Investing in Canberra – a capital opportunity
With the sale of City 7, another major residential development site for Canberra, and the release of the Australian Bureau of Statistics (ABS) housing finance figures for June, the answer to how much housing Canberra needs to sustain population growth and demand for investment may surprise you.
Travelling down Northbourne Avenue, you could be forgiven for thinking Canberra is preparing to welcome another 50,000 people to the city. And you would be right – 63,568 in less than 10 years – according to ACT Treasury’s predictions.
Amid the increase of new developments, oversupply is a natural discussion when growth occurs at such a rapid rate. A more valid conversation now is how we use Canberra’s historical housing data to better understand demand and the key economic drivers that are likely to affect product choice in the future.
Canberra as a residential investment opportunity is much more than a town sustained by the Federal Government. While job stability and healthy weekly incomes remain important, migration and an ageing population should be front of mind for anyone developing and purchasing property in the region.
Sue Maloney, owner of Maloney’s Property and Accommodate has a wealth of experience in the Canberra property market and shared her insights on the topic of investment.
“Canberra is a fantastic place to invest and the market is very busy for winter in Canberra. When selecting what to buy, the smart investors are those willing to invest in quality buildings in good locations. Don’t buy what you would want for yourself and assess whether you really need all the bells and whistles for the location you are buying in.”
Even as a live-in buyer, you are investing in the Canberra property market. While many turn their first piece of real estate into a future investment, according to Sue, a residential property investment should be strategic.
“We are shrewd about product choice and where we let our clients invest. We generally recommend investors stay central and don’t head too far into the suburbs – we are seeing increased demand in central locations, particularly Kingston and Braddon. As for product, a two bedroom, two bathroom is the perfect investment – all day, every day – they rent so well.”
Canberra has experienced exceptional growth in house prices over the past 12 months and offers a level of stability over the longer term that is rarely seen in other capital cities.
In the year to July 2017, Canberra outperformed Sydney for growth across all dwellings by 0.6%, increasing 12.9% over the year. Canberra’s apartment market has also maintained strength with prices increasing 10.0% over the year. Melbourne was the only capital city to surpass Canberra’s growth, with all dwellings up 15.9%.
At the height of the last Canberra upswing and subsequent boom, the capital mimicked the growth evident in Sydney over recent years. During this time, between December 2005 and March 2010, Canberra house prices increased 40.0%.
With so much construction activity in the residential property market, understanding demand starts with how many dwellings Canberra will need for live-in and first-time buyers.
Demand for new dwellings from owner-occupiers remains relatively low, as a proportion of total housing finance commitments reported by ABS. Averaging 10.0% over the past 12 months, even at such a small percentage, the number of new homes required each year in Canberra must grow significantly to meet forecast population growth.
10 years ago, the ACT Government released ACT Population Projections, which had Canberra’s population growing to 390,100 by 2019. We had surpassed that milestone by 2015 and the current population is more than 4.0% higher than it was scheduled to be at the closing out of this decade.
The percentage of housing finance commitments as a proportion of total population has been increasing consistently over the past three years, at a rate of 0.3%. In 2016, total housing finance commitments for the year made up 3.2% of Canberra’s population.
Looking towards the future, if the 10.0% owner-occupier average were applied to total housing finance commitments, as a proportion of total projected population at the current growth rate of 3.2%, Canberra developers should have delivered approximately 1,300 new dwellings in 2017, just to meet the needs of live-in buyers. If the 0.3% growth rate, which has been consistently evident over the past three years, were applied on top of this, the higher end of the forecast could be over 1400 properties.
The table below aims to demonstrate what yearly demand for live-in buyers might look like at five and 10-year intervals, based on applying current trends to projected population growth.
While the ABS reports total building approvals for the capital at 1480 new dwellings for the year so far, not all these dwellings will be delivered to the market by the close of 2017.