Every dark cloud has a silver lining

                           "Every dark Cloud has a Silver Lining"

While all the news concerning our property markets has been less than desirable lately, there are areas around Australia that are performing quite well.

There are several interesting things to note from the above list:

   1. About 62 per cent of the suburbs identified have a median value of less than $500,000 and around 30 per cent have a median value of less than $350,000 – Affordability is again playing its part in growth;
   2. The highest rental yield was found in Warren, at 9.58 per cent, where the median value is $111,000. Typically, where rental yield is greater than five per cent, the median value of properties is $296,000. Low cost properties will usually have high rental yields because weekly rental is a function of wages and the tenant’s capacity to pay; it is not so much dependant on capital value.
   3. The capital growth for all of the selected suburbs exceeds 4.3 per cent, with the highest being a very significant 7.55 per cent in Wandina, WA. These quarterly numbers translate into an annual growth rate of better than 18 per cent; and
   4. It should be clear that no matter what the greater market is doing, there are always gems to be found. However, it is important to remember a current “gem” is just that, current, and the opportunity to maximise returns has passed. We need to find the locations that are predicted to grow, just before they become “gems” to make the most out of an investment. Our Best Rent Report is an excellent starting point to identify such suburbs, with the June Report just released.

Over the last two quarters, Residex data pointed to Sydney and Brisbane as the most important markets with the best opportunities. Both of these markets have a clear supply shortage while others do not display as though a supply problem exists. Perth is also worth watching as it was approaching its turning point.

Below are a series of graphs presenting capital growth that paint the picture better than words could of how our markets have been performing.

‘Australia as a Whole’ appears as though there is generally some further adjustment to take place, albeit minimal.

Encouragingly, ‘Brisbane’ is presenting as if it has reached its bottom of its adjustment process following the natural disasters. There could be a little further adjustment but we would suggest, based on the numbers, it will be minimal.

Sydney’ is presenting as if it has bottomed out and growth should occur from here, albeit small.                

Very encouraging is Perth, now presenting as if it has also bottomed out and it is probably a month or two out of correction phase being over.

The markets that are potentially in trouble are Adelaide, Darwin, Hobart and Melbourne.

Melbourne housing is providing some growth while the unit market is in correction. Our models indicate that there is likely to be correction in the short term or it will hold at the current level for the next three years and under perform inflation.       

Overall, there is some positive news in the adverse property markets across Australia. While it is probably a little early to say the worst has passed, the worst of the corrections phase could well be over for a number of our capital cities. Interest rates look as if they are on hold for the moment and given this, and the continuing resource investment growth that will continue to stimulate our economy, we should all look to the future with an improved level of confidence. If we are at the bottom of the market in many of our cities then it is time for us to seek out the opportunities, but research and care are needed.

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Until next month,
John Edwards
CEO and founder of Residex Pty Ltd.

In the below table, ‘Best Performers’*, I found suburbs from both city and country markets across Australia that are the current stars in the Australian market. Suburbs have been sorted in order of performance for the last three months.

July 2011