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10 insights into the investment property market
Insurance insights

10 insights into the investment property market

12 Apr 2021 10 mins read

A guide to keep landlords and agents updated about what is happening in the investment property market…

1. The rental market 

In March, capital city asking rents decreased 0.4% for houses to $550 p/w and -0.2% for units to $412 p/w, according to SQM Research. Sydney was the only capital to record decreases for both house and unit asking prices, while increases for both were recorded in Brisbane, Perth and Adelaide. In Melbourne, Darwin and Hobart, house rents rose while unit prices dell, the opposite was the case in Canberra. Across the capitals: Canberra ($660 p/w houses / $494 p/w units), Sydney ($655 / $455), Darwin ($583 / $390), Brisbane ($478 / $382), Adelaide ($428 / $324), Hobart ($489 / $400), Melbourne ($514 / $371) and Perth ($506 / $380).

National vacancy rates held steady at 2.0% in February, according to SQM Research. A total of 71,544 residential properties were vacant Australia-wide over the month. Rates held stable in Adelaide (0.7%), Canberra (0.8%) and Hobart (0.6%), while decreases were recorded in Brisbane (-0.2% to 1.5%) and Darwin (-0.1% to 0.7%). Sydney (+0.1% to 3.3%), Melbourne (+0.1% to 4.5%) and Perth (+0.1% to 0.9%) all recorded increases in vacancies.

According to CoreLogic’s Hedonic Home Value Index, the average gross rental yield for capital city dwellings in February was 3.4%, while the combined regional dwelling yield was 4.8% – bringing the national gross yield to 3.6%. Gross rental yields across the capitals: Sydney (2.9%), Melbourne (3.0%), Brisbane (4.4%), Adelaide (4.4%), Perth (4.4%), Hobart (4.5%), Darwin (6.2%) and Canberra (4.5%).

Figures from Digital Finance Analytics revealed rental stress was 34.9% (or 1.781 million households) in February. NSW had the highest number of renters in stress (49.2%), followed by Victoria (37.0%), the ACT (34.3%), Queensland (31.7%), WA (26.9%), Tasmania (18.0%), SA (17.3%) and the NT (16.6%).

Data from Domain revealed the locations with the highest and lowest vacancy rates in February. In Sydney, the lowest vacancies were in Camden (0.4%), Wyong (0.4%), Blue Mountains (0.5%), Gosford (0.5%) and Wollondilly (0.8%), while the highest were in Paramatta (4.9%), Strathfield–Burwood–Ashfield (4.5%), Auburn (4.2%), Botany (4.0%) and Pennant Hills–Epping (3.9%). In Melbourne, the lowest vacancies were in Mornington Peninsula (0.3%), Nillumbik–Kinglake (0.3%), Yarra Ranges (0.3%), Cardinia (0.4%) and Casey–North  (0.7%), while the highest were in Melbourne City (11.7%), Stonnington–East (8.7%), Stonnington–West (8.0%), Whitehorse–West (7.5%) and Boroondara (6.5%). In Brisbane & Gold Coast, the lowest vacancies were in Caboolture Hinterland (0.1%), Capalaba (0.2%), Nerang (0.2%), Mudgeeraba–Tallebudgera (0.3%) and Coolangatta (0.3%), while the highest were in Brisbane–Inner (4.3%), Sherwood–Indooroopilly (3.7%), Brisbane–Inner West (2.9%), Nathan (2.4%) and Mt Gravatt (2.3%). In Perth, the lowest vacancies were found in Wanneroo (0.2%), Gosnells (0.3%), Armadale (0.3%), Rockingham (0.4%) and Cockburn (0.4%), while the highest were in Perth City (1.3%), Cottesloe–Claremont (1.0%), South Perth (1.0%), Canning (0.9%) and Melville (0.8%). In Adelaide, the lowest vacancies were in Tea Tree Gully (0.1%), Gawler–Two Wells (0.1%), Marion (0.2%), Playford (0.2%) and Port Adelaide–East (0.3%), while the highest were in Adelaide City (5.2%), Prospect–Walkerville (1.0%), Holdfast Bay (0.8%), Norwood–Payneham–St Peters (0.6%) and Unley (0.5%). 

