The Australian property market has begun to settle following a high performing couple of years, and the is slowly correcting itself with rising interest rates. Following the boom in property prices last year, values in major cities Sydney and Melbourne have started to soften – primarily as a result of rising Australian mortgage rates, which have caused buyer confidence to drop slightly. Despite the reduction in home values in the major cities, median values in other states such as Queensland and Western Australia have gone up.
From an economic perspective, Australia is seeing wage growth in various sectors to compensate for the higher costs of living with the unemployment rate dropping 0.1% to 3.4%. Australian tourism has also seen an upswing, with a sharp increase expected over the next 12-18 months, and will see higher immigration inflows as international students ramp up demand for housing.
The residential construction industry remains challenged this year, with repercussions spilling over from the post-pandemic years worsened by the Russia-Ukraine war and China’s Zero COVID-19 policy. Apart from material costs doubling, the number of workers has reduced by half, with many Australian building companies being forced into administration.
With the dramatic reduction in new housing construction, there has been no significant oversupply of housing in most markets. However, the amount spent on residential construction across Australia this year amounted to $16.5 billion – representing annual growth of 7.3%. This demonstrates a spike in the cost of construction materials.
Considering the labour and material challenges faced by the industry, this is not alarming. The increasing number of residential projects either delayed, deferred or abandoned has resulted in issues in supplies for ready-to-sell stock, and even more so for detached housing. Companies are now shifting their focus to innovate building and project management approaches in attempts to restore the conditions of market.
The rental supply and demand imbalance is more pronounced this year compared to last year. Australian rental prices, driven up by this high demand, will eventually make it more attractive for tenants to purchase a property.
We have seen double-digit growth over the last year - with almost all capital cities recording an annual median rental percentage increase, fully translating a rental supply crisis. The hardest hit renters are in Perth, where median rents are increasing by 12.5%.
Australian property investors should know that the regional markets have seen higher implied rental yields - with Darwin performing the strongest this year at 6.6%, followed by Canberra at 5.6% and then jointly Adelaide and Perth at 5.5%. Melbourne and Sydney property continue to have the lowest implied rental yield. Rental yields this year moved at various speeds that were dependent on the balance between property price and rental price growth.
Property values are growing in several parts of Australia compared to median rent growth, which results in lower rental yields. This is despite the rental crisis the country is facing, which has pushed median rents up and caused a deep imbalance in demand and supply of properties for sale, shooting price growth to extraordinary levels.
We hope you’ve found this article useful in understanding the key conditions of the Australian property market. The Tailor My Property team has helped many clients with overseas properties, including those in Australia over the years, and although it might seem challenging to enter the Australian property market, we are able to assist with everything from mortgages to tax advice and property options. Reach out to have a conversation with us anytime.