After a strong period of growth, Canberra has been affected by the general downturn in Australia’s property market and is now showing signs of decline as a result of excessive supply
According to the Domain House Price Report, the median house price in Canberra dropped by 1.4% in March quarter 2016, although the capital reported a 4.8% price hike over the 12 months to March. Meanwhile, unit prices dropped by 2.8% in the same quarter, despite an increase in the previous quarter. Thus, the current reported annual growth rate is -4.7%.
“An oversupply of new apartments is affecting unit prices in Canberra,” says Domain chief economist Andrew Wilson. He adds that the rebounding of house prices will depend on the local economy, especially the federal budget.
Nevertheless, market analyst Eliza Owen of Onthehouse.com.au indicates that the ACT was one of the “capital growth standouts” in her April market update. Specifically, capital growth for houses over the past 12 months was high, at 6.39%. “These movements are expected,” she says. “Over the last decade, the Australian Capital Territory and Hobart house markets have generally experienced peaks and troughs just after Sydney.”
Owen suggests that as properties become less affordable in Sydney during upticks in the property cycle, investors seek out cheaper markets in the vicinity. Moreover, movements in the Sydney market may dictate the feasibility of buying or selling in other states; thus, the ACT is expected to peak soon, following the decline seen in Sydney.
The jump in job opportunities (due to the federal government lifting a public service hiring freeze that has been in place for the last two years) also contributed to Canberra’s growth.
However, “a large reduction in housing approvals in Canberra will impact house prices in that area”, says Nerida Conisbee, chief economist at REA Group. “Apartment numbers are increasing while houses are declining. We therefore expect growth.”
In addition, the limited housing supply may actually be an investment opportunity for offshore buyers. House prices are increasing, but unit prices are decreasing in reflection of supply levels, and the unit market may be seeing some oversupply. The rental rates for houses have risen more than for units, possibly confirming this idea. For instance, the house market in the suburb of Turner has maintained high growth rates over the past five years, although growth dipped slightly last year compared to the previous three years.
According to David Whittem, principal at First National Real Estate Capital, many investors consider properties in this suburb because of the abundance of tenants attracted to its location. Substantial redevelopment on large blocks of land also enhances the suburb’s value.
The unit markets in Hughes and Coombs have also made significant splashes in the past 12 months. Specifically, Hughes reported an average annual growth rate of 25.3%, the highest in ACT this quarter. The vacancy rate also dropped 0.2% over the year to a very low 0.7%, signifying the heightened demand for this suburb that’s only 6km from Canberra.
SUBURB TO WATCH
Cook: Canberra’s neighbour soars
Located only 6km from the Canberra CBD, Cook’s proximity to the city has resulted in the suburb’s median house price rising to as high as it has ever been.
Cook has seen 14.1% growth in its house market, and the vacancy rate hovers at a reasonable 1.2%. Investors will also be attracted to the high rental yield for units, which was 4.7% in the previous quarter.
Despite being close to what Canberra has to offer, the suburb itself is not short of amenities. The local shopping centre has a supermarket, a cafe and restaurants. There’s also a preschool and a school park. Commuters can take a bus to Canberra from the stop at the Templeton St Cook Shops, so, unsurprisingly, the suburb is favoured by young adults working in the city.
