The Australian property market has experienced some tumbles and recoveries throughout the years. Historic rate cuts have been made and an ongoing global virus outbreak is currently posing some risks.
We speak to Trent Wiltshire, an economist at Domain, who shares his insight on what the property market could look like in this new decade, amidst slowing sentiments and evolving conditions across the country.
Rising values in the capitals
Property prices in capital cities will go up in the future says Wiltshire. He predicts that Brisbane, Sydney, and Melbourne may hold the strongest property values over the coming years.
In Sydney suburbs, values will increase by more than $100,000 this year, says Select Residential Property (SRP) director Jeremy Sheppard.
The latest figures released by CoreLogic show that the Harbour City’s median house value is now at $872,934, jumping by 10.9%.
Melbourne also experienced a 10.7% median value increase. The city’s median house price now stands at $689,088.
The Melbourne suburb of Brighton is set to be 2020’s hottest property spot, according to Upside.
Carlton also shows a potential for growth, with the suburb topping the list for lowest median unit value in the Victorian capital last year at $364,918.
“(We would also see) rising Perth prices, which have been falling for a while. Hobart will (also) still see some growth,” Wiltshire adds.
The Perth market experienced some subdued conditions in 2019, but some suburbs in the capital have improved this year, according to Real Estate Institute of Western Australia (REIWA) president Damian Collins.
In fact, the city’s rental market experienced its first growth in median rents since the start of 2017. The median rent in Perth jumped to $360 per week in February 2020, thanks to the decline in vacancy rate to 2.2%.
The city’s downturn may also finally be over, with dwelling prices up by 0.3% in February—the fourth consecutive month Perth prices recorded an increase.
Canberra and Hobart will also see their values jump in the upcoming years.
Herron Todd White predicted demands for Canberra houses would remain steady because of the rising population.
According to Herron Todd White property valuer Angus Howell, the recent changes to the Home Buyer Concession Scheme boosted the demand for homes in the lower end of Canberra’s property market.
Dwellings in established suburbs in the city would still be in demand, especially in the popular inner south and inner north suburbs.
In Hobart, units have become more promising with rents jumping 5.8% over the year to January 2020. It’s the strongest growth among all state capitals.
The Rosetta and Berriedale suburbs are also slated for a 6.8% growth. Currently, the areas have median values of $423,000 and $339,000, respectively. These could increase by $28,000 in Rosetta and $23,000 in Berriedale
Boom in regional areas
Wiltshire also says growth in the capital cities will spread out in regional areas in a year or two.
“Regional areas (had) a pretty solid growth (in) years. I think the pickup we’re going to see the next year or two is probably going to be concentrated in the city, but then it’ll probably spread out to regional areas in a year or two. That’s what happened last (time)—it can happen again,” he explains.
Figures from the Australian Bureau of Statistics (ABS) show that the country’s population is set to double by 2075. The increase in population won’t be exclusive to major cities, as regional areas will also experience the growth.
The increase may pose some investment opportunities to cater for the growing population.
As of late, houses in regional areas have continued to outpace apartments, according to CoreLogic.
The fifteen regions CoreLogic tracks posted gains in house values, with only eight markets experiencing an upturn in unit prices.
The Launceston and North East region of Tasmania experienced the highest increase in house values at 7.1%, making its median house price $339,139. The region’s unit market also outpaced others, recording a 13.6% median price increase.
Dwelling values in Gold Coast also jumped by 5.2%, with Cairns house prices increasing by 4.2%.
In the coming years, building energy-efficient homes and dwellings for older people will be a trend in the property market, according to Wiltshire.
In a bid to encourage the construction and purchase of more energy-efficient houses in the country, The Clean Energy Finance Corporation (CEFC) has invested up to $600 million in green home loans. The rate for the said loan could go as low as 2.44% annually.
Building greener dwellings may also be cheaper.
According to Andrew Payton, director at AJP Constructions, homeowners and investors alike could “maximise the planning stage of house construction to ensure that the finished dwelling is built to require less energy and incur lower costs”.
In terms of consumer demand, properties suited for older people would be a hit.
“Baby boomers are going to be ageing; they’re going to be in their eighties at the end of this decade. So, there would be a lot of demand for properties that are suitable for older people,” explains Wiltshire.
A report by the Australian Housing and Urban Research Institute (AHURI) reveals that 80% of older Australians want to live in a dwelling they own, no matter the size or location.
Older Aussies mostly want to live in the middle or outer suburbs of a city, the report said.
Two of every five older individuals who moved between 2006 and 2011 (41%) relocated to a home with fewer bedrooms, according to ABS. The move could be triggered by various life events, but around 16% of those who downsized had transitioned from a family household (in 2006) to a single person dwelling (in 2011).
Smaller homes with few stairs and a well-built bathroom would be better suited for older consumers—homes that older people could live in comfortably for a long period of time, says Wiltshire.
The Property Investor Sentiment Survey, run by Your Investment Property, PropertyUpdate, and onthehouse, has a similar result, with 42% of investors surveyed saying they would buy a property in the next 12 months.
“People think it’s a better time to buy now than, maybe, a year ago. This could be driven by low interest rates. I think we will see a strong sense of sentiment this year, but it will taper off next year,” explains Wiltshire.
But sentiments in February 2020 have been a mixed bag.
The February Westpac-Melbourne Institute Index of Consumer Sentiment recorded a drop in its “time to buy a dwelling” index, falling by 5.6% from the previous month.
Foreign investment and the unknown
Foreign investment in the country could see a slight jump in the coming years, but the current virus outbreak poses some risks, warns Wiltshire.
“I think we’ll see a little bit of pickup in foreign investment. The Australian dollar has fallen so that might make Australian properties relatively attractive,” he adds.
Recently, price fluctuations have one of the biggest impacts on the real estate market. After currency instability, the market has shifted between all-time high and low housing valuations.
In 2019, the office investment market has the largest share of foreign investment across the commercial property sector, based on figures released by JLL.
The figures show that foreign buyers acquired $9.2bn of office assets over 2019. Thirty-three percent of the total investment activity in Australia’s commercial market was from foreign investors.
However, the current COVID-19 outbreak could affect the flow of foreign investment.
“A big question I have is what impact the coronavirus has,” adds Wiltshire.
As of writing, Australia has over 700 confirmed cases, with six confirmed deaths.
The outbreak was the catalyst for the Reserve Bank’s decision to lower the cash rate to a new low of 0.25%.
The virus’ impact on the economy could loom over the housing market, slowing building approvals later this year, warns Maree Kilroy, an economist at BIS Oxford Economics.
The virus boosted demand for luxury properties in Harbour City, Monika Tu, founder of Black Diamondz, a real estate company catering to wealth Chinese, tells Bloomberg Quint.
Many of Tu’s clients run businesses in China and have families in Australia. Some of them came for Lunar New Year and extended their stays due to the outbreak. They are not purchasing properties, according to Tu, saying that the weakening AUD is another selling point.
Whether it’s going to have a long-lasting impact on foreign investment in the country is a bit of unknown, says Wiltshire.