By Charles Tarbey

When discussing what is happening in the Australian property market, many tend to focus on the capital city markets of Sydney and Melbourne. There is plenty of chatter about affordability concerns, competitive auctions and avocado brunches that are supposedly preventing young Australians from achieving home ownership in these cities.

While these markets will naturally attract attention due to their size and active buying and selling conditions, many tend to overlook the fact Australia is actually an incredibly broad real estate market that is changing rapidly.

Different markets, different points in the cycle

Markets across the country are at different points in their respective cycles. In Sydney and Melbourne, we hear stories about record prices achieved for properties. However, in other parts of the country, we are seeing properties that are struggling to sell and owners facing negative equity.

CoreLogic’s latest Hedonic Home Value Index showed a 1.1% drop in dwelling values for the month of May. I believe the data highlights the importance of investigating and understanding markets on a state-based, and even suburb-based, level.

This headline figure was largely influenced by a drop in dwelling values in Sydney and Melbourne, with Sydney values down 1.3% and Melbourne values down 1.7% for the month. It appears that the cities may be nearing the top of the market, with increased supply and fewer buyers likely leading to a new phase of softer growth conditions.  

If we look elsewhere, growth was still evident in some markets, albeit moderate growth. Adelaide experienced a 0.8% lift and Brisbane was up 0.3%, taking the markets 2% and 1.2% higher over the quarter respectively.

Perth saw a 0.4% decrease over the month, which may point to the fact the Perth market is nearing the bottom and may be starting to show signs of balance. 

It is important to note that CoreLogic finds May to be a seasonally weak month and Tim Lawless, CoreLogic Head of Research, said that values have fallen during May in four of the past five years.

I am of the view that moderating market conditions are not signalling a dramatic crash in property prices in the near future (as some may suggest). Moderating growth may be better for the property market over the longer term, as it arguably becomes more sustainable.

Markets such as Tasmania, Canberra and parts of Queensland are increasingly attracting investor attention, likely due to the affordability concerns and competitive market conditions faced in the Sydney and Melbourne markets. The ‘halo’ or ‘wave’ effect appears to be hitting these areas, where there are plenty of affordable property options available with appealing lifestyle benefits.

Investors may be able to sell their properties in more heated capital city markets and then utilise the equity to purchase property in a more affordable location, while keeping some money in the bank. This may be particularly true for downsizers seeking locations with lifestyle benefits, either by the beach, or in the country.

Other parts of the country have been heavily affected following the end of the mining boom, and the states have been attempting to find the bottom of the market again. It appears markets such as Perth and Darwin may begin to plateau over the coming months.

These markets also seem to be attracting investor attention as property can be secured at cheaper price points, however I encourage prospective investors to remain cautious. Too much investor interest has the potential to lead to rental oversupply, which can quickly damage an investor’s position. Recent CoreLogic data has shown a large number of Perth residents migrating interstate, therefore investors should carefully consider their potential to find and maintain good tenants in light of this. 

As signs point to softer growth conditions for Australian property over the coming months, professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions. I encourage Australians not to rely on headline growth figures, but to investigate conditions within individual states and suburbs when weighing up their property options.

Talk to agents and financial experts to assess your position, and ensure your commitments are manageable should the year ahead hold any changes in interest rates. A level head and an informed position may enhance your prospects to make the most of investments in your respective markets.