Many of the predictions made for property in early 2020, prior to the pandemic, turned out to broadly hold true. This was despite the worst economic downturn in Australia since the Great Depression.
The unusual nature of the recession being productivity driven, as opposed to finance led, meant house prices across Australia didn’t fall.
In fact, in some locations, price growth was far stronger than expected. Despite some uncertainty in Melbourne and Sydney, the combination of low interest rates, high savings rates, record levels of government stimulus and specific sectoral job loss buoyed the market.
Job loss was concentrated amongst younger people employed in hospitality, tourism and education, which led to a drop in rental prices across the nation.
The apartment market was particularly challenged, compounded by a loss of foreign students and a rise in short term accommodation coming onto the market as long-term rentals. Like many parts of the property market, whether it be commercial or residential, buyer demand was strong in 2020 but tenant demand was not.
Overall, the property market performed particularly well in 2020, but it wasn’t without problems. Rental drops led to weak investor demand and new development slowed dramatically. While incentive schemes like HomeBuilder led to a sharp uptick in new house construction, off the plan apartments were in very low demand.
In 2021, many of the themes we saw last year will continue. Positive conditions will remain given Australia’s recovering economy but closed international borders will weigh on migration levels and interstate border closures will add to uncertainty.
A call back into the office is likely imminent for many people and this will have some impact on where people can live. Momentum will continue in 2021, but don’t expect the market to be exactly where it was prior to the pandemic.
On this page we look at some of the highlights from the REA Insights Property Outlook Report 2020, or you can download the full report below.
- Property market on the march as prices primed for growth
- The lure of luxury
- Regional Australia continues to shine
- Rental markets to improve but will remain weak in some areas
- Overseas property search to climb, but not from China
- First home buyers to moderate but remain a strong market
- Investors to return
- HomeBuilder wind down to impact house and land
It was perhaps the biggest surprise of 2020 that house and unit prices rose across Australia, despite plunging into recession in the midst of a pandemic.
While prices rose overall, there were some periods of price decline throughout the year. In particular, house prices in Sydney and Melbourne dropped slightly between the start of the pandemic and May. Unit prices in Sydney declined through to August.
Overall, at an aggregate level, all parts of Australia saw an increase, with the strongest markets being Canberra, Hobart and regional New South Wales (NSW) and Victoria (VIC) for houses.
For units, it was the smaller cities of Darwin and Hobart that saw the biggest price growth, while the resurgence of the mining sector was particularly good news for regional Western Australia (WA).
At a suburb level, price growth was mixed. Overall, 84 per cent of suburbs in Australia saw house price growth, while 70 per cent of suburbs saw unit price growth.
Areas with widespread house price growth included Sydney, Canberra and Hobart with more than 90 per cent of suburbs seeing median house price increases in 2020.
Officially, Australians have never been wealthier, and that was very apparent in the luxury property market in 2020.
According to the Australian Bureau of Statistics (ABS), total household wealth hit a record high in November 2020, driven primarily by a big increase in savings, as well as increased superannuation and growth in house prices.
Australians who remained employed and worked in sectors that benefited from COVID-19 such as mining or the technology sector, likely not only saw increased savings but also experienced income growth.
By the end of 2020, despite the pandemic, these factors combined to make conditions particularly strong for the luxury residential market, and in particular, the ultra-luxury market.
One theory is that offshore luxury expatriate buyers were one driver of the accelerating luxury market. Although, data is hard to come by, anecdotal evidence supporting this theory is strong.
Towards the end of 2020, views per listing on realestate.com.au for homes priced over $10 million had increased by 150 per cent compared to prior to the pandemic. While the increased demand may be explained by people stuck at home browsing beautiful properties online, median price increases in Australia’s most expensive suburbs suggests otherwise.
Of the 30 suburbs with medians priced over $3 million, only five saw a price decline. More than half the suburbs on the list saw double digit price growth. Most striking, the number of $3 million plus suburbs doubled during the pandemic.
While almost all $3 million plus suburbs in Australia are located are in Sydney, Canberra saw its first $3 million suburb with Forrest entering the list in 2020.
