The most resilient property market in the country will continue to enjoy solid price growth. Units, however, are underperforming the wider market
The ACT has been enjoying extremely strong employment figures which are a key driver in the ability of the property market to deal very well with negative shocks, such as the recent downturn, and to deliver solid price growth under ‘normal’ market conditions.
Strong economic growth and an extremely robust employment market in the ACT with an unemployment rate of 3.7 per cent, ensured houses were strong performers, although the glut of new units presented a higher risk.
The ACT market showed a healthy price growth of 9.3 per cent for houses and 5.5 per cent for units in the past 12 months and had, prior to COVID-19, a good medium to long-term outlook.
Even the unprecedented COVID-19 has had only little impact on the ACT market with only a decelerating price growth.
The government is a major direct and indirect employer in the ACT. Also, many businesses provide products and services to people who are employed directly and indirectly by the government. Consequently, while price growth is likely to decelerate, the risk for price reductions of 5 per cent or more appear to be low at this point of time.
As expected, houses in the ACT delivered solid capital growth in recent years. While this growth has been more moderate since the second half of 2017, the current growth is still solid, and the market shows resilience. This is largely driven by solid economic growth and a relatively low level of effective unemployment. Unemployment in the ACT is 3.7 per cent, compared to Australia with 6.9 per cent.
These conditions are favourable for a strong housing market and make it an attractive destination for property buyers. As with the other states and territories, it is cheaper to buy than rent in the ACT for owner-occupiers with interest-only loans.
The ACT also enjoys a high investor serviceability ratio. This has significantly benefited investors who have found it easy to service their loans relative to the rest of the property market.
The unit market in the ACT is suffering from an increased number of new dwellings relative to its population growth. Combined with an overall preference for houses over units, this presents a greater risk for units. Units delivered only 5.1 per cent capital growth in the past three years, (way below the capital growth of houses with 15.2 per cent), mainly driven by an increased number of properties in the pipeline.
Thus the risk associated with units is higher than houses, particularly in high-supply areas such as Reid (where there are 522 units in the pipeline at 135.2 per cent of the current stock).