What recession? Resilient Canberra powers on
The most resilient property market in the country will continue to enjoy solid price growth. Units, however, are underperforming the wider market.
As projected, the ACT has been enjoying extremely strong employment figures which are a key driver in the ability of the property market to deliver solid price growth following the peak of COVID-19.
Strong economic growth and an extremely robust employment market in the ACT with an unemployment rate of 3.6 per cent (compared to Australia with 6.6 per cent), ensured houses were strong performers, although the glut of new units presented a higher risk.
The ACT market showed strong price growth of 9.8 per cent for houses in the past 12 months and had, prior to COVID-19, a good medium to long-term outlook.
Even the pandemic has had a minimal impact on the ACT market with only a modestly decelerating price growth in 2020, which Is now picking up pace again.
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 of price reductions appears to be low at this point of time.
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 7.9 per cent capital growth over the past three years, (far below the capital growth of houses with 18.2 per cent), largely due to the increased number of properties in the pipeline.
Thus, the risk associated with units, particularly over the medium and long term, is higher than for houses, particularly in high-supply areas such as Reid (where there are 522 units in the pipeline, an uplift of 135.6 per cent of the current stock).