Capital city price increases continue

Capital city price increases continue

As you would expect when buying property in one of the nation's capitals, prices are generally more expensive than in other parts of the country.

Whether you're getting onto the ladder for the first time or looking to refinance your mortgage, this is something you'll need to factor into your calculations.

Price rises haven't shown any let-up either, as the latest RP Data CoreLogic Home Value Index for October points to increasing values in many key markets.

Which cities are leading the price gains?

Some capitals have seen stronger price growth than others over the past month - and it was Melbourne, Sydney and Brisbane leading the charge on this occasion. Melbourne's values ended the month up 1.9 per cent, with growth registering at 1.3 per cent in Sydney and 0.6 per cent in Brisbane.

Even though property prices were up 1 per cent across the combined capitals, these were the only cities to have registered growth, RP Data revealed.

However, if you look at figures for the three months leading to October, Adelaide also joins the group of capitals witnessing price rises. Dwelling values were up 2.2 per cent across the capitals over the three-month period, but once again, it was just a handful of cities that stood out.

If you've got your eye on buying property in the New South Wales capital, bear in mind that prices have increased more than 1 per cent a month for the past three months. They're now 3.9 per cent higher than they were at the end of the previous quarter.

What does the future have in store for capital city values?

Although there's no real way of telling what capital city property prices will do into the future, RP Data's research director Tim Lawless has offered some suggestions based on recent trends.

He pointed out that while the rate of capital growth is slowing down, there were nevertheless increases in home values across all the major cities during the 12 months to October.

Mr Lawless suggested rental properties might not be offering the sort of returns investors are hoping for at the moment - and the situation might not improve just yet.

"With rents being substantially outpaced by dwelling values, the rental yield scenario is slimmest in Melbourne where the typical house is achieving a gross yield of just 3.3 per cent while Sydney's average yields aren't a great deal higher at 3.7 per cent," he emphasised.

What is driving property price gains?

There are several theories over what is to blame for property price rises, ranging from the pressure of a growing population to a lack of supply of homes.

Pressure is growing on the construction industry to make sure there are enough properties to satisfy demand, but the policy settings will need to be right to ensure this can happen.

Latest figures from the Australian Bureau of Statistics show dwelling approvals were down 11 per cent in September, putting them at a 13-month low.

The Housing Industry Association (HIA) explained that detached housing approvals fell 3 per cent, while approvals for multi-unit dwellings were down 21.5 per cent.

HIA Senior Economist Shane Garrett emphasised that 180,000 new homes need to be built each year in order to satisfy demand, which simply isn't happening at the moment. Current levels are down as a result of difficulties in the labour market and declines in sentiment, Mr Garrett suggested.

The HIA is therefore calling for land supply issues to be addressed, which could help bring down property values not only in the national capitals, but other locations as well.

Image credit: Ben Garrett