This unique trend of house price growth during a recession did not occur during the Global Financial Crisis last decade or the early 1990s recession.
In 2021, it is possible that the list of $3 million plus suburbs will again double, primarily because much stronger conditions are expected for the residential market. While the majority of suburbs will be in Sydney, there are some potential contenders in other states including Mont Albert, Portsea, Brighton, Flinders and St Kilda West in Melbourne, and Main Beach on the Gold Coast, which would be the city’s first $3 million plus suburb. Bar Beach, a particularly nice suburb in Newcastle, is also a contender.
For many years, there has been a steady stream of people moving to regional areas on the edge of capital cities including to the Illawarra, Gold Coast and Geelong. Once lockdowns began in March 2020, there was a sharp increase in the number
of people searching for property in regional Australia on realestate.com.au.
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By November, the ABS announced in the June quarter of 2020, they found the greatest movement of people out of capital cities and into regional Australia ever recorded. And by the end of 2020, house prices in regional Australia were found to have outperformed capital city growth.
While a lifestyle change was one factor in the regional movement, mining was possibly the most significant driver, and anecdotally, there was also an increase in second home buyers.
Interest in regional Australia doesn’t seem to be waning. We continue to see a trend for regional property in search activity on realestate.com.au, and price growth has been far higher in regional areas compared to capital cities. Activity is particularly strong along the east coast from Newcastle in NSW all the way up to the Sunshine Coast in Queensland.
The growth in mining town rents and values is more dependent on the commodity cycle. While conditions have been very strong in the areas that mine iron ore and gold, less positive conditions have been seen in coal mining areas. Uncertainty in our trade relationship with China impacts housing markets in many parts of regional Australia considerably.
A final factor determining the future of regional markets is whether people will be called back into the office. This may lead to greater demand for regional areas on the outskirts of capital cities. We’re starting to see this trend show up in changes to views per listing on a suburb basis – at the end of 2020, we saw a big increase in realestate.com.au search activity on the Mornington Peninsula.
While prices have been particularly robust throughout the pandemic, the same cannot be said for rents. Rental declines happened very quickly as a range of factors impacted the market once lockdowns began in mid-March.
The main driver was high levels of job loss in hospitality, tourism and education. The majority of renters are young and higher proportions were employed in these sectors. Income loss affected the ability to afford rent so the six-month moratorium on evictions was legislated by the Federal Government.
Another challenge for the rental market were problems in the tertiary education sector. Foreign students were unable to return to Australia and many local students returned home or moved into share accommodation as classes moved online and
job loss became more prevalent.
By the end of 2020, rental markets appear to have largely normalised and there were only two areas where rents were down over the 12-month period. Not surprisingly, given high levels of unit development over recent years, plus higher exposure to student markets, Melbourne and Sydney unit markets saw the biggest drop in rental prices.
More positively, not everywhere was hit by poor levels of rental demand. Regional Australia did particularly well, whether led by growth in the mining sector, or alternatively, people looking for more space and taking advantage of changed
For houses, regional NSW saw the biggest jump in rents, increasing by 5 per cent. For units, strong mining conditions pushed up rents 6.7 per cent in regional WA.
While a rental market recovery is imminent, the rebound for inner Melbourne will be slow. Melbourne has seen the biggest increase in rental listings on realestate.com.au since the start of the pandemic. In fact, Victoria accounts for almost 85 per cent of the increase in vacant units since the start of the pandemic, highlighting the affect the prolonged lockdowns had on tenant demand.
Melbourne CBD saw an additional 4,341 units vacant year-on-year in December 2020, far more than any other location in Australia.
Interest in Australian property climbed in 2020 with searches from the top seven most active countries increasing 13 per cent year-on-year. The biggest jump in searches was from the US at 57 per cent, likely driven by the political and economic uncertainty, as well as skyrocketing COVID-19 cases. Hong Kong SAR of China followed at 17 per cent, also impacted by political upheaval. Third highest was Singapore at 15 per cent.
