Welcome to the latest edition of Property Edge, your definitive source for insights into Australia’s dynamic real estate landscape. As we navigate through another vibrant quarter, we bring you a selection of curated articles that shine a spotlight on the current trends and opportunities within the property market. Whether you’re an investor, homebuyer, or industry enthusiast, our newsletter is crafted to inform and inspire your property journey. Dive in as we explore the value stretching beyond the city limits and the promising horizons that regional Australia offers.

How far Australian house prices have soared above fair value

A new assessment indicates that house prices in Australian capitals are substantially above their “fair value,” with some cities showing a discrepancy of about a third. Despite this, experts predict stable prices due to the forecasted rate cuts, continuous immigration, and low unemployment rates, thus suggesting that a sharp price correction is unlikely.

According to AMP’s Chief Economist Shane Oliver’s analysis of REIA data, houses across Australia are overvalued by 29 percent. This overvaluation reaches up to 33 percent in Sydney, Brisbane, and Canberra, with Sydney houses needing to drop by about 458,000 to reach fair value based on current median prices.

Historical data since December 1983 show that while the national median house price was then 69,569 with an average rent of $110 per week, it now stands at 1,091,938 with a weekly rent of 574. This indicates that the annual rents amount to just 2.7 percent of a home’s value today, as opposed to the 8 percent seen back in 1983.

Oliver compares this to the price-earnings ratio for shares, using rent as a proxy for earnings in property markets. Despite the overstretched valuations, Oliver mentions that it’s improbable for property prices to drop sharply unless there’s a severe recession or drastic cut in immigration levels, both of which are not anticipated in the near future.

Further rate hikes, slower rate cuts, or an increase in unemployment could correct house prices to fair value, but these scenarios seem unlikely shortly. Oliver hints at a “miracle” scenario where the government’s ambition to build 1.2 million new homes within five years could lead to a balanced market.

Experts, like Westpac’s Matthew Hassan, suggest taking unit prices into account alongside house prices when assessing overvaluation. Units have not seen as significant price growth as houses and thus may not be as overvalued. Gareth Aird from Commonwealth Bank prefers the term “expensive” rather than “overvalued,” highlighting that investors often consider rental yields in addition to potential capital gains.

Oliver recalls persistent predictions of an Australian property market bubble bursting since the early 2000s, which have yet to materialise due to factors like interest rate cuts and strong immigration.

The broader consensus is that the current property prices are upheld by a complex interplay of economic factors, with building more homes being the essential response to the housing affordability crisis. This would entail denser urbanisation and long-term planning to expand housing supply.

Turning then to a more focused approach – where should investors be searching?

Investor hot spot: Aussie suburbs headed for boom town in 2024

As 2024 unfolds, investors are eyeing potential hot spots for property growth across Australia. From newly emerging postcodes to dynamic regional scenes, the past year’s capital growth indicates a potential boom in several areas, urging investors to act swiftly.

Doing a quick fly-around, investors could consider suburbs like Sylvania Waters and Lilyfield in Sydney, which have seen significant price jumps of 27.1% and 51.2% respectively.

In Melbourne, Maribyrnong and Kew East stand out, with the former experiencing a 10.3% increase and apartments in the latter up by 16.8%. Queensland’s Ipswich, with suburbs like Chuwar and Raceview, showcases substantial growth, marking a 42.6% and 44% increase respectively.

Canberra’s Crace and Coombs are on the rise, alongside Adelaide’s Woodside and Findon, with prices up by 43.7% and 40.4%.

Perth’s Alfred Cove and Bibra Lake are gaining traction, and in Darwin, Humpty Doo and Larrakeyah present promising opportunities, with increases of 17% and 21%.

Hobart’s regional appeal isn’t waning, with Rokeby and Kingston continuing their steady climb. And as for regional Australia, areas within a few hours’ drive from capital cities, like Coonamble in NSW and Port Pirie South in SA, are witnessing notable growth.

Alternatively, why not consider obtaining more bang for your buck by going regional?

