Australian Property News

Capital growth continues to climb in Sydney and Melbourne

Posted on Tuesday, February 01 2011 at 9:56 AM

Australian dwelling values have increased in the December quarter, rising by a seasonally adjusted 0.4 per cent.

Based on more than 357,000 sales in 2010, the RP Data-Rismark Hedonic Home Value Index reports a modest growth of 4.7 per cent growth over the 2010 calendar year across Australia's combined capital cities. Melbourne (up 8.4 per cent) and Sydney (up 6.6 per cent) were the best performers, while Perth (down 2.3 per cent) and Brisbane (down one per cent) were the worst. The most expensive capital city is still Sydney, with a median of $525,000, followed by Canberra ($510,000), Melbourne ($505,000), Darwin ($481,000), Perth ($465,000), Brisbane ($435,000), Adelaide ($387,000) and Hobart ($325,500).

Rismark's managing director Christopher Joye says the Reserve Bank of Australia's (RBA) four interest rate hikes in 2010 conspired to snuffle out capital growth during the remainder of the year.

"The capital city housing market very clearly peaked in May 2010, and remains below this point today," Joye says.

In the 'rest of state' markets, which cover 40 per cent of homes not located in the capitals, dwelling values rose by an even meeker 0.8 per cent during 2010. RP Data says this soft result reflects the weaker demand and supply fundamentals in regional areas.

RP Data's director of research Tim Lawless says interest rates will determine the housing market’s performance in 2011.

"The interest rate futures market is not pricing in a full rate hike until March 2012. While that seems optimistic, if borrowers only have to wear one rate hike between now and March 2012 Australian dwelling values have a good chance of realising higher than expected capital gains. A long-term pause in interest rates would be welcomed by all segments of the housing market. If, however, the RBA raises rates several times in 2011, we think dwelling values will struggle to obtain much forward momentum over the year," Lawless says.

However, investors are continuing to benefit from a tight rental market. Nationally, gross yields for apartments and houses are 4.7 per cent and four per cent, respectively. The most attractive apartment yields are found in Darwin (5.7 per cent), Brisbane (5.3 per cent), Canberra (5.3 per cent), and Sydney (five per cent). Joye says the flat-lining in Australian home values since early 2010 is an encouraging sign from a valuation and fundamentals perspective.

"We are seeing rapidly rising household disposable incomes combined with no house price growth over an extended period of time. If the futures market is right, it will be happy days for Australia's housing market with the prospect of reasonable capital growth."