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Sydney returns to form as strongest capital property market

Sydney returns to form as strongest capital property market

Property values in Sydney, Melbourne, Hobart and Adelaide once again show solid growth for the month and quarter while Perth and Darwin continue their downward spirals.

Sydney's annual house price percentage growth has returned to double digits as the city firmly regains the title from Melbourne as Australia's strongest-performing capital property market in 2016.

According to CoreLogic’s July Home Value Index, Sydney dwelling prices went up 10.3% over the seven months to 31 July, more than three percentage points ahead of the Victorian capital. This was fuelled by strong quarterly growth of more than 6% for house prices and 3% for apartments.

Across the combined capitals, dwelling values rose by 0.8% last month taking them to a 6.3% high for the year so far. Hobart joined Sydney and Melbourne as the only other capital to record growth above the aggregate, with dwelling values there up almost 10% over the calendar year so far. 

This is, however, the lowest rate of annual growth since September 2013 - significantly lower than last year when dwelling values were rising at nearly double the pace.

CoreLogic's report comes as the RBA announced it was cutting the cash rate to a new all-time low of 1.5%

Two-speed capital market 

Adelaide joined Sydney, Melbourne and Hobart to record monthly, quarterly and year-to-date dwelling price growth. And while Brisbane and Canberra saw falls in July, both capitals are up over 2016 and over the 12 months to July. 

It's a very different story, however, for the struggling property markets of Perth and Darwin. Dwelling values in the WA capital have declined 4.3% over the three months to July and are down 5.6% compared to the same time last year. Median house prices in Brisbane are now almost level with Perth's according to CoreLogic figures.

Similarly, Darwin property values continue to free-fall, down 7% over the quarter and 7.6% year-on-year.

The Sydney challenge

Despite its strong performance in 2016 so far, Hobart remains the most affordable capital city for real estate with a median property price of $327,800 - around $90,000 less than the next most affordable capital, Adelaide. Hobart is also equalling Brisbane for the highest gross unit rental yield of the capitals at 5.3%, and is second only to Darwin for gross house yield.

At the other end, Sydney's median property price of $775,000 is more than twice that of Hobart's as the city becomes increasingly challenging for first home buyers to enter. CoreLogic’s head of research, Tim Lawless, pointed out that while Sydney dwelling values have gone up by more than 12% per annum since June 2012, household incomes have only grown by around 4.5% p.a. over the same period.

“The erosion in housing affordability is likely to be one factor working to slow housing demand across price sensitive market segments,” he said. 

Lawless also pointed to the latest ABS housing finance data showing that first-time home buyers in NSW represent barely 10% of all new owner occupiers – a record low. 

Sydney's price growth comes as rental conditions in the capital remain "soft", according to Lawless. Sydney and Melbourne recorded the lowest rental yields of all capitals for the three months to July, with gross house yields in both cities below 3%. 

“If the pace of capital gains continues to trend lower, low rental yields are likely to lead to financial challenges. Not to mention, a potential increase in rental supply resulting in higher vacancy rates,” said Lawless.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance. The commentary provided from external companies that are not a member of the Commonwealth Bank of Australia Group of Companies (the CBA Group) does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. The CBA Group does not accept any liability for losses or damage arising from any reliance on external companies and their products, services and material.