Rental affordability declined in the December quarter 2020, according to REI’s Housing Affordability Report. The proportion of income required to meet rent payments increased 0.2% to 24.0%. Tasmania was the least affordable state in which to rent with the proportion of income needed at 29.5%, while WA was the most affordable state at 17.8%.

According to REA Insights Property Outlook 2021, by the end of 2020 the rental markets had normalised and there were only two areas (Melbourne and Sydney units) where rents were down over the 12-month period. Across the capitals: ACT (+1.8% house rents / +2.1% unit rents), Greater Adelaide (+3.9% / +3.2%), Greater Brisbane (0.0% / +1.4%), Greater Darwin (+1.1% / +2.9%), Greater Hobart (+2.2% / +1.3%), Greater Melbourne (+2.3% / -2.4%), Greater Perth (+5.4% / +3.0%) and Greater Sydney (+3.8% / -2.0%).

Sydney had the highest median weekly asking rents for houses and units over February at $520 and $450 respectively, according to Archistar’s National Housing Market Report. Perth was second for house rents at $440 and Brisbane for unit rents at $420. Perth experienced the largest increase in house asking rents with 3.5% growth, followed by Adelaide at 2.4%. For units, Adelaide recorded the highest growth at 1.4%, followed by Perth at 1.3%.

2. Housing trends

According to CoreLogic’s Hedonic Home Value Index, national housing values rose 2.1% in February to a median value of $598,884. All capital cities recorded increases: Canberra (+1.9%), Darwin (+0.7%), Hobart (+2.5%), Brisbane (+1.5%), Adelaide (+0.8%), Perth (+1.5%), Sydney (+2.5%) and Melbourne (+2.1%).

REI’s Housing Affordability Report showed affordability declined nationally in the December 2020 quarter. The proportion of income required to meet loan repayments increased 0.9% to 34.8%. NSW was the least affordable state at 44.6% of income required to meet loan repayments, while the NT was the most affordable at 21.9%. The report also noted regional areas experienced a larger decline in affordability than the capital cities, with the regional index falling 3.7% in the quarter.

National residential property listings decreased 2.7% in February to 257,592, according to SQM Research data. Listings declined in Brisbane, Perth, Adelaide and Hobart, but rose in Sydney, Melbourne, Canberra and Darwin. The research also found capital city average asking prices decreased 0.3% for houses (to $993,800) but increased 0.4% for units (to $568,000).

According to CBRE’s 2021 Australia Real Estate Market Outlook Report, all capital cities are expected to see price growth. Perth’s residential market is expected to lead the nation with 9-12% growth in house prices and 5-7% in unit prices. Sydney house prices are expected to increase 7-10% and units 0-3%, Melbourne’s house prices 3-5% and units 0%, Brisbane’s house prices 7-10% and units 3-5%, Adelaide’s house prices 5-7% and units 3-5% and Canberra’s house prices 5-7% and units 0-3%.

Data from CoreLogic’s Property Pulse showed the value of the high-tier market ($960,000-plus) across the combined capitals rose 2.7% in February. In comparison, mid-tier market (around $675,000) values increased 1.5% while the low-end (under-$497,000) of property values increased 1.2%.

Sydney had the highest median house asking prices with growth of 1.3% to sit at $1,210,406 in February, according to Archistar’s National Housing Market Report. Brisbane was next at 0.7% growth ($574,959), followed by Perth at 0.5% ($556,089) and Melbourne at 0.3% ($851,401). Adelaide was the only capital to record a decrease of -0.6% to sit at $574,541. For units, Melbourne asking prices grew 1.8% ($460,271), while all other capitals recorded decreases. Perth suffered the largest decline in growth at -1.9% ($334,687), followed by Sydney at -1.2% ($575,200), Adelaide with -0.7% ($284,385) and Brisbane at -0.6% ($384,424).

REIA’s Real Estate Market Facts found that in the December 2020 quarter, the weighted average capital city median price for both houses and other dwellings increased. The weighted average capital city median price increased by 6.0% to $825,205 for houses and by 0.9% to $601,345 for other dwellings.

CoreLogic’s Pain and Gain report showed profitability in Australian real estate rose in the December 2020 quarter, coinciding with a 2.3% uplift in dwelling values nationally. Total gains from resales in the December quarter rose to $31.9bn, up from $24.8bn in the previous quarter. Combined losses from resales also shrank from $1.2bn to $1bn from the September to December quarter. The report also noted the rate of profit-making resales in the December quarter rose to 89.9%, up from 88.3% in the three months to June.

