The best capital city in March revealed

Continuing its trend for the capital city tipped to see the most growth was Hobart in first place with a monthly rise of 1.7 per cent, followed by Darwin at 1.0 per cent, Perth at 0.3 per cent, Canberra at 0.2 per cent and Brisbane at 0.1 per cent. Adelaide and Sydney were tied for the biggest decline at 0.3 per cent.

Hobart also stood out for the quarter at 3.4 per cent, for the year at 13 per cent and for total returns at 18.7 per cent.

Brisbane was the only other capital city that did not see a fall for the quarter, holding steadily, with the combined capital city value decreasing by 0.9 per cent.

Tim Lawless, CoreLogic’s head of research, commented on this decline, pointing out that it was Sydney that was bringing down the combined capitals figure.

“The broad-based falls highlight that the softening trend in the Australian housing market is largely due to weaker conditions in Sydney. However, most other capitals are also recording subtle falls,” Mr Lawless said.

Units were proving themselves as a stronger choice, as capital city house values overall were down by 1.0 per cent over the quarter, while units fared slightly better at a decline of 0.7 per cent.

Looking specifically to Sydney and Melbourne property values over the last year, the index found Sydney unit values increasing by 1.9 per cent and home values declining by 3.8 per cent; and Melbourne saw unit values rise by 6.6 per cent and houses by 4.9 per cent.

This suggests to Mr Lawless that median to high-density properties have stronger demand than houses.

“The stronger performance from the unit sector may suggest that buyer demand is becoming more concentrated in the medium to high-density sector where entry prices are lower and commuting times are often more convenient when compared with the detached housing markets around the outer fringes of the city,” the head of research said.

“The surge in first home buyer activity since stamp duty concessions became available in July last year may also be supporting demand across the medium and high-density sector where prices are often better aligned with first time buyer budgets.”

However, outside these two markets, houses outperformed units, with Brisbane, for example, seeing unit values decline by 1.4 per cent and house values rise by 1.8 per cent.

The overall decline can be attributed to APRA’s recently reported overshooting of its lending benchmarks for investor and interest-only loans.

“One factor supporting this deceleration in value declines could be an improvement in credit availability for investors and interest-only borrowers,” Mr Lawless said.

“Credit aggregates from the Reserve Bank show growth in credit for investment housing increased at an annualised pace of just 2.3 per cent over the three months to February, well below the APRA benchmark speed limit of 10 per cent.

“The latest statistics from APRA for the December quarter last year show interest-only lending comprised just 15.2 per cent of new originations (down from a peak of 45.6 per cent in June 2015).

“The new benchmark set by APRA in March last year was that interest-only settlements should be below 30 per cent, suggesting the major lenders could relax their credit policies to attract a higher proportion of interest-only and investor lending.”

The best performing regional area over the last 12 months was Victoria’s Geelong, with property values up by 10 per cent; followed by the Southern Highlands and Shoalhaven at 9.5 per cent; and then the Capital Region and Newcastle and Lake Macquarie at 8.3 per cent, the latter two areas both in NSW.

The worst performing regional area for the last 12 months was Outback Queensland, declining by 10.2 per cent, then next was Mackay-Isaac-Whitsunday in Queensland at 9.1 per cent and then the Wheat Belt area of Western Australia at 8.9 per cent.

Rental market

Despite a growth slowdown, weekly rents are up across every capital city for the March quarter, which Mr Lawless attributed to an increase of supply.

“With dwelling values slipping lower across most cities, and rents gradually tracking higher in most markets, rental yields have seen some upward pressure — albeit from a low base in some cities,” the research head said.

In terms of rental yields, Darwin is the highest yielding capital city, with a gross rental yield of 5.8 per cent, which the index said is due to dwelling values declining faster than weekly rents.

Following this was Hobart, with rental yields at 5 per cent and rents rising by 11.7 per cent over the last 12 months.

Meanwhile, Melbourne saw the lowest gross rental yields at 2.6 per cent, followed by Sydney at 2.9 per cent.