5 Post-COVID Real Estate Trends

With sufficient official data now available, we thought it worth reviewing some post-COVID trends and to assess the evidence of what actually occurred over the 12-months subsequent to the germ infiltrating Australian communities.

In the minds of many, March 2020 marked the beginning of an enormous economic depression and one of the biggest property market crashes in Australia’s history.

Property Values

A long list of lemon-suckers cited a freeze on overseas migration as a key reason for forecasting property price declines of 20 to 30 percent.

On 16 March 2020, one week prior to everyone going into that long national lockdown, we rebutted the doomsday forecasts in this ‘Safe as Houses’ video and articulated why those who could afford it would be wise to act on Propertyology’s prediction and ‘beat the seagulls to the chips’.

Those who did that will have already enjoyed significant capital growth.

As shown in the above graphic, double-digit capital growth over the 12-months ending March 2021 was quite common.

The absolute standout performers are Canberra, Hobart and a bunch of regional locations that include the north-coast and Griffith in NSW, Sunshine Coast QLD, Bendigo and Warrnambool in VIC and Port Hedland in WA.

The dominant force in the market has been owner-occupier upgraders, first home buyers, and people moving to a different town.

Population Trends

The closure of the international border placed a freeze on the 250,000 (net) overseas migrants who normally move to Australia each year.

Last year’s population growth rate was the lowest Australia has seen World War 1 (more than 100-years ago). And property prices are booming!

Piecing together different series of ABS data to estimate results for the 2020 calendar year, Sydney’s annual population growth has been pegged right back from circa 75,000 per annum to an estimated 11,000 increase. And this is after more than 60,000 new-borns in Sydney last year.

Our back-of-the-beer-coaster estimation for Melbourne is that its total population declined by 10,000 last year. In 2020, Melbourne had a net loss of 17,000 to overseas migration (aka ‘international students’) while a net 26,000 former Melbourne residents have relocated to somewhere else within Australia. These population trends are part of a suite of metrics that represent fragile fundamentals for Melbourne.

Brisbane had the biggest capital city population growth last year (circa 30,000 in total), but that’s only 60 percent of what it normal produces each year. And, contrary to a lot of recent commentary, internal migration volumes into Brisbane are currently no higher than the last 4-5 years.

Analysis of ABS data also confirms that last year’s rate of population growth within the combined regional locations of each state was very similar to their respective historical trends. Propertyology puts this down to regions having very little reliance on overseas migration along with an increasing number of people relocating away from capital cities, especially Melbourne and Sydney (a net 31,500 in 2020).

COVID-19 also created a new trend for people working-from-home. It started as a temporary solution for a very large portion of Australia’s workforce and, while plenty have returned to traditional routines, this has evolved into a growing number of people adopting this as a permanent lifestyle switch.

This structural change will continue to present significant challenges for the CBD economies of Australia’s biggest cities.

Another trend coming out of COVID is the diminished attraction of apartment living. It is Propertyology’s strong view that this will cause additional long-term concern for this already problematic asset class and is a good reason for all property investors to remain focused on detached houses.

Here’s a recent example of our work for a client…

Rental Trends

As the germ began to infiltrate Australia and each state government (understandably) introduced temporary legislation to prevent tenant evictions, the first trend that we observed was a huge spike in rental vacancy rates in capital city CBD’s.

While we anticipate the rental markets in Sydney and Melbourne to continue their current soft trend for some time yet, everywhere else in Australia has a ridiculously low volume of rental supply.

Rental supply is determined by the volume of people who buy properties for investment purposes (the everyday Aussie property investor). As outlined in our comprehensive research report [“Locked Up: Australian Real Estate’s Mobility & Rental Crisis”], investor participation rates in this country have been well below demand volumes for several years.

The primary cause of the steep decline trend of the green line in the chart below is APRA’s tight credit policy directly reducing investor participation rates.

Economic Trends

The economic Armageddon that was predicted proved to be nothing more than glass-half-empty paranoia. Today’s national economy is arguably the best that Australia has produced since before the Global Financial Crisis.

The much talked about ‘fiscal cliff’ from the wind back of the Job Keeper employment support package never eventuated.

Similarly, instead of the doomsday forecasts of a huge spike in distressed real estate sales, only 0.7 percent of Australian home loans were still on a deferred repayment arrangement as at the end of February 2021.

Most mortgage holders actually have a significant buffer of extra payments available in redraw and offset facilities.

According to ABS Head of National Accounts, Michael Smedes: “With 1.8 percent GDP growth in the March quarter 2021, Australian economic activity has recovered to be above pre-pandemic levels and has grown 1.1 percent through the year.”

Economic trends are significantly stronger in many of Australia’s regional cities than in capital cities. Our outlook for locations of opportunities and vulnerabilities has not materially changed over the last 12-months.

Household Wealth

Credit Suisse reported this month that 1 in 10 Australians are now technically ‘millionaires’ and the pace of wealth creation in this country is rocketing.

“This is primarily due to the ongoing performance of our two principal sources of wealth, housing and financial assets, underpinned by robust GDP growth,” said Credit Suisse Australia head of private banking, Michael Marr.

Here’s a recent example of our work for a client…

Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

We walk-the-walk. Here’s a recent example of our work for a client: