In a world of uncertainty brought upon us by a global pandemic, Australia’s property market continues to stand strong, in comparison to other markets around the world.
The team at Atlas was fortunate enough to spend time with Tim Lawless, Head of Research for CoreLogic Asia Pacific, Australia’s leading property data provider, to discuss insights and trends he’s observing in the current property market.
How is the Brisbane property market performing?
Brisbane housing values are rising faster than most other capital cities. For example, in the last three months, Brisbane housing values are up 2.5% compared to only a 1.6% rise in Sydney.
Many factors flow into the stronger performance, the first and most simple being affordability. Brisbane house prices are on average, $440,000 less than in Sydney, or roughly half. Income gaps between the two cities are not as large as this figure, meaning that property is more affordable.
Towards a demographic perspective, South East Queensland has been almost entirely insulated against a downturn in overseas migration, as it does not have as much exposure to overseas migrants as Sydney does. Further, the whole state of Queensland is benefiting from a positive rate of interstate migration, with more people arriving in Queensland than leaving. For comparison, this rate is negative in New South Wales.
Queensland’s economic environment is very conducive to a boom, with an increase in population, increased labour force and affordable housing, which is a great recipe for upwards pressure on house prices.
How are regional markets performing?
Byron Bay is becoming an extremely expensive and exclusive market, attracting lots of people from capital cities. I look at this market and think “how much further can it go?” It has already seen extraordinary value gains and affordability constraints will mean that we might see surrounding areas increase in value. For example, Brunswick Heads, Ballina and the Hinterland areas are all becoming extremely popular.
No doubt this ripple of demand will take place in metro markets as well as things normalise and employers start to embark on “work from work” programs instead of work from home. There is likely to be a lot of bounce back demand towards metro areas. If they haven’t seen values rising as quickly as regional markets, then at least the temporary affordability will attract buyers back. Previously regional markets and metro areas had a huge affordability gap, so I think this will equalise after a period of stronger performance outside of capitals.
How is property supply trending at the moment?
We are still seeing inventory levels at extreme lows, meaning that the number of advertised properties is around record lows for this time of the year. Right now, selling conditions are excellent and auction clearance rates are high, but we are not seeing many vendors.
There are a few possible explanations, one being that more people are choosing to renovate rather than upsizing or downsizing. Another reason could be that more properties are selling off-market, so sales are staying strong but not all sales come from listed properties. Real estate agents have been reporting a significant rise in off-market sales, so this is likely. Finally, this drop could simply reflect that we are amid a global pandemic, and despite confidence bouncing back rapidly, there is still reticence towards making a high commitment decision.
This trend is expected to change throughout 2021, as we are already seeing more properties come on to the market.
What impact, if any, has the pandemic had on housing preferences?
There has been a shift in the market towards low density housing. In Brisbane, the distribution of house purchases and unit purchases has a decade average of roughly 71% of purchases being of houses. In January 2021, the distribution changed to 77% of activity being house purchases. A 6% jump may not seem important upon first inspection, but it increased so rapidly that it is indicative of a change in preferences for buyers.
This is largely driven by first home buyers as they are often the most reactive to government stimuli. The change to the stimulus in 2020 which meant that stamp duty is now exempt for properties up to $750,000 compared to $650,000 previously now means that first home buyers can purchase above the Brisbane median property price of $720,000 without stamp duty. This opens up many more low-density options, which may have spurred the shift to houses.
Another factor in this change is the newfound popularity of remote working, which encourages buyers to look to outer fringes where supply of property is high, and prices are lower.
This shift in the market will result in many looking for property on the fringes. However, this will most likely result in the “ripple effect” as capital gains in one suburb move on to others. As people purchase fringe properties for an increased price, the sellers of these properties will have received large capital gains and may choose to purchase property in metro areas. This will then increase metro prices and so on.
Even though outer suburbs are increasingly popular at the moment, the metro regions are highly connected to activity on the outskirts and will increase property prices overall.
What is going to happen when pandemic-specific government subsidies and concessions end?
There will undoubtedly be some headwinds as this fiscal support phases out, but if we look back through 2020, we encountered these same challenges at the end of the year. Jobkeeper started winding down and banks were moving through the 6-month mortgage deferral plans. However, we got through this first “fiscal cliff” relatively unscathed as unemployment trended lower and jobs growth higher. It’s likely we will continue to see the economy improving as the second “fiscal cliff” approaches, but we are likely to see a slow down as a recovery.
JobKeeper was a critical supporting factor of economic resilience in Australia, and the key reason it is tapering off from March is that the economy has almost returned to normal conditions. In fact, I believe that if we started to see the economy falter in reaction to less fiscal support, then we would see its reimplementation. It’ll be a case of watch and see but I think if past performance is anything to go by, there will not be a great deal of economic disruption.
I’m expecting after March we will see the rate of jobs growth slow down temporarily, and unemployment may creep up for a little while, but I doubt this will be permanent. As long as we see the economic recovery continue, jobs will be created, and unemployment will trend lower. Either way, this will be a very gradual process.
How have immigration rates impacted the market?
Borders have closed, but there is still substantial demand from buyers internationally. One of the largest segments is expats who are looking to return home, often looking in premium areas in capital cities.
It is hard to measure if expats have impacted the market, but from anecdotal evidence, I believe they have. Returning expats fly under the radar in migration data, so it is difficult to see what the demand impacts are.
However, real estate professionals state that this is a factor in the marketplace. This makes sense that we would see more people returning to Australia, as we have broadly done a good job at managing the virus and keeping outbreaks contained.
Although there is optimism from overseas buyers, the rental market is suffering due to closed borders. 60% of Australia’s population growth comes from overseas migration, including temporary migrants such as students, and permanent migrants. All migrants tend to rent when they first arrive in Australia, which has strongly impacted inner-city apartment rental demand.
However, Queensland has seen a different type of increased migration throughout the pandemic – interstate migration. They have outpaced every other state, seeing migration at 90% above the decade average. This has made the state relatively insulated to a lack of international buyers and has even grown their economy.
How is investor participation trending?
In Queensland, investors only made up 22% of mortgage demand, whereas usually we would expect about a third of the demand to come from investors. However, this figure has been proportionally rising since September 2020. In my opinion, Queensland is providing investors with better market fundamentals in the sense that it’s cheaper with high rental yield and strong renter demand. When these factors combine, it’s no wonder we are seeing investors more active in South East Queensland than Sydney.
Owner occupiers have risen through the ranks to be one of the most active segments in the market, obviously taking advantage of government schemes like the First Home Loan Deposit Scheme, Stamp Duty Concessions, Home Builder and state-specific concessions. There is a lot on offer and when combined with super low interest rates, it highlights the number of incentives available for first home buyers.
What are the key risks to the market right now?
Although across Australia, there are mostly positive signs for the property market, there is still risk involved in recovering from a pandemic.
The primary, and most obvious, risk is the virus. We know from previous outbreaks that if there is another outbreak of COVID-19 and we see extended periods of lockdown, that’s extremely disruptive to our economy. For example, when Melbourne went through its second wave of lockdowns, there was a more significant impact on housing market activity than we saw in the first round. Even a regionalised period of lockdown impacts on national confidence, so the virus is a risk to what’s been a strong recovery period.
However, with the COVID-19 vaccine already being rolled out across the country, another outbreak is less certain. Therefore, all the new confidence the market is generating is justified and likely to sustain excellent levels of activity.
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