Stretching Your Dollar: The Value of a Capital City Budget in Regional Australia

Homebuyers eyeing capital city properties may find better value in regional Australia, where the average property costs nearly 200k less. With property prices at an all-time high across both urban and regional settings, the disparity in pricing means that for the price of an common city home, buyers can often secure larger regional homes, sometimes with special features like water access or distinctive architecture.

PropTrack Senior Economist Angus Moore notes the pandemic-induced shift towards space and affordability continues to draw buyers to larger regional homes. This trend is particularly attractive for those working from home, as extra rooms become invaluable.

Here’s what the typical capital city property budget can net buyers in various regional markets:

New South Wales: With Sydney’s median house value at 1,340,000, similar pricing can be found in coastal towns like Crescent Head or Jamberoo. For example, a centrally located two-bedroom cottage in Jamberoo is available, as is a five-bedroom Southern Highlands residence on a half-acre plot.

Victoria: Melbourne’s median house price of 909k allows for options like a beach house in Inverloch or a unique property in Daylesford with multiple dwellings.

Queensland: Brisbane’s median house price of 892k compares to two-bedroom apartments with ocean views in Surfers Paradise or sprawling riverfront properties in Maryborough West.

Tasmania: Hobart’s median house price of 706k buys homes in Penguin or a historic property in East Devonport, significantly offering more space or distinctive living experiences.

Western Australia: In Perth, with a median house price of 698k buyers can explore large properties in regional areas like Gledhow, which offers a large house amidst a rich garden for less.

South Australia: Adelaide’s median house price of 760k opens up opportunities like a spacious home in Murray Bridge or a significant rural property in Eyre Peninsula.

Northern Territory: Darwin’s median house price of 551k could secure larger regional properties, like a six-hectare property outside Katherine or a unique home in Alice Springs.

Buyers with a budget based on capital city medians are finding impressive value in regional properties, often with added lifestyle benefits such as extra space, natural surroundings, or unique home features. These differences underscore the significant purchasing power shift from capital cities to regional areas, as buyers seek more for their money outside urban centres.

Meanwhile another changing market dynamic may bring more opportunities as global economic factors change Chinese interest in the Australian property market.

Chinese Investors Sell Off Australian Properties Amid Financial Strains

A growing number of Chinese property owners are selling their Australian real estate investments, often at below-market rates. Faced with high interest rates and China’s economic downturn, the trend is a reversal from the previous decades when Chinese buyers were heavily investing in Australian cities like Sydney, Melbourne, and Brisbane.

Juwai IQI, China’s largest property portal, reports a doubling of overseas property sales by Chinese nationals in the past year. The shift is linked to the difficulties in affording mortgage repayments and China’s stringent capital controls, which prevent money from being moved abroad to cover these costs.

The pandemic accelerated the selling trend as property owners realised the increasing costs of keeping Australian properties exceeded their financial capabilities. For example, a Beijing businessman recently had to sell his North Bondi apartment at a significant loss after failing to meet mortgage repayments.

Foreign Investment Review Board data also reflects a slowdown in residential property purchase applications by non-residents, partly due to foreign buyer surcharges. Moreover, China’s capital outflow restrictions complicate the exchange of large amounts of foreign currency, leading to pressured sales.

The one exception is Chinese interest in owner-occupied properties, particularly larger homes in Australia, which still remains strong.

On the whole, despite China setting a modest GDP growth target for 2024, its ongoing property crisis continues to impact consumer and business spending, with ripple effects on the global property market.

This exit of Chinese investment from the Australian property market is not just limited to residential sales; commercial properties are also being affected. For instance, housing giant Country Garden is finalizing its withdrawal from the Australian market with the recent sale of its last estate, Wilton Greens

Thank you for joining us on this edition of Property Edge. We hope the insights and stories shared have enriched your understanding of the ever-evolving property tapestry of Australia. As the lines between urban charm and regional allure continue to blur, the opportunities in our vast landscape are as diverse as they are promising. Until our next dispatch, keep an eye on the market’s pulse and remember that the edge in property knowledge you’re seeking is just a page-turn away. Stay informed, stay inspired, and above all, stay invested in the places that make a house a home.

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