000+ jobs created
    5. Brisbane Quarter - $1 billion
      • 5,000 construction jobs
    6. Brisbane cruise ship terminal
      • $158 million
  • Employment in Brisbane, Sunshine Coast and Gold Coast is forecast to grow by 148,000 new positions by May 2022.
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Sydney vs brisbane

Property affordability driving net migration

  • Net interstate migration is closely interconnected with the affordability of real estate. When prices of homes become simply unaffordable, people migrate to somewhere they can afford to buy.
  • In the graph alongside, you’ll see the net migration (arrivals less departures) between QLD and NSW.
  • In 2002, you’ll notice NSW lost a lot of residents whilst QLD gained a significant number. Why? This is when Brisbane’s median house price was less than half of Sydney’s (41%).
  • In 2010, where net migration to Queensland was at its lowest, house prices were a lot more comparable to Sydney’s (Brisbane median house price was 74% of that of Sydney’s). Thus, as the differential between house prices grows, interstate migration will begin to increase.
  • Currently, Brisbane house prices are now equivalent to 48% of those in Sydney, meaning Brisbane is favourably weighted from an affordability perspective and it is likely we will see the trend of people leaving NSW to move to QLD, thus driving Brisbane’s prices up again.

outcome

So is now a good time to invest into property?

Well, the answer depends on where you plan to invest. Yes, all indicators show the Sydney property market seems to be cooling, but can you really blame it after consistent run of double digit year on year growth? We’ve seen this before from Sydney: years of stagnation followed by record growth only to settle back down in a period of relative stagnation as the supply dries up and Sydney homeowners sit tight.

So, if history really is repeating itself, where are the best upcoming investment opportunities for the investors? At Binnari, we believe the key to understanding the drivers that fuel property growth include job growth, infrastructure spending, strong net migration, high demand with limited supply, affordability and previous market stagnation.

To understand more of Binnari’s research and to find out where the best investment opportunities are, please call us on 02 8330 3777 or complete the form below

2002
Brisbane Median house price was 41% of Sydney Median house price

2011
Brisbane Median house price was 78% of Sydney Median house price

2018
Brisbane Median house price is 48% of Sydney Median house price

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