Sydney and Melbourne property markets remain hot … but for how long?

With property prices rising, the five locations that will see even bigger growth have been revealed. With two notable cities missing.

It seems there’s no stopping Sydney and Melbourne’s extremely hot property markets, with several months of strong price growth continuing into the new year.

But there are storm clouds on the horizon, a leading expert warns, with savvy investors beginning to focus their attention elsewhere.

In what’s traditionally a quiet month, the sharp real estate growth trend continued in January – and not just in the two biggest markets – with prices rising in every capital across Australia.

Median dwelling values were up 1.1 per cent in Sydney, adding to a total annual increase of 7.9 per cent, and rose 1.2 per cent in Melbourne, for a yearly rise of 8.2 per cent.

And in a sign that buyers remain extremely confident, auction clearance rates in the NSW capital for the first weekend of February were a staggering 77 per cent.

How long can the latest property market boom possibly continue?

Head to just about any auction in Sydney and you’ll witness a buyer frenzy lately.

“It really is the last gasp from the boom that ended prematurely a few years ago, mainly because of tighter lending conditions,” Richard Sheppard, property investment expert at wealth advisory firm InSynergy, said.

“Once those buyers have run out of puff, and money, I believe median prices will return to levels consistent with soft market conditions.”

In its latest report, property valuation firm Herron Todd White said it expects price growth to moderate in Sydney thanks to an increase in new listings.

“Despite this we still expect to see prices increase by around 10 per cent for the year, which will mean prices should move above the previous peak in the second half of the year,” it said.

HTW also anticipates higher stock levels in Melbourne, as confidence among sellers lifts, but believes low interest rates and first homebuyer activity will fuel a “strong recovery”.

But InSynergy has conducted research to identify five investment locations that are poised for growth over the coming 12 months.

Sydney and Melbourne don’t make the cut, Mr Sheppard said.

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Property wealth advisory firm InSynergy has identified the five markets with the best growth prospects – and Sydney and Melbourne don’t make the cut. Picture: John Appleyard

“I’m concerned that the recent price growth in Sydney and Melbourne will falsely entice investors back to those overpriced markets, when I don’t believe the current supposed upswing will last long,” he said.

“The only exception would perhaps be units in Melbourne as they are so much more affordable than houses, as well as having one of the biggest price differences between houses and units we have ever seen in Australia.”

Instead, he has identified Brisbane, Adelaide, Canberra, Perth and the Sunshine Coast as having the best growth prospects.

Brisbane’s future property prospects are very strong, InSynergy says. Picture: AAP

Brisbane’s housing affordability relative to average incomes was one of its strongest market drivers, he said, and the rest of the country is finding it hard to resist.

Median values in Queensland’s capital are about 55 per cent of Sydney’s, Mr Sheppard pointed out.

“This is one of the reasons why about 1000 new residents are shifting to Queensland every week, but it’s also because Brisbane has about $15 billion in major infrastructure projects either under way or approved,” Mr Sheppard said.

“Net rental returns are also about 50 per cent higher than Sydney, which not only provides better cash flow and borrowing capacity, but also is one of the better leading indicators for future growth.”

Adelaide’s low prices and huge infrastructure investment pipeline were enticing, he said, and increased attention from investors will make it a top performer for several years to come.

A robust economy and consistently high incomes in Canberra were underpinning its property market’s prospects, while Perth property looks to have bottomed out after years of price falls.

And the Sunshine Coast is also on the cusp of strong growth thanks to major infrastructure investment.