The new real estate giants

This article originally appeared in the September edition of Your Investment Property Magazine.

Australia’s property crown is slipping from Sydney and Melbourne’s grasp as Brisbane, Perth and Adelaide emerge as formidable rivals. These three cities are experiencing a meteoric rise in property prices, driven by a potent mix of chronically low supply and high demand, as well as strong interstate migration and increased investor activity.

Brisbane's median property value recently surpassed Melbourne’s for the first time in 14 years, and Adelaide and Perth are hot on its heels according to CoreLogic’s research director Tim Lawless.

“Given Adelaide values have been consistently rising by more than 1% each month since March, there is a good chance we will see Adelaide’s median dwelling value surpass Melbourne’s next month,” Mr Lawless said.

“It’s also likely we will see another fall in Melbourne values through August, which increases the chances of Adelaide overtaking Melbourne’s median.

“Given Perth’s values are consistently rising by around 2% month-on-month at the moment, there is a good chance we will also see Perth overtake Melbourne’s median through August.”

Adelaide’s median property price has never surpassed Melbourne's.

CoreLogic data for July shows that Melbourne's median house price is now $781,949, with Adelaide close behind at $776,597. Perth is also keeping up, with its median price reaching $773,335.

While the rest of the nation’s capital cities recorded a slowdown in property price growth over the month and quarter, it’s our mid-sized capitals that are bucking the trend. The quarterly pace of growth in Perth tracked at 6.2%, while growth in Adelaide accelerated to 5.0% - the fastest rolling quarterly pace of growth since May 2022. Brisbane values rose at a quarterly pace of 3.8%.

According to Mr Lawless, good old supply and demand is a key factor driving this.

“The number of homes for sale in Brisbane, Adelaide and Perth is more than 30% below average for this time of the year, while weaker markets like Melbourne and Hobart are recording advertised supply well above average levels.”

Increased investor activity is another factor.

“Investor demand tends to seek out capital growth, so it’s no surprise to see such an upswing in markets like Western Australia and Queensland where values are rising rapidly and yields tend to be higher than the larger capitals.”

City by city: A closer look at what’s going on

The Brisbane Olympics may be eight years away but that hasn’t stopped the city’s property hype from bursting out of the blocks.

According to PRD Research, median house prices in Brisbane’s Olympic suburbs such as Hamilton, Ipswich and South Brisbane could more than double by 2033.

Sydney home prices surged by approximately 60% between 1993 when the Games were announced and 2000, nearly double the growth rate of Australia’s combined capital cities during the same period, according to CoreLogic.

Brisbane’s median property value has already risen 40% since the announcement of the games in July 2021. Let me remind you, the Games are still eight years away.

But it’s not just Olympics fever. PRD Chief Economist Dr Diaswati Mardiasmo notes that Brisbane’s perception among interstate buyers has played a significant role

“One of the key drivers for Queensland’s high growth is its affordable starting point – with Brisbane being known as Sydney’s and Melbourne’s ‘little sibling’ in the past, and Queensland the ‘more affordable state’,” she told Your Investment Property Magazine.

“This makes Queensland a number one alternative for interstate investors.

“Combined with a surprise shock in high population growth since COVID-19 and many interstate people moving to Queensland - outpacing residential supply which hasn’t been able to catch up since – this has resulted in our property prices growing as fast as they have.”

Real Estate Buyers Agents Association of Australia (REBAA) President Melinda Jennison says limited supply, coupled with high demand driven by interstate migration and attractive property values across many regional areas, has kept the market competitive in Queensland.

“The persistent supply shortage, combined with sustained demand from both investors and first-home buyers, will likely maintain upward pressure on property prices, especially in Brisbane, where the market remains robust. The ongoing strength of the rental market, with low vacancy rates and rising rents, further underscores the solid fundamentals supporting the Queensland property market,” she told Your Investment Property Magazine.

In Adelaide, it’s a classic case of supply versus demand dynamics combined with strong population growth according to managing director at South Australian-based Turner Real Estate Lachlan Turner.

“The low level of stock is a direct driver of prices still continuing to push higher. There are simply more buyers than sellers and buyers are prepared to spend that bit extra to secure the property.  They are still seeing value in the Adelaide market,” he told Your Investment Property Magazine.

State government figures reveal South Australia’s population is projected to hit between 2.33 million and 2.53 million by 2031. The state’s population currently sits at 1.88 million.

Mr. Turner credits much of this change to the lifestyle shifts brought about by the pandemic.

“COVID has shifted the dial on how people value where they live. As well as appreciating extra space within the home, perhaps to accommodate working from home or entertaining more at home, there is also a value placed on proximity to the city and Adelaide still offers quality real estate within 20-30 minutes commute to the CBD. 

“In the eastern states, it’s not uncommon for people to have to travel an hour each way to work and many are shunning that lifestyle to put more time back into their day.”

And it’s primarily owner occupiers, not investors, that are driving much of this change.

“Investors have been active, but not dominant over the past two years.  In the family home market, nearly every buyer is an owner occupier. 

“In the unit market, we’ve actually seen more owner occupiers than ever before – so our firm view is that owner occupiers are still moving the dial on house prices.”

Perth has always run its own race, and now, with surging residential price growth fuelled by an undersupply of housing and a wave of interstate and overseas migration, Western Australia is pulling ahead of the competition.

The state’s economy grew by 4.7% last year which was more than double the national growth rate of 2.3%. Generating almost $260 billion and contributing nearly half of the nation’s exports, it’s this booming economy that’s attracting thousands of people from outside the state.

In June, a new agreement between the WA state government and the Federal Government was announced, which is expected to introduce an additional 10,000 skilled migration places for the FY 2024-25, pushing the state’s population beyond 3 million.

The state’s already ultra-tight property market is being squeezed even further with cash buyers snapping up properties sight-unseen. Real Estate Institute of WA President (REIWA) Joe White estimates 30,000 homes needed to be built to keep up with demand last year - only half of that were.

Boom or bubble?

With such rapid growth comes the risk of overheating, particularly if interest rates rise or economic conditions change. Markets like Perth, which are heavily reliant on the mining sector, could see volatility depending on global commodity prices.

Director of Hotspotting Terry Ryder urges caution.

“We believe that too many people are buying recklessly in Perth, and many will regret buying at high prices without undertaking the required due diligence,” he told Your Investment Property Magazine.

“After three years of major price growth, the current levels of activity and prices are unsustainable.

“Some investors – and especially those speculating from interstate – who have overpaid at the peak of the market will likely rue their decision sooner rather than later. We believe that the good times for Perth are already at an end, so investors should tread very carefully from now on.”

According to Ms Jennison, Queensland's property market momentum shows no signs of slowing down.

“The expectation of a strong economy, promising job prospects, significant infrastructure investments, and several major projects in Brisbane ahead of the 2032 Olympic Games is likely to sustain the momentum in the local property market for many years to come.” 

According to Mr. Turner, the chances of a significant market correction in Adelaide appear to be low.

“Traditionally, Adelaide has tended to hold in price when the market has started to cool. It is rare for Adelaide to experience any backward movement and although we have had incredible price growth, we are seeing the slowing of growth which may end up remaining at zero for a short period of time but there are no indications we will have serious corrections.

“Over the past 10 years, movement upwards in Adelaide has been slower than some of the other capitals, so there is also an element of catch-up playing out as well.”

Whether this signals the start of a long-term shift in Australia’s property landscape or merely a temporary surge driven by current conditions, one thing is clear: Brisbane, Adelaide, and Perth are cities on the rise.

Image by Josh Withers via Unsplash