ACT Property Watch Q3 2012

CANBERRA MARKET OVERVIEW

The following Property Watch report is the result of an investigation into the historic and current market conditions of the Australian Capital Territory (ACT), with a focus on the Canberra residential market.

The growth in activity during 2011 subsided in the first half of 2012, with softer activity and a decline in house and unit median prices. Recently-announced cuts to the federal budget have further dented buyers confidence as public servants contemplate interstate relocations. The undersupply in the inner city, which characterised the market in the past three years has been met with robust development, leading to growing concerns as to the ability of the market to absorb the large number of new properties currently being developed.

An increase in house activity in 2011 was reversed during the first half of 2012, with 1,403 houses transacting during the period. The figure represents the lowest level of sales in the past 20 years, with the half year to June marking the fourth time that activity fell below 2,000 sales per half year period.

The median price for a house remained flat over the past two years, easing by 0.1% in the twelve months to June 2012. The markets stagnation was created by vendors high expectations and buyers dented consumer confidence. The price point distribution revealed growth in the $500,000 to $600,000 price point over the past five years, accounting for 26% of the market in the June 2011 period. The market eased since, with the $400,000 to $499,999 bracket representing the largest number of transactions at the end of June 2012. The top end of the market remained stable in the past two years, with properties transacting for $1,000,000 plus accounting for four per cent of sales. The Inner South recorded the highest number of sales for the period. Sales in the region, characterised by substantial properties on large lots, were led by Griffith (ten transactions) and Deakin (eight transactions).

The 3,881 apartments in various stages of construction are likely to increase the sales period from the current average of 91 days. Anecdotal evidence points to sales in some developments continuing beyond the date of completion. Although this level of stock would not pose a problem in a rising market, it is estimated that subdued market activity and a large level of stock on the market may lead to further decline in prices.
Demand for units came from downsizers and empty nesters that preferred the low maintenance and security offered by strata-titled dwellings. Activity in lower price brackets was strong, with the $350,000 to $399,999 accounting for between 20% and 25% of transactions in the 18 months to June 2012.

Toward the top end of the market, units and townhouses transacting for $600,000 or more declined from 14% of the market in June 2011 to 10% at the end of June 2012. While the fall in activity at the top end was the result of the slow demand, it was the short supply of units selling for $300,000 or less that kept transaction numbers steady toward the bottom end of the market.

The investment market has been buoyant over 2011 and into 2012, with investors targeting properties in close proximity to shopping centres and educational institutions. However, the level of price growth varied across different regions and property types. The median rent for a four bedroom house in the inner city increased by 11.5% in the year to March 2012, closing the period at $725 per week. The strong demand for detached houses extended to the Woden and Weston Creek region, recording a 9.1% growth for a four bedroom house. The good level of affordable stock for sale in the outer regions was the reason for slower rental growth in these areas.
The Woden and Weston Creek region experienced a strong rental performance in its unit market, with a three bedroom unit increasing by 8.7% in the year to March. Growth in the inner city region was not as high. Newly developed apartments attracting higher rent prices in Canberras outer regions led to a 7.9% increase in the median price of a two bedroom unit in Belconnen and Gungahlin regions and 9.1% in Tuggeranong.
The vacancy rate increased to 2.4% in the 12 months to March, positioning Canberras vacancy lower than Hobart (3.9%) and Adelaide (3.6%) but higher than all other capital cities.
Yields for units that sold in the first half of 2012 ranged from 5.4% to 6.9% (gross) for a one bedroom unit and 5.2% to 6.4% for a two bedroom apartment. Yields are expected to increase should property prices soften.