We joked about it but now it’s really happening—soon we’ll be able to visit Prague before Perth.
International borders are opening, at least to NSW. As we prepare to lift travel restrictions from November 1, people are beginning to ponder what kind of effect the move will have on our already bonkers property market.
We all know the stats; property prices in Australia have already grown by about 21% this year, and Sydney’s median house price has jumped almost $300,000 over the past year to surpass $1.3 million for the first time.
So, what should we expect? In terms of the impact on the housing market, a lot depends on immigration levels and how quickly they return. But the big factor that has been driving prices—record low interest rates—has likely had its moment in the sun. