Australia's housing market cooling sharply
Lalaine C. Delmendo | December 10, 2018
House prices in the country's eight major cities dropped slightly by 0.27% during the year to end-Q2 2018 (-2.3% inflation-adjusted), in sharp contrast with the y-o-y rise of 11.1% a year earlier, based on figures from the Australian Bureau of Statistics (ABS). It was the first quarter of y-o-y house price declines since Q3 2012.
Quarter-on-quarter, house prices fell by 0.6% (-0.95% inflation-adjusted) in Q2 2018.
However, the national figures conceal regional house price variations. Darwin saw the biggest decline, with the established house price index falling by 4.4% (-6.3% inflation-adjusted) during the year to Q2 2018, followed by Sydney (-4.1%) and Perth (-0.4%).
On the other hand, Hobart's local housing market remains robust, with house prices surging by 15.5% (13.2% inflation-adjusted) y-o-y in Q2 2018. Modest house price rises were also recorded in Canberra (3.8%), Melbourne (2.6%), Adelaide (2.4%), and Brisbane (2.1%) over the same period.
The mean price of residential dwellings in Australia was AU$686,200 (US$494,493) by end-Q2 2018, down slightly by 0.3% from the same period last year, according to the ABS.
New South Wales, especially Sydney, has the most expensive housing in the country, with the mean house price at AU$889,200 (US$640,779) in Q2 2018, about 30% above the national mean house price. In contrast, Tasmania has the cheapest housing in Australia, at a mean price of AU$403,400 (US$290,700) over the same period.
Acquisition of residential real estate by foreign nationals and corporations is subject to FIRB approval. Foreigners are not allowed to buy an established (previously occupied) house. They may buy an unoccupied new dwelling, but only if the FIRB feels that the purchase will not add to the shortage of properties available to native Australians.
Rental returns on apartments in Sydney are low, at 2.8% to 3.7%
Our Sydney apartment survey is based on the number of bedrooms, because so few advertisements cite square metre measurements.
As we would expect, there are huge difference in the cost of apartments in Sydney depending on area, from relatively inexpensive Vaucluse, to high-priced darling Point and Potts Point. What doesn't differ much are the now low gross rental yields available on Sydney properties (the rental yield is the per cent return on the purchase cost of a property). This will not make landlords happy.
It is rare in Sydney to be able to earn more than 3.7%, and most apartments return less. Bear in mind that usually costs of various kinds will absorb at least 2% of those returns, so that net returns will be a lot lower than the gross figures.
Small apartments earn significantly higher rental returns than big apartments. This is particularly true in the more expensive districts, and if you are looking for yields the table will tell you that the exception to our generally low return figures are 1 bedroom apartments in Potts Point, which can earn gross rental yields of 4.9%.
Surprising, but worth investigating.
Taxes are high in Australia
Rental income: Rental taxable income earned by nonresidents are taxed at progressive rates, range from 32.50% to 45%.
An owner may also be required to pay a land tax annually, depending on his property classification for tax purposes and property location.
Capital Gains: Individuals are subject to a 50% reduction of the taxable gain if the asset is held for at least 12 months. Capital gains follow the individual income tax rates, at rates from 32.50% to 45% for nonresidents.
Inheritance: There are no direct taxes on inheritance.
Residents: Residents are taxed at a progressive rate on their annual income, from 0% to 45%, and are required to pay a 1.5% Medicare levy.
Buying costs are moderate in Australia
Roundtrip transactions costs are 3.76% to 21.15% of the property value. Stamp duty on property transfers ranges from 1.5% to 6.75%, and is paid by the buyer. It takes about five days to complete the five procedures needed to register a property.
Tenancy laws are neutral in Australia
Australia ’s landlord and tenant laws are generally neutral. Both parties’ rights are well-protected by each states’ Residential Tenancy Act.
Rents: Rents can be freely negotiated, but increases are subject to review by a Tribunal provided the tenant makes an application. The rent cannot be increased before the end of the first year of tenancy in any state.
Tenant Eviction: A landlord can terminate a tenancy by giving notice in the approved form, or by using the tribunal. The legal system is highly efficient: it takes an average of 44 days to evict a tenant.
The economy is strengtheningAustralia is one of the most attractive places to live, judging by all indices of income, human development, healthcare and civil rights. It had a GDP per capita of about US$56,700 in 2018, according to the International Monetary Fund (IMF).
In the second quarter of 2018, Australia’s economy expanded by 3.4% y-o-y, the fastest annual growth rate since Q3 2012, thanks to strong consumer spending.
Economic growth was 2.2% last year, down from average annual growth of 3% from 2000 to 2016, according to the International Monetary Fund (IMF). The economy is expected to grow by 3.25% this year and in 2019, according to the RBA.
The Australian dollar (AUD) depreciated by about 7.7% against the US dollar in the past year, from AUD 1 = USD 0.7673 in October 2017, to AUD 1 = USD 0.7085, according to the RBA. The AUD had gained 11.8% against the USD from September 2015 to September 2017.
The country’s trade surplus surged to over AUD 3 billion (USD2.2 billion) in September 2018 – the third-largest on record, according to the ABS. This was mainly due to the rising prices of iron ore and LNG exports, along with a drop in imports of machinery, industrial equipment, and civil aircraft.
Exports rose by 1% to AUD37.5 billion (USD27 billion), the highest level ever recorded, while imports fell by 1% to AUD34.5 billion (USD24.9 billion)
Unemployment fell to 5% in September 2018, from 5.3% in the previous month and 5.5% a year earlier, according to the ABS. There were about 665,800 unemployed persons in Australia in September 2018, down by 6.6% from a year earlier.
Inflation stood at 1.9% in Q3 2018, up slightly from 1.8% a year earlier.