Australia’s capital cities have posted mixed results for property prices over the 2016-17 financial year, with the latest CoreLogic figures pointing to weakness in the June quarter that helped slow down the year overall.
Melbourne was the best-performing capital over the 12 months to 30 June, where dwelling prices rose 13.7%. But where house prices went up 15% in that time, Melbourne apartment prices saw value growth of just 1.5%.
Sydney by contrast posted healthy financial year growth for both its house and apartment markets, up 13% and 8.6% respectively.
CommBank Senior Economist, Michael Workman, noted that “Brisbane and Melbourne have a significantly larger lift in the existing stock of apartments located around their CBDs compared to Sydney”.
A weaker quarter
Relatively weak quarterly growth saw the Harbour City fall behind Melbourne overall however, with year-on-year (YoY) growth of 12.2% across all dwelling types in FY17, down from a recent annual high of 18.9% three months ago.
Nationally, the June quarter increase of just 0.8% across the combined capitals was the weakest quarterly result since December 2015, when dwelling prices went backwards. And while Canberra and Hobart property markets posted decent FY17 growth of 9.6% and 6.8% respectively, growth in Brisbane and Adelaide was barely above the country’s core inflation rate of 1.8% (as of April).
Dwelling prices fell in Perth (down 1.7%) and Darwin (down 7%) over the financial year.
According to CoreLogic head of research, Tim Lawless, “an easing trend in housing value growth has persisted through the second quarter of 2017”. Melbourne showed the best growth of 1.5% over this quarter, with Sydney and Brisbane the only other capitals to post positive growth during that time. All other capitals were flat or went backwards.
Lawless also argued the quarterly slowdown was more pronounced in Sydney, where, unlike Melbourne, weekly auction clearance rates have been regularly falling below 70%.
Slowdown good for rental yields
The moderating pace of capital gains in the cities bodes well for rental yields broadly, though they still remain low in Melbourne and Sydney.
Asking rents across the capitals rose 2% over FY17, a turnaround from the end of 2016 when rental growth was flat. The strongest capitals for growth were Canberra and Hobart, and rents also held up reasonably firmly in Adelaide according to CoreLogic figures.
Rents in the two major markets are also more than 4% higher now than 12 months ago. CoreLogic attributed the growth in rent to strong net migration into NSW and Victoria. But gross rental yields remain at record lows in Melbourne and near-record lows in Sydney, where property investors account for more than 55% of all new mortgage demand across NSW, according to the ABS.
“A further slowdown in investment activity is likely to have a more substantial impact on housing demand in Sydney relative to other markets,” Lawless predicted.
Similarly, Workman argued that “the forces constraining dwelling price growth are related to the rising cost of finance for investors and those mortgage holders with interest-only loans”.
Workman said that, overall, “the annual rate of dwelling price growth has turned”, and looking ahead he expected to see “an easing in dwelling prices over the rest of 2017”.