There’s never a dull moment in Canberra, especially where modern Australian politics is concerned. 2015 has been no exception, with not one but two stoushes against the Abbott Government; the second of which provided Australia with a new prime minister, Malcolm Turnbull.
With the economy of the Australian Capital Territory tied so closely to the current administration’s taste for public spending, property pundits tend to watch the moves at the top fairly closely. Indeed, the predominantly white-collar population of the ACT means incomes and dwelling prices are high.
The conventional wisdom has been that a Liberal government usually results in a slower market – due to the Conservative propensity for small government – while Labor sees Canberra boom thanks to its tendency to expand the public service.
That seemed to be accurate during the first couple of years of this government’s term, with a tough first budget and general uncertainty – combined with an apartment oversupply in the CBD – causing the property market to slump.
However, it seems like things might be changing. CommSec’s latest State of the States report indicates that growth in housing finance in the ACT is the strongest in Australia, at 10.4% above the territory’s long-term average.
This could bode well for the federal capital: CommSec states that “housing finance is not just a leading indicator for real estate activity and housing construction, but also is a useful indicator of activity in the financial sector”.
The Turnbull effect?
Another promising indicator is the turnaround in capital growth during 2015, especially for Canberran houses.
CoreLogic RP Data’s Tim Lawless suggests the solid performance of house prices – up 4.7% between October 2014 and September 2015 – suggests the market is over the worst of its post-election slump.
“Conditions are slowly improving,” says Lawless. “Capital growth is rising at a fairly sedate pace as we see that marketplace slowly recover.”
Domain’s Andrew Wilson is even more bullish about Canberra’s prospects, ranking it as the third-best prospect for growth after Sydney and Melbourne.
“The government’s second budget was better received from a sentiment point of view,” says Wilson.
“Confidence is being restored, and that’s taken a lot of negative energy out of the market.”
Indeed, at this stage of the electoral cycle, government cuts have already taken place and the relatively affluent Canberra population – usually double-income families – can be somewhat certain of their jobs. In addition, the Federal Government’s two-year hiring freeze has been lifted; this could have a positive impact on employment, says OnTheHouse.com.au’s Eliza Owen.
It’s too early to tell whether a ‘Turnbull effect’ will help boost the market in 2016, though. Angie
Zigomanis from BIS Shrapnel suggests it’s unlikely, as the new prime minister seems intent on following a similar course on public sector employment as his predecessor – at least until the next election anyway.
“We probably won’t see a ‘Malcolm effect’ in public sector employment,” says Zigomanis. “It will almost certainly improve sentiment, but it’s questionable whether it will translate to more jobs in
Canberra.”
Inner-city pressure
One of the biggest question marks over the Canberra market is the inner-city apartment market. While Lawless and Wilson both think the worst is over in terms of oversupply – an issue which has seen the average unit value fall by 6.2% in the last year – Zigomanis and AMP’s Shane Oliver aren’t so sure.
“Apartments have been overbuilt and rents have fallen back,” says Zigomanis. “That part of the market is likely to be more challenging for investors.”
Oliver cautions investors to concentrate on stand-alone homes until the unit market has proven itself to be less volatile.
However, OnTheHouse.com.au’s Owen points out that average rental yields for Canberra apartments and houses are still more than 5%. She suggests that now could be a good time to take advantage of subdued unit prices and attractive rental yields.