Figures from the ABS showed the total value of the 10.6 million residential dwellings in Australia rose 3.0% or $257.9bn over the December 2020 quarter to $7,724.4bn. The mean price of residential dwellings was $728,500.

According to HIA’s New Home Sales Report, sales were 1.7% higher in February than February last year. The report also noted sales in the three months to February 2021 were 60.5% higher than in the same three months the previous year. SA recorded the strongest growth over the three-month period (149.7%), followed by Victoria (69.1%), Queensland (60.4%), NSW (46.2%) and WA (25.1%).

REA Group’s Housing Market Indicators Report revealed property sales increased 33.2% over the first 11 weeks of 2021 compared to the same period in 2020. Sales in the NT were up 78%, followed by WA up 47%, Queensland 39% and Victoria with 35%. Tasmania recorded the lowest increase in sales at 11%.

Research from Moody’s Investor Service showed housing affordability deteriorated in all major capital cities over the five months to February 2021. It found households needed 24.6% of their monthly income to meet monthly mortgage payments on new loans in February, up from 23.0% in September 2020.

3. Building

The number of building approvals nationwide fell 19.4% in January to 15,926 (seasonally adjusted), according to the ABS. Approvals for private sector dwellings excluding houses fell 39.5%, while approvals for private sector houses fell 12.2%. The value of residential building approved declined 17.1%.

4. Investment market

According to statistics from the ABS, the value of new loan commitments for investor housing rose 9.4% (seasonally adjusted) to $6.64bn in January. Investor share of the loan market dropped to a record low of 19.1%, well below the long-term average of 33.1%.

ME Bank’s Household Financial Comfort Report revealed 38% of investors felt their properties would accrue value in the next 12 months, this was up from the 26% who felt that way six months ago. The number anticipating the value of their property will decline also halved from six months ago, to 12%.

In February, 26.5% of all investors were stressed (i.e. income from rent is not sufficient to recover the costs of owning and letting their properties), according to figures from Digital Finance Analytics. The ACT and NSW (35.3% each) had the highest number of stressed investors, followed by WA (25.6%), Victoria (25.0%), Queensland (24.8%), Tasmania (16.8%), SA (16.5%) and the NT (12.7%).

5. Finance matters

The RBA kept the official interest rate at the historic low of 0.1% at its board meeting on 2 March.

According to Standard & Poor’s RMBS Performance Watch: Australia report, the level of mortgage arrears rose in the December 2020 quarter. S&P’s Performance Index (SPIN) for Australian prime mortgages – which measures the weighted average of arrears more than 30 days past due on residential mortgage loans in publicly and privately rated Australian RMBS transactions – showed arrears increased to 1.37% in December 2020, compared with 1.28% in the same period a year earlier.

Analysis of APRA data by CoreLogic suggested changes to mortgage lending rules in the near future are unlikely, despite rapidly rising home values. Borrowing for the purchase of residential property hit a record $28.8bn in January 2021, up 34.8% from the decade average. While APRA noted the proportion of loan originations that could be ‘higher risk’ showed a slight increase through the December quarter, the regulator saw no evidence of a “material relaxation in lending standards”. 

6. Latest research

A survey by the Regional Australia Institute (RAI) revealed 20% of city residents were looking to move to the regions, with more than half wanting to “go country” within the next 12 months. When asked about the reasons for considering a move, 77% cited space and connection to nature as a reason to move, 75% expected an improved general well-being, 70% rated traffic congestion as a major factor and 68% wanted to reduce their cost of living.

Domain research has revealed it was cheaper to buy than rent in 722 suburbs for houses and 180 suburbs for units. For houses the top 10 suburbs where it was cheaper to buy than rent were Mollymock Beach (NSW), Middleton (SA), Port Elliot (SA), Malua Bay (NSW), Newman (WA), Nickol (WA), Port Hedland (WA), Muirhead (WA), Moranbah (NT) and South Hedland (WA). For units it was Gungahlin (ACT), Darwin City (NT), Mount Lawley (WA), Mudgeeraba (Qld), Canberra City (ACT), Clifton Beach (Qld), Manoora (Qld), Townsville City (Qld), Pacific Pines (Qld) and Cairns North (Qld).

