After 2019, dubbed as the “year of two halves” due to significantly opposing market movements, how will the capital city markets of Australia fare in the start of this new decade?
In the past months, the Darwin property market stood as the poorest performer of all capital cities, down by about 10 per cent over the year, according to CoreLogic Australia’s head of Australian research Eliza Owen.
Still, a lot of young professionals want to start their career in the Northern Territory capital, taking advantage of the dwelling values as low as $380,000.
Nevertheless, Ms Owen reminded investors to practice caution when investing in the Darwin market as its fundamentals are not as strong as they should be.
“The rental yields are fairly strong just because the values are low. We expect values to continue to fall, perhaps at a slower pace because we’ll get that easing in the cash rate,” she highlighted.
“At the end of the day, it comes down to population growth and employment opportunities, and we’re not seeing too much to encourage that over 2020.”
Areas near the waterfront or the city center may have potential for decent rental return only because “the workforce tends to be a bit more transient, so there's more demand for rentals in the city.”
Traditionally an owner-occupier market, with more demand for houses than units, Adelaide remained mainly flat in terms of capital growth for most of 2019.
Moving forward, Ms Owen believes that the South Australian capital could benefit from higher levels of growth, primarily because of the affordability of its housing stock, which investors rarely experience in bigger capital cities like Sydney and Melbourne.
Moreover, aspiring home owners are attracted by the family-friendly appeal of the capital city.
“I can see why a lot of people want to live here. It’s very leafy, very green. Lots of different pockets of property. Just a great place to live. There’s so much economic development and growth going on there and it’s very drivable as well,” Ms Owen said.
“It’s got that appeal of just not being as hustle and bustle like Sydney and Melbourne.”
While Sydney and Melbourne were experiencing declines, Hobart saw a massive upswing and a generally good run in 2019.
However, Ms Owen reminded investors that this does not necessarily signal a good 2020 for the Tasmanian capital.
“That massive Hobart upswing came off the back of a long period of stagnation. It came from a place where it had a lot of room to grow, and that growth is realised,” she said.
Still, there could be better opportunities in Hobart than other capital cities due to high demand for housing and the expected decline in cash rate.
“What we would have expected under everything else being equal is that Hobart might follow the Sydney and Melbourne cycle into its downswing, but because we are expecting a cash rate cut in 2020, we think that might help support further demand,” according to Ms Owen.
“Hobart might avoid a downswing altogether. Sure, we have seen growth rates soften, but there might be another surge in demand off the back of a cash rate reduction.”
In contrast with other smaller capital cities, Canberra emerged as one of the top-performing capital city markets in 2019.
Over the past year, the ACT market saw growth of about 3 per cent, essentially following the Sydney/Melbourne market cycle trend.
However, its unit market did not do as well because of high levels of supply as well as the nature of the supply, which was described as “more investor-grade stock” and, therefore, not as desirable for renters.
“The unit market has not been looking so good, but we have seen a bit of a pickup in recent months and we expect that it could be one of those less expensive markets to benefit from higher growth levels in 2020,” she said.
While investors are advised to be more careful when dealing with the unit market, both houses and apartments could be good investments in Canberra – depending on the investor’s strategy – primarily due to affordable price points, with houses costing only about $690,000.