Joseph Banks Property Fund – Residential Market Outlook

The property market is emerging from the 2020 COVID cloud. Overseas investors have been concerned that residential markets in Australia will be impacted similarly to some of the US capital cities. Cliff falls have not taken place in Australian capital city residential markets for a number of reasons. Firstly, and probably most importantly, Australia (to date) has not been as affected by COVID 19 as most other countries which has enabled housing production to continue. The Australian Government also undertook stimulatory measures to promote construction such as the $2.5 billion Homebuilder initiative and broader income support measures such as Jobkeeper. Thirdly, interest rates are at historic lows which despite rising real estate prices has made homes more affordable (based on imputed rent affordability analysis).

Indicators & Trends.

A good indicator of market supply is dwelling approvals. In Sydney and Australia, total approvals were falling significantly well prior to the onset of COVID. Approvals stabilised during COVID and are now growing slightly. Across Australia, 139,078 approvals were delivered in the year to March 2021. Sydney contributed 51,300, Melbourne 47,442, Brisbane 20,905 and Perth 19,398. In Sydney, detached house approvals are only slightly down (6%) from the 2016 peak while apartment approvals are down significantly (64%) from the 2016 peak.

Residential construction in NSW was $4.75 billion in the year to March 2021. The value of construction activity compared to the March quarter 2020 is up 12% for dwelling construction and 2% for unit construction.

A good indication of the state of the market is vacancy rates. In Sydney, vacancies are down 18% on 2020 but still sit at 3.1%. But in New South Wales regional areas, there are significant shortages of stock with vacancy rates in regional centres sitting under 1%. Auction clearance rates seem to be stabilising at 76% in Sydney (May 2021) which may also signal an end to the substantial price growth experienced over the past year.

Some clear trends are emerging from the latest information. The residential property market corrected before COVID and has stabilised. While there may not be at the moment, it is possible that there will be an uptick in apartment production. Traditionally, apartment approvals in Sydney represent more than 60% of total approvals and presently they are sitting around half of that. There are also residential property shortages in regional centres and cities. Investors need to undertake their own investigations but based on the available information the residential property asset class appears to be holding up well despite some unprecedented shocks and there is potential for continuing future growth. There are risks such as increases in supply chain costs and changes to the availability and cost of money, but these risks have not emerged to date.

This article has been published for Joseph Banks Property Fund by Urbanised ™ Pty Ltd for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific advice. Please seek your own advice for any questions you may have. All information contained in this article is subject to change. Joseph Banks Property Fund and Urbanised ™ Pty Ltd cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article. Urbanised ™ Pty Ltd retains the copyright.

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