According to research conducted by CoreLogic and Munich Re, almost 9% of Victorian properties are at very high risk of climate hazards, with another 8% at high risk. Around 80% of all Victorian properties are at medium risk, with only a fraction with low or no risk. Bushfires and river floods pose the greatest threat for properties with a high or very high risk of exposure. 

The PRD Stand Out Regions report has identified the 10 most affordable regional areas in Queensland, Victoria, NSW and Tasmania. Queensland: Whitsundays, Toowoomba and Mackay. NSW: Port Stephens, Federation and Greater Hume. Victoria: Greater Geelong, Greater Bendigo and Warrnambool. Tasmania: Circular Head. 

The concept of allowing prospective homebuyers to access their superannuation to enter the housing market is “fundamentally flawed”, according to Industry Super Australia. The advocacy group’s research revealed allowing FHBs to redirect some of their superannuation to use for housing deposits could hike up the nation’s five major capital city median property prices by between 8% and 16%. 

Search data from realestate.com.au revealed a 57% increase in interest from investors in the US. Hong Kong followed with a 17% increase and the third highest was Singapore at 15%.

According to research from Westpac, 35% of homeowners are planning to sell in the next five years, with 12% already in the process of putting their houses on the market. Despite this, the research also found 51% said they were actively holding off on listing their property straight away.

ME Bank’s Household Financial Comfort Report found mortgage stress had decreased by 5% to 37% during the six months to December 2020. The bank’s research also showed 21% of renting households pay over 50% of their disposable income towards rent – a decrease on the 26% figure recorded in June 2020. Meanwhile, 59% of renting households were found to be putting over 30% of their income towards rent, down from the June 2020 figure of 65%.

Gen Z (aged 14-22) still aspire to own their own homes, according to research from Bankwest. The survey found 71% were interested in owning a property.

According to a survey commissioned by ING, 32% of respondents said they were considering purchasing an investment property in a holiday location, compared to 30% who preferred to invest in property in the inner-city and 37% in outer-city suburbs.

Consumer sentiment rose 2.6% to 111.8 points in March, according to the Westpac-Melbourne Institute survey. The March index was just 0.2 points below the decade-high level reached in December 2020.

Data from the University of Melbourne and the Melbourne Institute’s Taking the Pulse of the Nation survey showed 31% of respondents reported difficulty in paying for essential items – 26% said they were “making ends meet”, while 43% said they felt financially comfortable. 

According to Market Buy, the national average monetary figure between the first offer placed on a property and the final sale price is $48,556. The online offer management provider also noted the number of qualified buyers increased nearly 120%, while there were 21.39 offers being made, on average, for each property that is for sale.

7. Technology insight

AustPost and DocuSign developed a solution that integrates DocuSign ID Verification with Australia Post Digital ID to verify signer identities. The new service is set to enable RE businesses to meet compliance obligations and reduce risk by eliminating the need to collect and store copies of sensitive ID documents.

Proply and ListReady launched a “list now, pay later” payment solution for agents and vendors. Vendors are able to defer marketing payments of up to $35,000 to cover costs associated with advertising, styling, home improvements etc. when listing for sale.

ANZi (ANZ Bank’s innovation division) released Propps – a digital offer management solution that allows agents to generate legally binding offers directly form their own website (by installing a “Make an offer” button on their listings) and manage the process between buyers and vendors.

Findings from a survey by the Property Council of Australia and Yardi Systems showed big data analytics, business process automation and virtual tours were the top technologies Australia’s property industry were adopting in 2021. Responding to the pandemic was cited by 27% as the reason for investing in new technology, while 55% said they were beefing up their investment in existing technology. Property companies were also turning to technology to support the safe return to offices, with track and trace (23%), touchless access (22%) and social distancing technologies (15%) the top three solutions.

8. COVID-19 impacts

On 4 March, the NSW State Government announced the introduction of legislation to continue to support tenants after the moratorium on evictions ended on 27 March. The six-month transition is to ensure no-one automatically loses their home before the end of September through rent arrears, with tenants and landlords being offered assistance to enter a repayment plan for any COVID-induced arrears.

The moratorium on evictions and rent arrears ended in Western Australia on 28 March. Relief packages remain available until 28 June.

On 28 March, the evictions moratorium in Victoria ended. While landlords can now evict tenants and increase rents, new rights and responsibilities have come into effect.

