By John McGrath 

The market has improved significantly in Canberra this year, with house prices rising by almost 10% over the first 10 months of 2016 alone*. This time last year, Canberra was a market still in decline, so the turnaround this year has been quite remarkable.

Underpinning this growth is an undersupply of houses for sale, greater stability in Federal Government following many years of unrest, and a very low unemployment rate of just 3.6%^, boosted by the lifting of a two-year hiring freeze in the public service in mid-2015.

The Federal Election

In our recently released 2017 McGrath Report, we revealed a distinct new confidence in Canberra’s marketplace following the Federal Election.

Canberra is always directly affected by elections because one in three workers are employed in the public service. Unlike the last Federal Election, there was no threat of mass job cuts on either side of politics, so the market maintained its momentum during the long campaign.

The Coalition’s return meant continuing stability for government employees, no changes to negative gearing or capital gains, and a tax cut that would benefit a large proportion of residents who are among the highest paid workers in the country.

Other factors

Opens have been well-attended all year and auction clearance rates for houses remained just shy of 70% for the 12 months to June 2016, according to Domain research#.

Interest rate cuts are no longer having a stimulatory effect, with buyers now used to record lows. However, young couples and families are leveraging rates to stretch their budgets further and buy in premium locations close to the best schools.

Mr Fluffy buyback

The $1 billion ‘Mr Fluffy’ buyback and demolition of 1,022 homes across 56 suburbs by 2018 continues, and is having a big impact on the market. Approximately 260 homes have been demolished, with 176 scheduled for demolition between July and December 2016 **.

The scheme has displaced hundreds of families who all need to buy or rent. They have been paid well for their homes and the stamp duty concession on their next purchase is giving them extra buying power and the ability to buy quickly and compete strongly at auction.

Some are staying in their area, others are upgrading elsewhere. For example, many ‘Mr Fluffy’ sellers in Belconnen are heading to nearby Gungahlin where they can purchase bigger, newer homes.

Meanwhile, the incredibly rare opportunity to buy vacant land in premium established suburbs following the demolition of ‘Mr Fluffy’ homes is exciting buyers.

The first 10 blocks were taken to auction in April. Among the sales was a block in Pearce for $605,000 and one in Chapman for $610,000 – both close to the city’s median house price. This signalled to other home owners just how valuable their land has become due to limited release of new supply in recent years.

Original housing stock in Canberra’s prized inner north and south is more than 60 years old and due for an overhaul. Owners are realising the best way to capitalise on their land value is to re-build and families are out in force looking for knockdown opportunities in prime locations.

Downsizers are among these buyers, with many not ready for apartment living. Townhouses are hard to find, so many downsizers are looking to build dual occupancies instead – sometimes in joint venture deals with friends.

The Over 60s Home Bonus Scheme provides downsizers with a market advantage due to a substantial discount on stamp duty. On a $660,000 purchase, just $20 is payable. We are finding that many people are still unaware of this opportunity but once informed they feel incentivised to sell.

Apartment oversupply

Canberra’s apartment oversupply continues, comprising 51.2% of all homes for sale, according to CoreLogic^^. However, property values and rental yields are holding up well.

The median apartment price has risen 4.4% in calendar year 2016 and rental yields are among the highest in the country at 5.1%*.

The rental market is being supported by extra demand from ‘Mr Fluffy’ sellers as well as usual strong demand from young workers, students at two universities and public service contractors who do not want to settle in Canberra permanently.

* Hedonic Home Value Index, CoreLogic, published November 1, 2016

^ Labour Force Australia, August 2016, Australian Bureau of Statistics, published September 15, 2016

# Property Research Report for ACT, Domain, 12 months to June 2016

** Houses to be demolished by district and year, Asbestos Response Taskforce, published July 29, 2016

^^ Units are increasingly making up a higher proportion of overall stock available for sale, largely driven by the nation’s two largest capital cities, CoreLogic, published August 2, 2016

## CoreLogic; 12 months to June 30, 2016; suburbs with a minimum of 40 sales in the year