Rental yield, housing supply among keys to Canberra property market
Improving rental yields, a market widely tipped to be near its trough, and limited housing supply are factors that may lure property investors back to Canberra.
Big things come in small packages, which for a capital city like Canberra - population 472,000 – is a fair assessment of what the Australian Capital Territory (ACT) property market currently offers the discerning investor.
What it lacks in boots on the ground, it more than makes up for in the above average salaries of its residents, with around a quarter to a third employed in the three tiers of government public service.
“The ACT has long been the quiet achiever in relation to investor returns – as a small segment of the overall stock in Australia it can be overlooked but the returns speak for themselves,” Maria Edwards chief executive officer (CEO) Real Estate Institute ACT told Australian Property Investor Magazine (API).
“Investors selling off to cash in on considerable capital gains accrued over the past few years, while perhaps also offsetting personal debt in a high and unpredictable interest rate environment, is expected to result in a tightening of supply in coming months that will present opportunity for new investors to enter the market at a time when dwelling prices have mainly stabilised,” Ms Edwards said.
Long term future growth looks promising too, following the ACT Government’s recent release of population projections that forecast the city will grow to 784,000 people by 2060, where the median age will be 37, up from 35 in 2021.
The inner north Molonglo Valley and Belconnen are identified as expecting the fastest growth in this period boosted by overseas and interstate migration, according to the projections.
National capital’s stability is a drawcard
Boris Teodorowych, Principal, Boris Property, described the Canberra market as a safe and reliable one.
A specialist in Canberra’s luxury apartment market, Mr Teodorowych points to the stability of the city’s workforce as a key factor for market certainty.
“Forty-three percent of people here are employed by the public service, which translates to Canberra having the highest per capita income.
“People are paid well here because of the public service, which drives up incomes in the private sector too,” Mr Teodorowych said.
Core Logic’s Home Value Index (April 3) revealed the median value for all dwellings in Canberra has remained high at $828,175 while the median value for houses is $944,809, and units had a median value of $595,998.
Luxury units appeal high-earning Canberrans
Mr Teodorowych describes the unit market as upbeat but suggests investors need to be wary of regulations such as strata levies.
“While there is a proliferation of apartments in Canberra, investors still need to be discerning and wary of things like strata levies which are quite high. You have to be careful not to be overpaying.
“Rents are strong in the luxury end of the market.
“Water view apartments in Kingston, on the Kingston Foreshore, are within walking distance of Lake Burley Griffin, a lively café culture and close to the ACT’s big attractions.
“Being in a strong location makes investment virtually risk free in terms of attracting tenants, with other such locations being Barton, in the city, and Griffith, in the inner south and close to the defence headquarters in Campbell or Kingston.
“There’s safety in buying slightly older, established apartments because you know what you’re getting.”
Lucy Crouch, New Client Consultant for MARQ Property, said buying off-the-plan apartments was widespread in Canberra, and tended to be dominated by out-of-state owners.
“Everywhere you look there’ll be a new development popping up.
“If you wanted to buy off-the-plan there’s always an opportunity, wherever you wanted; north, south, inner north, in the city - there’s lots of new apartment complexes.
“There’s always a demand for apartment living in Canberra too.
“It’s convenient living, there’s always good prices for investors and obviously the rent return works out to be pretty good for what you’re buying.
“Off-the-plan, they’re two or three years down the track so they’ll obviously have the equity at that point as well,” Ms Crouch said.
Canberra rental yields rising
Canberra’s median rent of $674 is still high despite a small decline of 1 per cent in March.
Gross yields are up 0.37 per cent from 12 months ago (3.82 per cent) and stand at 4.19 per cent. The rate is comparable Brisbane (4.34 per cent), Adelaide (4.09 per cent), Perth (4.85 per cent), Hobart (4.39 per cent), behind Darwin’s gross yield of 6.39 per cent, but comfortably exceeding Melbourne (3.4 per cent) and Sydney (3.22 per cent).
Vacancy rates have also improved from 0.7 per cent 12 months ago, to 2 per cent today.
“Yes, rents are high, cost of living is high, like everywhere, but compared to Sydney, where you can get a one-bedroom apartment for $750,000 and the rental return is just $550; in Canberra, you can get a one-bedroom apartment for $500,000 with the same rent return.
“The return on capital investment is better in Canberra,” Mr Teodorowych said.
“There is also not a lot of land available to meet demand, which pushes up prices.
“Hawker is a great, older suburb with gated communities and luxury dwellings.
“Queanbeyan is big for investors right now too as it’s a little more affordable, though it’s actually in New South Wales it’s still only half an hour to the city.”
Dwindling ACT dwelling values not the whole story
Canberra’s dwelling values did decline 8.1 per cent in the 12 months to March 2023, according to CoreLogic, compared to national property prices in Adelaide (up 3 per cent), Perth (up 1.9 per cent), Darwin (up 1.6 per cent), and Hobart, Sydney, Melbourne, Brisbane which have declined over the past year by 12.9 per cent, 12.1 per cent, 9 per cent and 8.6 per cent, respectively.
“At the moment it’s an unusual market.
“It’s something we haven’t seen in a while, which I think has a lot to do with interest rates and general inflation, and there’s fewer international students coming to Canberra.
“We’ve hardly seen any postgraduates coming into the city and it’s definitely impacted the market.”
New investor loan commitments for housing in the ACT have also declined.
“We are now seeing the combination of interest rates rises, cost of living pressures and increasing regulation impacting investor confidence in Canberra,” Ms Edwards said.
The total number of investor loans for housing in the ACT (excluding refinancing) were 291 (Feb 2023).
Comparatively, the highest reporting period in the past 12-months for new investor loans was 533 (March 2022), a seasonally adjusted fall of 36.9 per cent. Other states to have falls were Northern Territory (27.8 per cent), NSW (6.9 per cent), and Queensland (4.9 per cent). The value of new investor loans rose in South Australia (7.9 per cent), Western Australia (3.4 per cent) and Tasmania (17.2 per cent).
“Canberra is currently experiencing a minor hangover from a sustained period of high rents/low supply, which is creating a reputation for the city as unaffordable for lower paid workers and migrants who may be reconsidering relocating to the ACT.
“Investors need to be aware of the rental regulations in relation to minimum standards for properties that have been recently introduced requiring all properties except those with a valid exemption to ensure they have minimum R2.0 ceiling insulation.”
To the positive, Mr Teodorowych says high income, negative gearing investors can find a particular “horsepower” to investing in Canberra.
“It’s crown lease land and you can claim stamp duties back, and strata levies can be tax deductible.
“In the luxury apartment sector, it’s not rocket science; high value property in a blue-chip location means you can’t go wrong,” Mr Teodorowych said.