Depending on where you look, dark clouds appear to have gathered over Australia's property market. 

Major banks like Commonwealth Bank, NAB, ANZ and research firms like SQM have predicted a "worst-case" property price falls as high as 32%, with the two biggest property markets - Sydney and Melbourne - to be the worst-affected. 

Meanwhile there's been a drastic shift in property price expectations among buyers. 

Switzer Financial Group found that in February, 66% of Australians thought property prices would rise over the next 12 months. In May, that number fell to 10%.

But Australia doesn't have the singular property market, and is instead comprised of many different ones. 

Buyers agency Propertyology has completed a new research report ranking the eight different capital city property markets in terms of their 12-month outlook. 

Here's how each capital city ranked: 

  1. Canberra
  2. Brisbane
  3. Adelaide
  4. Hobart
  5. Perth
  6. Darwin 
  7. Melbourne 
  8. Sydney 

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Canberra ranked as the hottest capital city to buy in 

According to Propertyology's Head of Research Simon Pressley, Canberra has the best outlook of Australia’s eight capital cities over the next 12 months.

"Since early March, when this annoying germ disrupted every Australian’s life like never before, the focus within the real estate sector has largely turned towards the direct impact of COVID-19," Mr Pressley said.

"Understandably, Propertyology is regularly asked how this changes the outlook for capital city property markets.

"Canberra has shot to the top of capital city rankings. The primary reason for Canberra’s housing market elevation is an anticipated lower economic impact from COVID-19."

Mr Pressley says Canberra performs well because it had strong property market fundamentals pre-COVID-19 (such as employment figures, infrastructure and development projects etc.) as well as a strong outlook post-COVID.

"Canberra’s economy was already strong before the germ arrived. And with approximately 100,000 of its 213,000 workforce in the public sector, it will be significantly shielded through the COVID job lock-down period," he said.

"Logic would also suggest an expansion of Canberra’s public sector workforce will be needed to help administer the federal government’s record $320 billion COVID-19 support packages."

Ranking

Pro’s

Con’s

Canberra

  • Australia’s most insulated economy from COVID-19 with 50 percent of jobs in the public sector,

  • Anticipated expansion of public sector to service the many federal government support packages released in response to COVID-19,

  • Probable beneficiary of the pending regional bushfire rebuild,

  • Rental market strength,

  • Balanced supply of detached housing.
  • COVID-19 impact on international students,

  • Poor performance of attached dwelling market (71% of all dwellings approved over the last decade),

  • Australia’s third most expensive capital city median house price,

  • Significant portion of Canberra residents originate from Sydney and many will have property assets in Sydney, likely to be one of Australia’s biggest casualties from COVID-19

Source: Propertyology 

Brisbane in second spot 

Propertyology thinks Brisbane will be the second hottest capital city property market in the coming months.

"Brisbane’s property market is in second spot. Propertyology has been publicly critical of our home city on more than one occasion over recent years - proof of our impartiality - and we remain unchanged from our long-held view that Brisbane’s soft private sector job growth is an important missing link for otherwise solid fundamentals," Mr Pressley said.

Reasons to buy in Brisbane include affordable housing compared to other capital cities and a balanced supply of housing.

Ranking

Pro’s

Con’s

Brisbane

  • A balanced supply of housing,

  • Consistent beneficiary of internal migration from Sydney and Melbourne’s affordability constraints,

  • Rental market strength (ex inner-city),

  • Affordable housing
  • COVID-19 impact on international students,
  • Weak private sector job growth for the last decade,
  • The highest government debt of all states and territories,
  • No vision or community engagement in a plan that residents embrace,
  • Low business and consumer confidence,
  • Poor treatment of mum-and-investors over the last few years,
  • Totally squandered opportunities from the 2012-19 global tourism boom

Source: Propertyology 

Daylight separating Hobart, Adelaide from Brisbane

Adelaide and Hobart come in third and fourth place respectively, although there is some distance between second-placed Brisbane, the report says.

"Hobart – where Propertyology stopped investing in 2016 – still has reasonable medium-term credentials, including this month’s commitment from the state government to embark on the biggest construction program in the state’s history," Mr Pressley said.

