Investing In Property In Australia: Housing Hotspots Down Under

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Investing In Property In Australia: Housing Hotspots Down Under

Australia is an attractive residential real estate market for local and foreign investors alike. Before buying a property in Australia, though, it is essential to know where to invest – as it is a big country with considerable state and regional variation in real estate trends and prices. David Bowden gives us the lowdown on the property market Down Under.

Written by David Bowden on 4 July 2017

Australia is an attractive residential real estate market for local and foreign investors alike. Before buying a property in Australia, though, it is essential to know where to invest – as it is a big country with considerable state and regional variation in real estate trends and prices. David Bowden gives us the lowdown on the property market Down Under.

Property news in Australian newspapers (and websites) is listed just after the headlines; before the sports – in sports-loving Australia this is quite an achievement. Property is central to the lives of many Australians as those with a mortgage keenly chart bank repayment rates, while property owners and investors monitor what has been a decade-long rising market.

Housing affordability is important in a nation where owning one’s house has always been the Australian dream but rising prices have meant that this is a long way off for many (home ownership currently stands at 65.5%, but has dipped 1.5% from 2011). Despite all-time low interest rates, housing affordability is considered a big concern with many potential first home buyers blaming foreign investors for driving prices beyond the reach of young Aussies.

Proximity to Asia helps drive property prices and the region’s rising middle class ensures that Australia is in their sights as a place to invest, to live in and, for children to be educated. Foreign investment in residential real estate rose by 75% in 2015 to A$61 billion (US$46.7 billion) with Asian investors, particularly from China, at the forefront.

Aerial view of the Gold Coast in Queensland Australia 

Housing state by state

Australia is a big country with considerable state and regional variation in real estate prices, with the largest cities of Melbourne and Sydney leading the charge. For example, while house prices in Brisbane and Melbourne rose in the fourth quarter of 2016 by 1.4% and 1.1% respectively, apartment prices declined in Sydney and Melbourne by 3.1% and 3.9% during the same period, Citibank reports.

Here we take a whirlwind tour of Australia’s top cities for residential real estate investment, exploring what these property hotpots have to offer and examining how they have been performing of late:

Harbourside real estate is keenly sought after in Sydney

Sydney, New South Wales (NSW)

If big is best, Australia’s biggest city is the place to invest in. However, Sydney’s population (4.8 million as of 2016) is being challenged by Melbourne (4.5 million). 2016 Census data shows Melbourne grew weekly by 1,859 new residents (since 2011) and Sydney by just 1,656, leading to the assumption that Melbourne is getting bigger, faster and will eventually become Australia’s largest city. In terms of the property market, the demand is growing faster in Melbourne and investors should take note.

Citibank further adds that housing auction clearance rates declined through 2017 and apartment pre-sales are slowing. However, Sydney is a global business hub, which undoubtedly contributes to its long-term growth. According to property consultancy Knight Frank, Sydney accounted for 50% of Australia’s office turnover in recent years.

Inner city mixed development sites and suburban satellite developments are a feature of Sydney with its universities providing apartment nodes throughout the city.

Regional and coastal NSW experienced big house price increases over the past 12 months – Shoalhaven (16.4%), Shellharbour (15.6%), Great Lakes (13.1%), and Lake Macquarie (10.1%). It’s worth noting that these are popular destinations for baby boomer retirees.

Melbourne is often rated as the world’s most liveable city

Melbourne, Victoria

Often rated as the world’s most liveable city, the Victorian capital of Melbourne is destined to become Australia’s biggest city within the next two decades. While the annual real estate price growth rate to June declined from the previous year, it still saw a 13.5% increase, according to CoreLogic.

Melbourne’s past five years saw prices surge 55%, but it’s an optimist who is predicting bull markets to continue – although experts aren’t predicting a crash; just a slow down.

Melbourne’s inner city housing market is still hot, but CoreLogic reports a 3.8% drop in apartment prices because of new developments coming online.

Stamp duty concessions came into force in July to assist first home buyers in Melbourne (similarly in NSW).

Perth, Western Australia

Perth is popular with regional investors because it is the closest Australia capital to Asia and is on the same time zone, and it boasts world-class educational facilities.

The skyline of the Western Australian capital features neon lights of major mining companies and it’s known for “boom and bust” cycles based on cyclical resource prices. Perth real estate prices inched up 1.3% in June of this year after an extended depressed market due to low resource prices (real estate prices dropped 6% year on year).

CoreLogic note that house prices in the west of the city only increased by 2.3% over the past ten years. However, Perth has the second cheapest housing after Hobart with the median house costing A$470,000 (US$360,230).

Queensand’s Gold Coast reaches ever skyward

Brisbane-Gold Coast, Queensland

The Queensland capital of Brisbane has a diversified economy with resources being important (some 8% of office space is aligned to resources whereas in Perth the figure is 20%) but so too, tourism and education.

Australia’s lifestyle state is popular as well with Australian retirees, many of whom relocate there in later life from Australia’s southern states. This boosts real estate prices in holiday destinations like the Gold Coast especially with cashed-up baby boomers now entering the market. The Gold Coast is also popular for second home buyers who have long-term plans to relocate there upon retiring.

The Gold Coast presents good value to investors with median home prices ranging from A$610,000 (US$ 467,530) and apartments A$340,000 (US$ 260,590).

Regional coastal Queensland real estate prices are equally stoked by retirees choosing the state’s tropical lifestyle. Over the past 12 months, house and apartment prices have increased in regional Queensland – Gold Coast (7.5%, 6.2%), Noosa (5.6%, 7.9%) and the Sunshine Coast (6.2%, 4.4%).

Melbourne, Australia, in early morning light. Yarra River, towards Flinders Street Station

When to Invest

This is the million dollar question, but recent trends are worth noting. Citibank analysts note that “the market is entering a slowdown” as “dwelling price growth has stalled and, all major apartment markets have recorded price reductions over the past three months.” It’s important to remember that some sectors and locations are growing – but at a slower rate than previously.

A counter argument is suggested by Pete Wargent from Allen Wargent Property Buyers who predicts that Gen Y’s (25-32 year olds, comprising some three million Australians) will create a “tsunami” of demand as first home buyers. He added that immigration (the Australian population grew by 8.8% from 2011 to 2016 to reach a total of 24.4 million) will also create additional demand as will students studying in Australia (some half a million and up 14% from last year).

Investment Tips

If you are considering investing in property in Australia, here are some important points to consider: 

  • Be informed of the stamp duty on sales as it varies from state to state.
  • Land rates are not uniform and vary from location to location.
  • If you intend to actually live in the property at some time (and are not buying it merely for investment purposes) check out the availability of services as well as the climatic conditions in prospective locations.
  • Big ticket properties need the approval of the Foreign Investment Review Board (FRIB).
  • Low interest rates help fuel rising market prices, but one bank suggests a 1% rise in interest rates could lead to a 6% decline in property prices.

While mining is vital to the Australian economy, it follows boom or bust cycles with real estate prices plummeting in mining towns during a downturn.

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