2007 marked a real turning point for the Australian property market. Markets that had been languishing since the last growth cycle ended in late 2003 started to pick up pace. Conversely the Perth market, and to a lesser extent Darwin, which surged ahead in value during 2006, slowed significantly.

Nationally house and unit prices increased by 13.1% over the twelve months to December 2007. This time last year the rate of growth was just 6.6% and two years ago there was hardly any growth in the market with prices increasing nationally by just 2.4%.

The median house price nationally is now $485,026 after increasing by 12.5% or $53,720 over the year. Unit values increased by 14.8% or $50,670 over the year to reach $393,500

Performance of Australia’s capital cities

On a city-by-city basis, Adelaide has emerged as the absolute stand out performer, with dwelling prices booming at 25% growth per annum. Despite such strong growth, Adelaide property still provides some of the most affordable price points in the nation. At the other end of the spectrum is Perth where price growth has stalled. Over the last year Perth dwelling values increased by just 0.4%. During mid-2006 Perth’s price growth had topped 40% per annum, which was obviously unsustainable.

Brisbane and Melbourne are also performing very well, particularly inner city homes and homes within close proximity to the water. Over the year ending November ‘07 Brisbane joined Adelaide in ‘boom territory’ with house and unit value growth breaking the 20% per annum mark. Melbourne property values are continuing to grow at an increased rate and we expect Melbourne to surpass 20% growth early into the new year.

Darwin continues to record healthy rates of value growth in the property market, however the rate of growth is slowing. Similar to Perth, the Darwin market experienced a very strong 2006, however growth rates were much more sustainable, peaking at 24% during early 2006.

Capital city hot spot picks

During 2007, the top performing real estate markets have been located in inner city or metro-coastal suburbs. Capital growth in these areas has been driven by the large pools of wealth flowing from the strength of the Australian economy and businesses. In contrast the flattest markets have been located in the outlying mortgage belt suburbs where affordability constraints have hit hard.
Out hotspot picks for 2008 reflect a continuation of this trend. For the time being there is no light at the end of the tunnel for the traditional outer suburban markets: first home buyers and low income families. Growth is likely to be focused within ten kilometers of the capital city CBD’s or along the coastline or riverbanks.
This is not to say the same suburbs that performed last year will be stand outs again this year. Rather, there will a ripple taking place with buyers seeking out the next best suburb – other inner city or waterside locations that might offer slightly lower price or slightly better yields.

We also expect the premium market to keep firing. The absolute top end of the real estate market has gone from strength to strength, even in Perth where price growth has come to a standstill, the million plus market is continuing to record growth. Several of our hotspot picks are suburbs with median prices well over a million dollars

Sydney

Top five picks for performing areas during 2008:

1.         Turella (median house price $477,500) – the most affordable suburb for houses within 10km of the Sydney CBD.

2.            Waterloo (median house price $490,000 – the most affordable suburb for houses within 5km of the CBD

3.         Rozelle (median house price $741,900 – comparatively low prices for water side living

4.         East Ryde (median house price $753,500 – comparatively low prices for water side living and within close proximity to the growing office markets of North Ryde

5.         St Peters (median house price $485,000) – median house prices are considerably lower than surrounding suburbs and the area is just 6km from the CBD.

Melbourne

Top five picks for performing areas during 2008:

1.            Maidstone (median house price $362,750) – just within the 10km mark of the CBD and the median price still under $400,000

2.         West Footscray (median house price $380,000) – adjacent to Maidstone, these two suburbs provide some of the most affordable inner city real estate.

3.         Pascoe Vale South (median house price $435,000) – situated just off the Citylink about 9km from the CBD, this suburb is also serviced by tram.

4.            Carrum (median house price $357,500) – one of the most affordable bayside suburbs within the Melbourne metro area. The area also boasts a sailing club, surf life saving club and rowing club.

5.            Viewbank (median house price $445,500) – Viewbank is around 15km from the CBD of Melbourne and is bordered by the Yarra River and vast stretches of parkland. Prices in this area appear low based on the areas amenity and prices being achieved in the surrounding river side suburbs.

Brisbane

Top five picks for performing areas during 2008:

1.            Yeronga (median house price $586,000) – one of the most affordable inner city riverfront suburbs with huge tracts of parkland. Will also benefit from the retail facilities being established at Tennyson.

2.         West End (median house price $521,250) – the ongoing urban renewal is continuing to add quality unit stock and the retail strip of Boundary street is a real drawcard for this area

3.            Indooroopilly (median house price $649,500) – this area is becoming a true transit oriented development node with a lot of quality unit developments springing up around the train station and retail facilities.

4.            Hamilton (median house price $1.02 million) – while the Hamilton Hill area is out of the price range of most buyers, the area east of Racecourse Road is much more affordable and will benefit over the long term from the additional facilities introduced to the area as Hamilton North Shore is developed

5.            Keperra (median house price $355,000) – the most affordable suburb within 10km of the CBD. Keperra is also well serviced with shopping facilities.

