Premium peril weighs down property market

Outside of Sydney the continuing weakness within the premium housing sector is hampering the broader market performance and resulting in value falls.

The RP Data-Rismark suite of indices includes a stratified hedonic index which measures the performance of the major capital city markets across the most affordable 20% of suburbs, the middle 60% and the most expensive 20%. The index provides an important insight about the performance of different sectors of the market based on price. It also highlights that although the market may be showing an overall trend the results can be quite different amongst sectors and different capital cities.

Over the 12 months to March 2011 capital city home values have fallen by -0.6% in seasonally adjusted terms and by -0.5% in raw terms. Looking at the stratified hedonic index highlights that overall the market hasn’t necessarily been acting in concert.

The top 20% of suburbs have recorded a fall in value over the year of -3.3%. In contrast, values across the broad middle 60% of suburbs were virtually flat (-0.3%) as were the most affordable 20% of suburbs which were up 0.3% over the year. It is no doubt however, that all three sectors have recorded a marked slowdown in capital gains during recent months.

Within the major capital cities, the market performance over the year has actually been quite different. Across all of the capital cities, apart from Adelaide, the top 20% of suburbs have been the weakest performers. The premium market has been extremely weak within Brisbane (-8.2%) and Perth (-11.8%). On the other hand, the middle 60% of suburbs have been the best performers in Sydney and Brisbane and the most affordable 20% have been the strongest performed in Melbourne and Perth.

Over the last quarter, property values have fallen across all three market segments within the major capital cities. The greatest falls have once again been recorded across the most expensive 20% of suburbs (-2.0%) while the middle and most affordable suburbs have each recorded quarterly value falls of (-0.3%).

Sydney was the only city in which the premium end of the market did not record a fall over the quarter. Given that the top 20% of suburbs have recorded a fall of -1.2% over the year in Sydney, the 0.8% growth over the quarter may be an early sign of improving confidence in that sector. Across all other cities the most expensive suburbs have been the weakest over the quarter.

It is important to note that the top end weakness in Brisbane and Perth has been much more significant over the last quarter.

On an annual basis, values across the most expensive of Brisbane’s suburbs have fallen by -8.2% with a -4.5% fall recorded over the last quarter alone. In Perth, the top end has fallen by -11.8% over the year with a -8.4% fall in the last quarter alone. These results highlight the ongoing and growing weakness within the premium sectors of these two cities.

During the last quarter, the most affordable 20% of suburbs have been the best performed in each city outside of Sydney. In Melbourne (0.3%), Adelaide (0.0%) and Perth (0.1%) values have been either flat or shown some improvement. Given that value growth has stalled and is running well below inflation it may be an indication that values (at the lower end of the market at least) are becoming a little more attractive to purchasers. In saying this, don’t expect a rush of growth because rents are still generally more affordable than servicing a mortgage.

Over the coming months we anticipate that weakness in the premium sector is likely to persist however, falls are not expected to be as substantial as those in recent times. Overall we expect growth in property values to be minimal with some potential for slight falls. If any markets are going to show some signs of life we would expect them to be either the most affordable 20% of suburbs or the middle 60%.

Tim Lawless is the Director of Property Research at RP Data.