Tasmanian tenant and landlord support packages were extended on 24 March. Applications close 30 June.

9. On the radar

Catastrophe update: Devasting storms and flooding in NSW and Queensland saw the Insurance Council of Australia (ICA) declare the event an insurance catastrophe. EBM RentCover policyholders needing to make a claim should call our Expert Care team on 1800 661 662.

ANZ Bank has upgraded its forecast for house prices. In November 2020 the bank forecast 9% growth for 2021, it now predicts house prices at the national level will rise to a strong 17% through 2021, before slowing to 6% in 2022.

Domain identified the cheapest suburbs in which to purchase property within 10 kilometres of the capital city. In Sydney it was the suburbs of Arncliffe, Tempe and Botany. In Melbourne it was Maidstone, West Footscray and Footscray. Keperra, Tingalpa and Salisbury for Brisbane. Westminster, Nollamara and Redcliffe in Perth.

Luxury residential price growth was strongest in the smaller Australian cities over 2020, according to the results of Knight Frank’s Prime International Residential Index (PIRI 100).  The PIRI 100, which tracks the movement of luxury residential prices across the world’s top 100 residential markets, found five Australian cities – Perth (ranked #34 with 3.6% annual growth), the Gold Coast (#36 with 3.2%), Brisbane (#44 with 2.5%), Sydney (#56 with 1.1%) and Melbourne (#63 with Oslo at 0.9%) – were ranked in the top 65 for luxury residential market performance over the past year. Perth, the Gold Coast and Brisbane all recorded annual price growth greater than the global average of 1.9%. Auckland topped the list with 17.5% annual growth.

According to the Top 10 Asian Buyer Picks report from Juwai IQI, Australia is the second-most popular destination for residential real estate buyers from across Asia. Australia is especially popular, the report says, with buyers from China, the Philippines, Malaysia, South Korea and Japan. In 2020, the top 10 locations in Australia enquired about by Asian buyers were Melbourne, Sydney, Brisbane, Hobart, Adelaide, Perth, Gold Coast, Canberra, Cairns and Darwin.

REA Group announced a proposal to acquire publicly listed mortgage-broking firm Mortgage Choice.

Legal corner: The Full Federal Court has found Quantum Housing Group guilty of engaging in an “unconscionable system of conduct” in its dealings with investors regarding the National Rental Affordability Scheme (NRAS), in breach of the Australian Consumer Law. It found Quantum had pressured NRAS investors into dumping their existing property managers to engage someone they had a commercial link with but did not tell the investors of those commercial links. The Group was fined $700,000 while the sole director was fined $50,000.

For the fourth consecutive year, Finland has been named the world’s happiest country. Iceland came 2nd, followed by Denmark, Switzerland and the Netherlands rounding out the top 5 in the annual World Happiness Report. Australia retained its 12th place ranking. Afghanistan was ranked the most unhappy, along with Zimbabwe, Rwanda and Botswana.

10. Government incentives and actions

Residential tenancy reforms came into effect in Victoria on 29 March. The new legislation makes 132 amendments to the Residential Tenancies Act 1997.  

The Australian Government announced reforms that cut red tape and enable automatic mutual recognition (AMR) of real estate agents and other tradespersons holding state-based occupational licences are expected to boost the economy by $2.4bn over the next decade. Under the reform, real estate agents, builders, electricians, plumbers, architects and security guards who currently hold an occupational licence in their home state or territory, and who want to do the same work elsewhere, “will be automatically deemed to have the necessary licence”, federal Treasurer Josh Frydenberg said. “These workers will also not need to pay any additional fees or apply for additional licences.”

The Tasmanian State Government announced land tax thresholds will be increased, with the land value at which tax becomes payable increasing from $25,000 to $50,000. The top threshold will also increase from $350,000 to $400,000.

The Victorian State Government announced new planning rules to make sure new apartment designs are attractive, built from durable materials and don’t exacerbate windy conditions for the street and public spaces.  

The NSW State Government is seeking public comment on the proposed Design and Place State Environmental Planning Policy. The policy is designed to create more beautiful buildings, better public spaces and greener suburbs. The Government is also seeking public comment on a proposed centralised digital strata hub to make it easier for anyone who builds, owns, lives or works in a strata scheme to get the information they need.

Main photo by Krista Purmale on Unsplash

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 954 374 if you have any questions. 

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