Adelaide

Top five picks for performing areas during 2008:

1.            Renown Park (median house price $294,500) – Renown Park is around 5km of the Adelaide CBD and still has a median house price under $300,000

2.            Hampstead Gardens (median house price $325,000) – approximately 6km from the Adelaide CBD with excellent access into the city via North East Road.

3.         Largs North (median house price $326,500) – the suburbs of the LeFevre Peninsula provide exceptional value, however buyers must be strategic about where to buy. Largs North provides one of the most affordable waterside markets in the region.

4.         West Hindmarsh (median house price $340,000) – just a short walk into the Adelaide CBD although its close proximity to the airport may be a deterrent for some buyers.

5.            Glenelg (median house price $703,000) – Glenelg is one of the most sought after suburbs in the Adelaide metro-area. With a median house price of just $703,000 we expect demand from top end buyers to be very strong in this suburb.

Perth

Top five picks for performing areas during 2008:

1.         Bentley (median house price $462,500) – this is one of the most affordable inner city suburbs after those areas adjacent to the Perth Airport.

2.            Rivervale (median house price $485,000) – this inner eastern suburb fronts the Swan River, has excellent arterial road linkages and provides one of the most affordable inner city price points.

3.            Swanbourne (median house price $1.25 million) – Swanbourne is the most affordable of Perth Northern Beaches. Housing stock close to the beach is very limited, however this is the area that is likely to experience the highest levels of growth.

4.            Mosman Park (median house price $1.375 million) – the median house price of Mosman fell slightly during 2007, however we expect prices in the suburb to bounce back due to strong demand for prestige properties in Perth’s most exclusive markets.

5.            Marmion (median house price $830,000) – median prices this beachside suburb are around $50,000 lower than Sorrento to the North. Prices area also low compared to the beachside suburbs to the south.

Darwin

Top five picks for performing areas during 2008:

1.         Millner (median house price $365,000) – located just north of the Darwin Airport and about 7.5km’s from the Darwin CBD, Milner provides a low entry point to the market. Rental yields in the suburb are generally above 5% for houses and units, making this area very attractive to investors.

2.         Parap (median house price $615,000) – Parap is located in the inner northern suburbs of Darwin, bordered by the Stuart Highway. Prices have increased by 20% over the last year, which is considerably less than the nearby suburbs of Fannie Bay and Bayview.

3.         Stuart Park (median house price $517,000) – Stuart Park is located immediately north of the Darwin city centre and is bordered by the Timor Sea. The median prices shows an undervalued market for such a strategic location.

4.            Rosemary (median house price $195,000) – the absolute affordability of this suburb coupled with the fantastic yields being achieved (the average gross rental yield is around 10%) should keep Rosemary popular with the investor market.

5.         Rapid Creek (median house price $485,000) – Rapid Creek provides the most affordable entry point to Darwin’s waterside suburbs.

Canberra

Top three picks for performing areas during 2008:

1.         Scullin (median house price $356,000) – this suburb, located 9.5km north east of the CBD, the most affordable suburb within 10km from Civic.

2.            Braddon (median house price $493,000) – this inner city suburb has a relatively low median price. With plenty of renovating and new development taking place this area should continue to show strong improvements.

3.            Yarralumla (median house price $800,000) – located on the south western bank of Lake Burley Griffin and just 3.5km from the city centre, Yarralumla has plenty of room for prices to move upwards.

Looking towards how the market will perform during 2008

It is likely that the first half of 2008 will see price growth peak nationally before tapering to more sustainable levels during the second half of 2008. The impact of further rate rises from the Reserve Bank of Australia, and independently by the banks, will have a dampening effect on the market as affordability levels fall even further and the monetary environment becomes less certain.

The top end of the market has largely absorbed past rate rises in its stride, and will most likely continue to do so. This market is however very reliant on strong business and economic conditions. Any weakness in business sentiment or the national economy will flow through to a slow down in the premium property sector. At the moment the outlook for the Australian economy appears to be very positive and business confidence is well above the long term average. Apart from a turnaround in economic conditions, we expect that premium properties; those homes located within the inner city or metro properties locates close to the water or with views, substantial land area or heritage characteristics should continue to improve in value at a greater than average rate during ’08

The gap in property value growth that has appeared between the affluent areas and mortgage belt regions is set to broaden. With credit becoming even tighter during 2008, home loan affordability is expected to worsen meaning demand for outlying properties which are poorly serviced by transport, social and retail infrastructure will continue to be low. The saving grace for these outer areas may be a return of investors. Yields in many outer locations are already up around the 6% mark which is quite a lucrative rental return to investors. Rental growth will more than likely outpace value growth in these outer properties further improving yields and making these outer markets all the more attractive to investors.

Adelaide will most likely continue to provide the greatest short term returns due to the excellent affordability this City offers relative to other capitals. In addition, the expansion of mining and industrial activities in the state will have positive flow on effects for property demand and the states overall economy.

Our pick for the strongest medium term performer in terms of property value growth is Brisbane. Even though interstate migration has been falling over the last year, Queensland is still attracting the vast majority of interstate migrants. In addition, overseas migration to Queensland is the third highest in the nation and the region has a very strong and diverse economy. Property values provide a relative degree of affordability, particularly in the northern, southern and western growth corridors.

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