Ranking

Pro’s

Con’s

Adelaide

  • Very liveable city,

  • Affordable housing,

  • Rental market strength,

  • Future economic development plans in STEM, defence manufacturing and Space sectors
  • COVID-19 impact on international students,
  • Consistent failure to attract interstate residents,
  • Freeze on overseas migration (the primary driver of Adelaide’s population growth),
  • A long-term uninspiring economy (similar to Brisbane)

Hobart 
  • Very liveable city,
  • Low housing supply,
  • Rental market strength,
  • Manageable household mortgages,
  • Recently announced major construction program,
  • Lowest government debt of all states and territories,
  • One of only two capital cities currently attracting a net population increase from internal migration,
  • Economic strengths include science, agriculture, manufacturing, and domestic tourism (once state borders open up),
  • City Deal government infrastructure commitment,
  • International airport due to be completed late-2020
 • COVID-19 impact on international students,
• COVID-19 impact on international tourism

Source: Propertyology 

Perth a risky fifth 

According to Propertyology, Perth may well be the best-performing capital city over the next couple of years, but represents a higher degree of investment risk due to its "distinct lack of economic diversity".

"Perth's heavy economic reliance on mining is a concern at the best of times but, China purchases more than 50% of Western Australia’s exports so Perth will always be highly susceptible to a no-notice property market downturn," Mr Pressley said.

"Those contemplating investing in Australian real estate can do better elsewhere."

Darwin also fares fairly poorly in sixth, with Propertyology citing a concerning decline in population as a key metric.

Both Perth and Darwin are the only two capital cities to record an annual decline in median prices according to CoreLogic's latest Home Value Index results.

Ranking

Pro’s

Con’s

Perth
  • Housing affordability,
  • Good rental yields,
  • Easing rental vacancy rates,
  • Momentum in mining sector (job creation)
  • Enormous economic concentration risk with China,
  • Lack of economic diversity,
  • Connectivity to east coast

Darwin
  • Sentiment boost through winning the COVID-19 premiership (the first state / territory to come out of lock-down),
  • Housing supply is starting to balance out,
  • Housing affordability,
  • Good rental yields,
  • Easing rental vacancy rates,
  • Casual lifestyle,
  • Important geographically for national security
  • No vision,
  • Job decline pre-Covid,
  • Concerning decline in population,
  • Project pipeline is bare

Source: Propertyology 

Melbourne and Sydney in last place 

Australia's two largest property markets which have been the focus of the majority of property price reports over the recent months, Sydney and Melbourne, sit comfortably in last place.

According to Propertyology, these two cities have drawn the "COVID-19 property market quadrella" of:

  • Large exposure to international tourism
  • Large exposure to international students
  • A freeze on overseas migration
  • Australia’s highest household mortgages

Ranking

Pro’s

Con’s

Melbourne
  • Very liveable city,
  • Large population base and global profile,
  • Victoria was ranked Number One (equal with Tasmania) in CommSec’s latest economic report card, immediately prior to COVID-19,
  • Recently announced $2.7 billion construction program to propel the economy out of COVID-19
  • Significant pipeline of more apartments to come,
  • Structural integrity reputation risk to be a drag on local construction sector,
  • Housing affordability constraints (bigger mortgages are more vulnerable to the COVID-19 income crunch)

Sydney
  • Large population base and global profile,
  • Development of Sydney’s second airport will have substantial long-term benefits for the city’s economy
  • COVID-19 impact on international students and international tourism
  • Freeze on overseas migration,
  • Already lost 52,000 residents to internal migration over the last 2-years,
  • Inner-city vacancy rates of 13%,
  • Significant pipeline of more apartments to come,
  • Structural integrity reputation risk to be a drag on local construction sector,
  • Housing affordability constraints (bigger mortgages are more vulnerable to the COVID-19 income crunch)

Source: Propertyology 

While Mr Pressley believes that median house prices in the higher ranking cities could rise following a successful reopening of the economy, the same can't be said for Sydney and Melbourne.

"On the balance of probability, the median house price in Sydney and Melbourne is likely to produce single-digit declines over the next 12-months," he said.

"The most vulnerable parts of their markets are inner-city apartments, university precincts, hospitality hubs and luxury homes."

Housing and construction is expected to contribute significantly to Australia's economic recovery in 2020 and beyond - economic modelling commissioned by Master Builders Australia found a $40k uncapped new home building grant could create over 100,000 new jobs and add $30 billion to the economy.

Propertyology's report says record low interest rates and sensible credit policy will continue to support housing demand in Australia.



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