- 2 Nov, 2016

Property Market Update: Capital Gains Increases in Most Capital Cities

In this months property market update, CoreLogic suggests capital gains on Australian property has increased in most capital cities. Nationally, there has been a 1% rise in dwelling values. This growth is related to low-interest rates, minimal stock levels, and changes in lending criteria.

Capital Gains Growth in Australia

The annual rate of capital gain has slowed from its peak in 2015. However, it still remains strong. Based on monthly data, the median prices of homes and apartments nationwide hover between $500,000 and $600,000. In addition, over the last 12-months the capital gains for dwellings across the nation was 7.1%.

Capital Gain Houses Units Dwellings
12-months 7.3% 6.1% 7.1%
Over 5-years 6.4% 5.1% 6.3%
Over 10-years 5.6% 5.2% 5.6%

Source: CoreLogic RPData

At a capital city level, an increase in home and unit values has occurred in the majority of cities. Then again, cities that have witnessed a fall are Darwin, Perth and Brisbane. In these cities, home values dropped marginally. Hobart units also fell in price.

Capital City Home Values September 2016

All Dwellings Houses Units
City % Change Year On Year % Change Month On Month % Change Year On Year % Change Month On Month % Change Year On Year % Change Month On Month
Sydney 10.21 0.81 10.62 0.75 8.26 1.07
Melbourne 8.97 2.3 9.39 2.34 5.19 1.92
Brisbane 3.03 0.07 3.29 -0.01 0.45 0.89
Adelaide 6.50 2.11 6.45 2.29 7.10 0.05
Perth -7.04 -2.47 -7.13 -2.67 -5.87 0.38
Darwin -5.99 -2.21 -6.83 -1.04 -2.13 -7.02
Canberra 9.04 2.38 9.22 2.31 6.47 3.31
Hobart 6.47 0.14 8.84 0.29 7.63 -1.27

Source: CoreLogic RPData

Strong capital growth in Australian cities for the third quarter has raised questions. Real estate experts suggest there are a number of reasons why these high levels are continuing. For instance, the most prominent reasons being low-interest rates, reduced stock levels, and changes to lending criteria.

Low-Interest Rates

Mortgage interest rates have been cut twice during 2016. The most recent cut was in August, which is the 12th cash rate reduction since November 2011. Australian home loan holders have not enjoyed rates this low since the early 1960s.

Plus, investors are said to be coming back into the market. Data published by the Australian Bureau of Statistics (ABS) indicates investors make up 48% of new mortgage commitments. Although this figure is down on last years record of 55%, its still at relatively high levels. Also, the value of investment mortgages trended higher during September. Thus, investors are spending more to buy unique or standout property.

Low Stock Levels

Vendors currently have more leverage over buyers, with there being less property on the market. Hence, this situation tends to create a sense of urgency. Plus, vendors are also able to use this to their advantage when it comes time to negotiate.

Nationally, stock levels are about 2% lower than this time last year. Nonetheless, with Spring here, more property is coming on to the market. Presently, though, auction volumes are 16% lower. Despite this, Sydney and Melbournes auction clearance rates have been relatively high at 70 to 80%.

Changes to Lending Criteria

Policymakers and regulators are watching the property market carefully. The Reserve Bank of Australia (RBA) is not as relaxed as it was previously about the housing market. An increase in real estate market growth and activity could mean that the RBA will not lower rates any further. Nevertheless, economists suggest that there are many obstacles for capital gains to overcome, which will limit growth. Therefore, is unlikely that lowering interest further will rekindle massive capital gain growth.

Furthermore, changes to foreign investment have also slowed the market. Chinese investors are now restricted financially, and this has seen less foreign interest in buying property.

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