Buyers guide 2017: Where are the Best Places to Invest in Australia

Whether you’re an established developer with years of experience under your belt or a first time purchaser looking to thrust your foot over the property market threshold, the old adage that location is everything rings true when it comes to finding the best place to invest in Australia. Now with 2016 behind us, there’s no better time to look back on property trends to try a forecast the year ahead.

After 3 years of the exponential growth of property values throughout most major cities, 2016 was tipped to be the year the market withdrew in terms of sales and prices, however hindsight is a wonderful thing and it’s obvious this just didn’t eventuate. New data has revealed double-digit growth for many suburbs across the country in the last 12 months leading up to 2017, with the majority of these areas located within Victoria1. But where is the ideal city to invest in Australia, what are the vacancy rates, and which macro and local factors should I keep my eye on when it comes to purchasing property for return?

The Top 10 Performing National Suburbs

Based on growth rates alone, the best performing suburbs2 from the 31st October 2015 to the 31st October 2016 are as follows:

Rank
Suburb
State
Median Price
Annual Growth
1PlumptonVIC$446,00040%
2VoyagerNSW$1,015,00033%
3Wonga ParkVIC$1,138,00032%
4WindsorVIC$1,139,00031%
5ResearchVIC$990,00029%
6WoodbridgeWA$645,00028%
7Tennyson PointNSW$2,600,00027%
8AbbotsfordVIC$1,097,00026%
9TennysonSA$1,152,50025%
10BoyaWA$627,50025%

All information sourced by CoreLogic RP Data

Victoria has performed strongest in 2015-16 with 5 suburbs recognised as growth areas. New South Wales and Western Australia then have 2 each, while South Australia and Queensland only feature 1 suburb in the Australian top 10. Looking at the graph you’ll note that the growth of homes/apartments throughout the country isn’t just relegated to one price bracket, and the geography of the suburbs is just as diverse as the property values3.

Macro And Local Factors Affecting Property Prices

Of course if you’re a grizzled property investor you know that it’s also important to look beyond the figures and deduce which variables within the local market are simply soft spikes or more substantial growth factors. A new development in the area for example will attribute to an increase in available stock offerings, however that progression within the market is more than likely not being experienced by owners of older homes. Key indicators that are seen as being more significant contributors towards current/future growth and that will help you find the best place to invest in Australia in 2017 could include looking for suburbs that tick the following boxes:

  • Access to large retail stores, cafes, entertainment and other amenities
  • Gentrification of houses, apartments, units etc.
  • Solid local opportunities for work or seamless access to employment hubs
  • Reliable public transport plus a diverse range of transportation options
  • Strong population growth as earmarked by local councils and any subsequent housing developments

Other market factors that may influence the increase of housing prices and/or property turnover include:

  • Falling vacancy rates of rental properties indicating an increase in tenant demand
  • Rising auction clearance rates
  • Limited supply of future housing prospects in the local area
  • Vendors becoming more realistic and days on market being gradually reduced

Vacancy Rates And Why They’re Important For Investors

In addition to simply ascertaining data on the best places to invest in Australia based on house and apartment prices, it’s also essential to consider vacancy rates and why they’re important. Usually when vacancies hover at 1% or 2% in major cities, it is landlords setting the terms. This is because they hold the balance of power due to limited availability and are able to increase rents or be fussier with applications. However when vacancies rise above 3% there’s consequently more choice, meaning the power to negotiate shifts to tenants4.

By looking back to October 2016, we can see the national vacancy rate falling to 2.3% from 2.4% in September 2016. For more detailed information regarding vacancy rates in each of the capital cities please the below graph5.

