City property values in Australia decreased gradually during 2014, latest index shows
Residential property values in Australian capital cities increased by 0.9% in December to take the annual increase to 7.9%, the latest index data shows.
Values rose in all cities except for Darwin where they fell by 0.6% and Canberra where they were also down by 0.6% while values were unchanged in Sydney, according to the CoreLogic RP Data Home Value Index.
Over the final quarter of 2014, capital city home values increased by 1.6% with Perth, Sydney and Brisbane recording the greatest quarterly gains at 2.8%, 2.3% and 1.8% respectively, while values fell in Darwin by 1.7% and in Canberra by 3.4%.
However, despite the positive result across most cities, the annual rate of capital gain across Australia’s capital city housing market has continued to slow. The capital gain on houses compared to units was higher, with house values gaining 8.4% over the calendar year compared with a 5.1% increase in unit values.
According to RP Data senior research analyst Cameron Kusher, detached housing remains in high demand despite the higher price point. ‘Based on the median price across the combined capital cities, houses are attracting a $100,000 premium over apartments,’ he said.
He also pointed out that the slowing annual growth rate is further evidence that the housing market is losing some steam with combined capital city home values increasing by 9.8% over the 2013 calendar year compared to a more moderate 7.9% increase in 2014.
Based on the December results, the annual rate of capital growth has continued its moderation which has been ongoing since April 2014. After the annual rate of combined capital city home value growth peaked at 11.5% over the 12 months to April 2014, the rate has now slowed to 7.9% in December 2014 which means that combined capital city home values have increased at their slowest annual pace since October 2013.
At an individual capital city level, the annual rate of home value growth is now lower than its recent peak. Kusher said this would tend to suggest that peak value growth has now passed. ‘We would anticipate that the rate of growth will continue to slow through 2015 despite the low interest rate environment,’ he explained.
Although home value growth has been recorded at 7.9% throughout the 2014 calendar year, the rate of growth has varied between a fall of 0.6% in Canberra to an increase of 12.4% in Sydney. While Canberra was the only city to record an annual fall in home values, Melbourne was the only city other than Sydney to have recorded annual value growth of more than 5% at 7.6%.
Looking at the different segments of the market based on dwelling values, the broad middle 50% of capital city suburbs have recorded the greatest value rise over the past year. The most affordable 25% of capital city suburbs have recorded a gain of 7.7% compared to 8.5% across the middle 50% of suburbs and 7.8% across the most expensive 25%.
The index report also shows that while dwelling values are generally still rising, rental growth is sitting at its lowest annual rate in more than a decade, with combined capital city rents increasing by just 1.8% over the past 12 months. House rents have increased by 1.7% over the past year compared with a 2.4% rise for units.
With value growth outpacing rental growth, yields continue to shift lower. Indeed 12 months ago gross rental yields across the combined capitals were recorded at 3.9% for houses and 4.6% for units. As at December 2014, gross rental yields were recorded at 3.7% for houses and 4.5% for units.
CoreLogic RP Data expects dwelling values will continue to appreciate in 2015, at least across the combined capital cities. However, the rate of capital gain is likely to continue to slow over the coming months.
‘Affordability hurdles in Sydney, and to a lesser extent in Melbourne, are making it increasingly difficult for some buyers to enter the market. Additionally, low rental yields and the likelihood of tougher lending criteria to investment buyers will likely dampen the very active investor segment of the market which may in turn reduce housing demand in 2015,’ Kusher pointed out.
‘Furthermore, with so much investment activity increasing the stock of rental housing as well as the surge in dwelling approvals, we would expect that rental growth will remain sluggish across the capital cities. As a result we anticipate a further compression of gross rental yields in 2015,’ he added.