Property buyers head bush

The RP Data-Rismark Home Value Index showed that over the year to July 2010 capital city property values increased by 9.5%. House values increased by 9.3% and unit values increased by 10.2%.

Additional data contained within the release showed that the regional market has underperformed compared with the capitals. House values within regional markets increased by just 4.3% over the year, highlighting sluggish capital growth conditions in comparison to the performance of properties in capital cities.

The major non-coastal regional areas of the country have recorded a quite varied performance however, and for the most part capital gains have remained in positive territory.

Over the past year, the growth in median prices has typically been reasonably solid but has, in most instances, been lower than the 10-year average annual growth rate. The top performer included in this analysis of non capital city and non coastal local government areas has been Greater Shepparton in Victoria, with median house prices increasing by 15.3% during the year.

Growth in median prices has generally been below 10% over the last year and a couple of regions have recorded median price falls. The largest fall of 7.3% was recorded in the North Burnett region of Queensland, while the South Burnett region also recorded a fall, with prices down by 3.1%.

Rental markets in most of these regions are not a particularly significant proportion of the market however, and in the majority of instances rental rates have increased. The two markets in which rents have eased are actually the mining areas of Kalgoorlie-Boulder (-7.2%) and Roxby Downs (-15.6%). The largest increase was recorded in Roma in south-west Queensland at 16.1%.

The median unit price performance within regional markets has been extremely varied over the last year. Median prices have increased by as much as 34.9% in Dubbo whilst they have also fallen by as much as -9.6% (Armidale Dumaresq). It should be noted that statistics for unit markets in the regional areas typically show a higher level of volatility due to the smaller amount of unit stock present outside of the major centres.

Over the past 10 years, capital growth for units in regional areas has generally been much lower than that for houses. This is also reflective of the limited supply (and subsequently demand) for units in regional markets.

Like houses, units have typically recorded solid levels of rental growth during the last year. Kalgoorlie-Boulder recorded a fall in rents for houses over the year and is the only region highlighted in which unit rents fell (-9.7%). Rental growth for units was strongest within the Armidale-Dumaresq region of New South Wales, where rents increased by 20.0% over the year.

In comparison to the coastal markets, the non-coastal regional areas of the country appear to have recorded a stronger recovery over the last year. This is due to the fact that these markets have not been as adversely affected by the poor performance of the tourism sector and the halt of sea changers that has negatively impacted on coastal regions around Australia. The economies of these non coastal regions are typically dominated by primary industries such as agriculture and resources more so than tourism.

Despite the fact that to date the recovery has been reasonably strong, the continuing strength of the Australian dollar may act as a dampener on these markets over the coming year. Many of these markets are heavily reliant on primary industries and resources, products which largely get exported, and the high Australian dollar is not helping. These economic conditions may contribute to businesses in these regions becoming less sustainable should the Australian dollar remain at such strong levels.

For the next 12 months, RP Data is anticipating fairly flat levels of capital growth across capital cities and we have similar expectations for the regional markets of Australia. The anticipation of higher interest rates will constrain demand in the housing market, despite the ongoing insufficient supply of new dwellings and improving economic conditions.

Despite the prevailing market conditions, regional markets linked to the mining and resources sector may be the big winners from the market conditions, due to strong demand for our commodities and ongoing housing supply issues in many of these regions.

Tim Lawless is the Director of Property Research at RP Data.