Meanwhile, interest from China in Australian property continued to plummet, dropping by 39 per cent over the past 12 months. At this stage, the only thing that could potentially bring back Chinese investment would be better performing unit markets, which is unlikely especially in Sydney and Melbourne.While Chinese buyers don’t look to be coming back anytime soon, it is likely that as Australia’s economy and property markets continue to recover, we will see continued interest from offshore buyers in 2021. And while it is unlikely that we see the incredible capital flows into new residential apartments we saw in 2017, a steady recovery appears imminent.
While the pandemic appeared to assist first home buyers, the reality is, that activity had already started with the introduction of the Federal Government’s First Home Loan Deposit Scheme.
The pandemic accelerated activity with the biggest jump year-on-year showing up in June when enquiry on realestate.com.au more than doubled. In 2020, first home buyer enquiry was up 62 per cent, in sharp contrast with investor enquiry which was down 5 per cent. ABS housing finance in November 2020 showed a record number of owner occupier first home buyer loan commitments since October 2009.
First home buyers tend to be more active in slower markets when they can take their time, so it’s no surprise that the last time we saw such high levels of activity from this buyer group was during the Global Financial Crisis. Investors and first home buyers frequently target the same sorts of properties at similar price points, so fewer investors meant conditions were less competitive.
Combining these factors with the low cost of finance and generous government incentives meant conditions were ripe for first home buyers.
In 2020, HomeBuilder was not specifically targeted to first home buyers, but the housing price point it applied to, as well as the cut off for household income, meant that this group was a key market. While first home buyers are active buyers in house and land communities, enquiry on realestate.com.au really ramped up, which was followed by very strong sales.
Overall, Melbourne CBD units saw the highest level of first home buyer enquiry in 2020. This was likely driven by renters deciding to become buyers, as well as competitive pricing for many apartments during the pandemic.
In 2021, it is unlikely first home buyers will continue to be as active as they were. Prices are moving quickly; investors are coming back and any incentives available to first home buyers are likely to be eased.
At the end of 2019, investor activity was staging a recovery. The Financial Services Royal Commission was over, and prices were moving upwards. Then the pandemic hit and by April 2020, investor enquiry had plunged 25 per cent compared to the previous year. It remained that way until October, at which stage it started rebounding, coinciding with more positive economic and property market data.
Investor activity was low in 2020 but there were a limited number of key areas where investors were active, even in the depths of the recession. Between April and September, overall investor enquiry dropped by 12 per cent but in regional WA and Canberra it jumped by 17 per cent and 27 per cent respectively.
This reflects employment ramping up in both markets with mining in regional WA and government employment in Canberra. Meanwhile, in Melbourne and Hobart, activity plunged 26 per cent and 40 per cent likely driven by lockdowns in Melbourne and border closures in Tasmania.
The recovery that investor enquiry staged in the final quarter of 2020 is set to extend into 2021. Importantly, larger markets such as Melbourne and Sydney, are no longer seeing declines in activity. Strong conditions in regional WA and Canberra has extended to regional NSW and regional SA. The areas seeing the biggest jump have been the Hunter Valley and Southern Highlands, further indicating the rise of outlying regional areas to capital cities.
Zero international migration and a recession should have been bad news for developers in 2020, but it wasn’t the case, particularly for house and land developers who had a bumper year. By the end of 2020, new home approvals, as measured by the ABS, were at their highest level since 1999.
The sharp uptick in activity was in part driven by HomeBuilder. Introduced in June 2020 as a way to prevent a collapse of the construction sector, the scheme led to a surge of enquiry to builders of new houses on realestate.com.au. Leads for new housing developments on realestate.com.au more than tripled between April (the first month of the first lockdown) and June (the month HomeBuilder was introduced).
In December, this activity flowed through to new home sales with the Housing Industry Association (HIA) reporting that sales doubled in that month. For apartment developers, the impact of HomeBuilder was more muted, primarily because the scheme was unavailable for investors, the main buyers of apartments. Nevertheless, enquiry increased by 86 per cent over the April to June time period.