Australian Property Market 2016 Mid-Year Forecast: Canberra

State of the Canberran property market

Canberra's property market managed to rack up modest gains during the July quarter. While experts are forecasting a strong showing over the near to medium term, they remain wary about the apartment oversupply situation.
Key points
  • Underlying oversupply still exists in the Canberra apartment market
  • Canberra has the highest incomes of the capital cities and such has the capacity to push prices higher
  • Property prices are rising modestly but steadily
Positives
  • Earnings from international student enrolment soared
  • No imminent signs of renewed phase of deeper federal cost-cutting
  • Vacancy rates have dropped from their recent peaks
  • The rate of fall in rents is slowing
  • Solid population growth and land release to stimulate the market
Negatives
  • Susceptible to China’s economic performance
  • Potential cost cutting by the Federal government
  • Oversupply in units remains a worry
Forecasts
  • Median house price to rise by a total of 7% over the next three years, a drop of 1% in real terms.
  • Median unit price to  remain flat, or a drop of 8% in real terms over the same period
Key infrastructures to watch
  •     $700 million Capital Metro light rail project
  •     $288 million Majura Parkway upgrade
  •     $800 million Manuka Oval redevelopment
  •     $600 million research and business precinct between ANU and the city
  •     $200 million National Agricultural and Environmental Sciences precinct at the ANU and CSIRO
Sources: BIS Shrapnel, Deloitte Access Economics, CoreLogic RP Data, Domain

What's in store for investors in Canberra?

Just like Hobart, Canberra’s property market is enjoying a revival with the recent data from both CoreLogic RP Data and Domain showing solid gains for the market. Domain showed the median house price in Canberra surging to a record $654,306, over the June quarter after a 3.1% rise in price. This is the strongest growth of all the capital cities according to Andrew Wilson, chief economist with Domain.
“Canberra was the top market performer this (June) quarter, surpassing the rest of the nation’s capitals with strong growth in house prices. As market conditions continue to strengthen, it’s likely that Canberra prices will remain on the risk”  Andrew Wilson, Domain
In contrast, Canberra unit prices fell 1.6% to $399,505, losing 4.4% over the past year. “Canberra unit prices are now at their lowest since December 2009 as high levels of apartment construction push supply ahead of demand,” says Wilson. As is true across Australia as a whole, the combination of low-interest rates and the low Australian dollar has fuelled the property market and the international student market.

Rental market

Unlike many capital cities who are suffering from falling rents, Canberra median rents continue to rise, hitting $400 per week for units and $475 for houses according to Domain. Despite the increase in vacancy rates to 2% for units and 1%for houses, thanks to the new rentals in the market, there are no indication that rents are about to fall. “Canberra vacancy rates remain tight, suggesting rents could continue to rise in the near future,” says Wilson. However, while house vacancy rates remain low, the new crop of apartments in the city is set to saturate the market and lift vacancies when they come online.

Demand and supply

Angie Zigomanis, senior analyst with BIS Shrapnel estimates that there is an underlying oversupply in the Canberra market, although reported vacancy rate figures have recently been below the balanced rate of 3%. “The impact of cuts to Federal Government departments appears to be dissipating,” says Zigomanis. He points out that the number of people leaving the capital is now turning, and there is likely to be a balance or potentially higher net inflow in 2016/17. “Moreover, net overseas migration inflows have increased since bottoming in 2013/14, largely due to the recovery in overseas student growth that has coincided with the lower Australian dollar,” said Zigomanis. “Canberra also has the highest incomes of all the other capital cities and affordability is not as strained as in the other cities.

Forecast

While there’s good news in the population growth front, the bad news is that there’s still a significant pipeline of apartment construction to come through, and this will continue to have a dampening effect on the market according to Zigomanis. As such, over the three years to June 2019, Canberra’s median house price is forecast to rise by a total 6%, reflecting a decline  2% in real terms. However, the unit sector, where an oversupply is concentrated, Zigomanis is predicting a 4% decline over the same period or an equivalent of 12% decline in real terms.

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