City
October 2016 Vacancies
Vacancy Rate
Adelaide33262.0%
Perth102924.9%
Melbourne96281.9%
Brisbane101573.0%
Canberra5621.0%
Sydney105041.7%
Darwin9333.2%
Hobart743682.3%

October 2016 vacancy rates as released by SQM Research

Perth, Brisbane and Darwin are all experiencing vacancy rates higher than the national average due to a surge in the supply of new apartments plus dwindling populations both in the inner suburbs and outskirts. New developments throughout Sydney and Melbourne scheduled for this year may also see rental vacancy rates drop in those cities, although at present there is not a lot of give between rental asking prices and available tenants
.

Choosing A Capital City With A Viable Population Growth Rate

Population growth is another important facet to consider when scouring the internet or local papers for the best places to invest in Australia, and if you compare the following data with the top 10 performing national suburbs from 2016, you can clearly see that Melbourne and Sydney hold the greatest potential for a return on initial outlay. But what about the population growth forecast for the rest of the year?

Population numbers for this year won’t be released till mid year, although based on the figures released in March 2016, Greater Sydney is still our largest city, with a population of 4.92 million, followed by Greater Melbourne at 4.53 million. Melbourne however recorded the greatest volume of growth at 91,600 persons, and the highest growth rate at 2.1%. Perth, which has been one of the fastest-growing capital cities since the mid-2000s, grew by 1.6 per cent in 2014-15 and now sits equal fourth with Brisbane, behind Sydney at 1.7 per cent. Of all the capitals, only Hobart (0.8 per cent), Canberra (1.4 per cent) and Darwin (1.9 per cent) grew faster in 2014-15 than in the previous year6.

This leap in the population size of Melbourne and Sydney is best attributed to relatively strong economic developments plus the submissive value of the Australian dollar7 in 2016, making Australian commercial property attractive to foreign buyers.

Our Investment Advice For 2017

Finding the best places to invest in Australia is never a straightforward task. The ideal way to go about your property hunt is to arm yourself with the right information applicable to where you’d like to purchase. Melbourne and Sydney appear to be the clear favourites, however the market may be too strong and overpaying could be an issue. Our advice is to take a closer look at Canberra and Hobart. Smaller cities where a rise in the population plus increased rate of capital gains has been reported. Both are expected to see prices jump by 3 to 4 per cent in 2017 due to strong employment opportunities and spillover from Sydney and Melbourne. Keep an eye on their performance over the next year as investors start to look more favourably at markets with a higher yield profile that are also earlier in the growth cycle8.

References:
1. John McGrath, 20th December 2016, “Top 10 Suburbs for Price Growth”, (http://www.switzer.com.au/the-experts/john-mcgrath-property-expert)
2. Sarah Millar, 17th November 2016, “Australia’s best growth suburbs of 2016”, (http://www.realestate.com.au/news/australias-best-growth-suburbs-of-2016/)
3. Aiden Devine, April 15th 2016, “Which Melbourne suburbs offer the best property price growth potential?”, (http://www.news.com.au/finance/real-estate/melbourne-vic/which-melbourne-suburbs-offer-the-best-property-price-growth-potential/news-story/bf8a833c7c3d0903255f97fb31f9865d)
4. SQM Research, 27th December 2016, “SQM Housing Market Indexes”, (http://www.sqmresearch.com.au/)
5. API Magazine, 16th November 2016, “Vacancy rates fall slightly”, (http://www.apimagazine.com.au/2016/11/vacancy-rates-fall-slightly/)
6. Australian Bureau of Statistics, 30 March 2016, “Melbourne our fastest growing capital”, (http://www.abs.gov.au/ausstats/abs@.nsf/lookup/3218.0Media%20Release12014-15)
7. Nick Kelly, 1st November 2016, “What Australia’s population growth means for property”, (http://www.nestegg.com.au/from-the-experts/expert-opinion/10427-what-australia-s-population-growth-means-for-property)
8. Su-Lin Tan, 27th December 2016, “2017 predictions on how Australian house prices will perform”,
(http://www.afr.com/real-estate/2017-predictions-on-how-australian-house-prices-will-perform-20161212-gt92xr)

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