It's on again: property prices in Sydney, Perth, Canberra smash previous records - BRW (subscription)

Low interest rates and the shift away from less risky assets like cash are driving property price increases, says RP Data. Photo: Louise Kennerley

Things are looking up for housing investors in most capitals, with the latest RP Data-Rismark home value figures showing capital growth far out-stripping inflation in a range of cities and potentially surpassing 10 per cent over the calendar year.

Over the past three months, three capital cities - Sydney, Perth and Canberra - have all overtaken previous peaks and moved into the highest city-wide median prices on record.

Low interest rates and the shift away from less risky assets like cash are driving the increase, Lawless says.

Home values in Perth rose 4.4 per cent in the three months to July, according to RP Data-Rismark, taking total gains in the past 12 months to 8.3 per cent. Sydney home values aren’t far behind at 3.7 per cent over the quarter, taking year on year growth to 6.5 per cent. And Melbourne values are up 2.4 per cent over the quarter despite a potentially over-supplied apartment market.

The combined value growth of all eight capitals was 2.3 per cent over the quarter.

RP Data research director Tim Lawless says there are signs Perth is starting to cool, with early signs that steep rental growth is slowing. But he sees no sign of Sydney’s growth abating in the near future and says he wouldn’t be surprised if growth surpassed 10 per cent this year.

“The Sydney market arguably has some of the strongest fundamentals,” Lawless says. “We’re still seeing strong population growth and there hasn’t been strong growth in dwelling construction.”

But investors, who are currently driving the market, might be put off by falling rental yields in Sydney as values climb, Lawless says.

“Investors are more focused on yields these days. I think you will find investors focus on areas that offer higher yields like the inner city unit markets and areas with strong rental demand close to major jobs centres.”

Lawless says the market remains a mixed bag, with cities like Adelaide, Brisbane and more recently Darwin showing more sedate conditions. Values have fallen in all three, and also in RP Data-Rismark’s national “rest of state” index which measures regional housing markets.

“If you look at Brisbane where affordability isn’t much of an issue, we’re still seeing values 11 per cent lower than their peak,” Lawless says. “There’s not a great deal of difference in wages between Brisbane and Sydney, only about 6 per cent according to the ABS, so Brisbane is a really soft market at the moment.

“My view of Brisbane, and being a local I can see the change in sentiment, an incrase in the growth rate in Brisbane is probably just around the corner. We’re seeing more demand in the marketplace and transactions rising, we just haven’t seen it show up in values to date.”

But poor affordability and the unwinding of government first-home buyer incentives in most states has kept first-time buyers on the sidelines.

“If you look at NSW, first home buyers are less than 8 per cent of all owner occupier purchases,” Lawless says. “It shows how the has been significantly manipulated by the different concessions that have been available.”