Kate Forbes helps us understand why the ACT market has underperformed in recent years but she points out there are some signs of improvement but that with a looming Federal election, consumer sentiment will again play a roll in what happens there.

Transcript:

Kevin:  As we continue our look around Australia, this time we’re going to turn the focus on the Australian Capital Territory, Canberra, and that region down there. Although quite small, it relies a lot on what’s happening with politics. To bring us up to date on that and look at some of the opportunities and maybe some of the areas you should avoid, Kate Forbes, who is a Property Strategist, works with Metropole out of their Melbourne office.

Kate, thank you very much for your time.

Kate:  It’s a pleasure, Kevin. Thanks for having me on the show.

Kevin:  I’m going to take you out of your comfort zone just a little bit, because I know that you’re very much focused on the Victorian market, but from time to time, no doubt you have to answer questions about other areas. Just give me an overview, if you could, of the ACT. How do you see that market?

Kate:  Certainly, Kevin. ACT over the last couple of years has seen lackluster performance, particularly when compared to what you could have achieved in some of the other states. Over the last 12 months, Canberra has delivered just 1.7% change in dwelling prices, which puts it third last behind Perth and Darwin when tracking the performance of the eight capital cities. Over the last 10 years, the picture isn’t very different, with Canberra delivering just 3.7% annual capital growth, and that puts it fifth in the race.

If you have a look at real property prices – which is prices adjusted for inflation – in Canberra, they’re only 3.5% above the previous peak, which was reached in December 2010. It clearly has a lot of catching up to do, but conditions do seem to be slowly improving.

Kevin:  I’m wondering about that, because Canberra is one of those markets that maybe will never really ever grow to any great dominance because it’s so reliant on politics. To me, it seems like a destination market, Kate, where you would decide to live there because you’re going to be involved in some form of government, but it’s probably not a great investor market. Is that a fair comment?

Kate:  We would certainly say so. In terms of what we focus on in trying to search for consistent performance, we’re looking for a breadth of economic pillars underpinning the market, and as you know and as you’ve correctly said, it’s a one-industry town essentially and it is driven by government.

It’s been a turbulent year politically already. We still have an election looming there, so there is heightened uncertainty, and uncertainty isn’t great for investments and weighs on the property markets ahead despite signs of some improving sentiment in there.

Kevin:  Anyone looking at the ACT market – let’s say Canberra because it’s predominately what it is – are there any areas you think we should avoid?

Kate:  The inner city apartment market. It’s actually much the same story as you’re going to be seeing in Brisbane, Sydney, and Melbourne. In the inner city, apartments have been over-built. Rents have consequentially suffered, and units have actually declined in value over the last year. So we’d certainly be suggesting to avoid the CBD and units in that sector.

Kevin:  What are the challenges facing home buyers and investors right now in that market that you can see?

Kate:  It does come back to that uncertainty and it being a single-industry town. Whenever you do have uncertainty, it erodes investor confidence and encourages a lot of fence-sitting. Until there is greater certainty on that side and it starts to feed through into confidence and jobs and wage growth, performance is going to continue to be lackluster.

Kevin:  Are there any infrastructure-type developments that are going to be o