Brisbane, Perth, Sydney poised to lead price growth

By Bob Wilson, 19th July 2011

Brisbane, Sydney and Perth residential markets are poised for the strongest price growth over the next three years, according to forecaster BIS Shrapnel.

A new study by BIS Shrapnel predicts "moderate" price increases averaging 5-6% in the three years to June 2014. Supply constraints are the main reason for the predictions, with all three markets currently building new dwellings at a rate well below the underlying demand.

Angie Zigomanis, BIS Shrapnel senior manager and author of the study Residential Property Prospects 2011-2014, says price growth has also been relatively weak in all three markets in recent years, causing affordability to improve.

Zigomanis says improving economic conditions and income growth in Western Australia and Queensland (and to a lesser extent in NSW) should underpin moderate price rises.

The Brisbane market, which has arguably been the weakest of all state capitals, reported a median house price of $440,000 in June 2011, a 4% decline on the previous year. BIS Shrapnel blames this on the weakening state economy due to the completion of a number of big non-residential and engineering projects, as well as the impact of floods in January.

Nevertheless BIS Shrapnel predicts a mild improvement in 2011-12 house prices, with a price pick-up in 2012-13 as economic conditions in Queensland gain traction. Zigomanis says a total price increase of 15% (an average of 4.7% per year) is forecast for Brisbane.

Rising investment in the WA resources sector has already seen accelerating economic growth and is expected to arrest the declining house price trend in Perth. Zigomanis says investment in the resource sector will result in stronger population growth due to increased overseas and interstate migration.

"With the market estimated to currently only be in slight deficiency, conditions will tighten considerably, setting the scene for an upturn in house price over the next couple of years," he says.

BIS Shrapnel expects this to translate into a 19% increase in Perth house prices (just under 6% per year).

A similar price increase is expected for Sydney (18% or 5.7% per year), but the latter showed only a 1% increase in median price in 2010-11, so there is room for improvement.

Zigomanis says the record low dwelling starts in NSW have begun to recover, but the low starting point means it remains below the level required by forecast population growth (hence ongoing low vacancy rates and solid rental growth).

BIS Shrapnel expects residential property fundamentals to improve generally as resources investment flows through to the rest of the economy."Strengthening employment growth - the unemployment rate is forecast to fall below 4% in 2013 - will also see net overseas migration inflows turn around and the underlying demand for new dwellings will begin to rise," he says.

ENDS

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