It’s been an interesting few years in the Australian property market, what with a global pandemic, international border closures, building and construction grants resulting in industry-wide delays – just to name a few things!
I’d like to take a look at the past 24 months, the present, and some insight into what’s in store for the future.
Over the last 12 months the Australian property market has had exceptional growth, well above average across all states and territories.
Why has this happened, and is this a result of COVID-19?
In short, the answer is both yes and no. There were a number of factors which initially pointed to the property market dropping as a result of COVID-19, but it never did. The results in the Australian property market can actually be directly linked to the reaction we took to COVID-19.
One could have been forgiven for assuming that the property market would decline due to the closing of the boarders and the restriction of population movement and growth affecting the demand for accommodation (housing) however; there were other factors at play here:
- The Federal government introduced a grant for new home buyers looking to get into the property market, building their first home. This supported the construction industry, maybe a little too much one could say, with the demand for materials going through the roof, increasing the cost of construction and delaying projects across the country.
- Some of the lowest interest rates our generations have ever seen.
- A lack of overseas travel which led to an increase in savings for Australians, which many then used as a deposit for property and/or renovations on their existing homes.
- Did I mention low interest rates and free money from the Government??
There are potentially more factors here which led to the increase in property values, but let’s not forget the other major uplift, rental yields.
With the increase in property values, around 10% of current landlords in some markets decided to ‘cash out’ and sell their current investment properties. This led to a decline in investment stock availability in some property markets, and many renters forced back into the very tight rental property market.
When COVID-19 graced us with its presence in early 2020, we also saw a decline year on year for investment lending according to the ABS (Australian Bureau of Statistics). Growth rates of investment lending (excluding refinancing) were as follows:
-0.2% in January 2020,
-2.9% in February 2020,
-2.6% in March 2020,
-2.5% in April 2020 and
-14.5% in May 2020.
We can see a perfect storm brewing for investors who hung onto their properties, as less properties were being purchased by investors to rent out and there was less competition on the market as many landlords had cashed out.
Unfortunately, this wasn’t the case for all property markets, with rental vacancy rates in some locations in Victoria not performing well due to the mass exodus of population to other states during 2021. This further illustrates that there isn’t just one ‘property market’, and that each state, each council area, each suburb and also each street, could be classified as its own property market.
We know that there has been exceptional uplift in the overall Australian property market over the last couple of years, but who are the big winners?
Well, you could say that the suburbs with the most capital growth are the big winners….right?
According to Core Logic, Gerringong in NSW led the way in 2021 with a 56.4% change in housing values out of all regional houses, while St Andrews Beach in Victoria had the highest price rises out of all capital city suburbs with a value increase of 58.6%. Keep in mind that to buy a house in Gerringong, you will need to be able to have access to around $1.6 million, and to get into St Andrews Beach, you will need to have access to approximately $1.4 million, not really the price point that property investors are usually looking to spend. Gerringong and St Andrews Beach also both have rental yields below 3%, well below a level considered ‘good’ by many investors.
A combination of strong capital growth and strong rental yields are what property investor dreams are made of! There are many areas around the country which have experienced capital growth well into double figures in 2021, and that also have excellent rental yields. From a large number of suburbs on the Sunshine Coast, the Gold Coast, and Brisbane, and even through to Adelaide, which traditionally sits as the ‘quiet achiever’ when we’re talking about property market performances.
Who has the best crystal ball??
No one does unfortunately, however; we can take some calculated risks when analysing suburbs for potential performance for property investors.
Of key concern for me are the property markets which have experienced excellent growth in 2021 however; their current values aren’t sustainable moving forward. This is due to the wave of people who looked to jump onto the property bus without understanding the dangers of investing into a location which is already over supplied. An over supplied market can lead to a decrease in demand, and ultimately put downward pressure on property values.
Our borders are now open both locally and internationally. Borders being open and people being able to move about freely can lead to people being more transient. I wonder how many of the people who left Victoria in 2021 are thinking about moving back there now? What are the forecasts for overseas migration??
The Australian Government Centre for Population have predicted strong population growth numbers over the coming 10 years, with many states and capital cities getting back to close to pre-COVID growth rates. Of course, population growth isn’t the only factor when considering how to mitigate risk when investing into property. I would also want to consider:
- Where is there government and private industry investment?
- Which of these industries are sustainable and will look to continue to grow over the next 10 years and beyond?
- How do these figures match up when comparing all suburbs across the country to invest?
We also can take a look at the key findings from the National Skills Commission Skills Priority List 2021 and see which states and what industries are in demand for workers. With so many of our skilled workers coming from overseas, it’s no wonder the projections for overseas migration numbers into Australia have increased to above pre-COVID levels.
The good news is that there are areas of strong population, employment, education growth, with significant commercial and Government investment to support the future needs of the communities. While some property markets experienced strong growth over the last 12 to 18 months, there are other property markets sitting in the wings, waiting to take off over the coming years.
If you would like to find out more about the data we research to come to this conclusions, please feel free to get in touch via our contact page.