The Australian property market has certainly featured prominently in the news cycle over the last 12 months. Last March, we were reading headlines about the imminent crash the market was going to experience thanks to the impact of the COVID-19 pandemic. Even the members of the ‘Big 4’ like the Commonwealth Bank were preparing Australians for the potential of a 32% drop in property values.
Speculation and negative commentary continued to find voice in the coming months, with a continual decrease in Investment Lending over the first 2 quarters of 2020… and with good reason. Given that international immigration accounts for approximately 64% of population growth in Australia, it was easy to assume that the demand for local property was going to drop significantly, thereby giving reasons for property investors to hold back on proceeding with their investments, which would lead to a potential property market crash.
Predictions of high rates of unemployment and poor housing affordability were just extra ingredients for the predicted property market crash of 2020. Experts in April 2020 were sending out warnings that unemployment rates could peak as high as 10%, leading us into the next Australian Recession.
Despite data indicating that 42% of investors planned to buy a property in 2020, as the negative predictions in the headlines continued to prevail, we saw property investors hold back, adopting a wait and see approach while the pandemic impacts played out.
The Australian Property Market and COVID-19 – The Reality
It’s no secret, we all know that the Australian property market did not drop by 32% in 2020. In fact, a recent report from SQM Research (SQM Research Housing Index/Weekly Asking Price Index/Week Ending 9th February, 2021) which reported that housing advertised prices were up in all capital cities compared to 12 months ago.
The only decrease compared to 12 months ago can be seen in the Sydney unit advertised price, which has reported a change of -5.4% year on year.
We have also seen an increase in rental yields across the country, with SQM Research reporting for the week ending the 4th of February that the nation has had an increase over the last 12 months of 9.1% for housing yields and 4.6% for unit yields (SQM Research Weekly Rents Index).
These are broad stroke figures however, and we must keep in mind that there are thousands of property markets across Australia which all can increase and decrease in values simultaneously due to a range of reasons.
What Equidel predicted in 2020
In our blog ‘How will COVID-19 effect the Australian property market’, despite the negative noise surrounding the property market, we maintained an optimistic outlook:
What’s happening right now
We deal with real estate agents every day, and the commentary we are hearing is always the same: “There’s not enough stock, there’s too many buyers!”
Not to mention the property managers we speak to who are crying out for more rental stock, and often struggle to get through the piles of applications they receive per property. In fact it is becoming increasingly common for prospective tenants looking for rentals to offer above the asking price, or offering to pre-pay months of rent in advance with the hope of securing a rental to move into.
What’s causing this?
There are a few factors we see impacting:
- International migration, or rather a lack thereof, has influenced the demand for Australian property. To give you some indication, in the year ending 30 June 2019, Australia’s population increased by 239,600 people due to net overseas migration. With international borders effectively closed in 2020 and continuing into 2021, that’s a significant number of people not coming into the country and needing housing.
- Supply and demand has been affected in many property markets, as we saw vendors holding on to their assets for longer while taking that ‘wait and see’ approach.
- The decrease in investment lending for the first half of 2020 meant that those property investors who did want to get into the property market found it more difficult to do so. The flow-on effect has been a decrease in investment stock in many markets across the country, further driving up rental yields and competition for properties.
- Interstate migration is another factor that stands out for us at Equidel. There are property markets where there are less investors, and less stock available, however; they are still experiencing strong population growth due to interstate migration numbers. 2020 was often referred to as the ‘Year of the Sea Change’, with many Australians moving away from the capital cities in favour of greener pastures.
The growth and yields of some of these property markets are now well outperforming our conservative projections, and for the brave number of property investors who decided to ignore the negative speculations in 2020 and look at the pure market data, well, to say that are happy now would be an understatement!
Is it time for you to invest in property?
There are always a number of factors to consider when investing and some markets react differently to others but there is one thing we always recommend – you must take an objective, data-based and business-like approach to property investing!
If this blog leaves you with anything, please remember that although media speculation is designed to prepare you for the worst, it is not something we would recommend using as the foundation for your property investment strategy.
And if you need, I’m always happy to chat property over coffee to help you take the next steps in a safe and educated way.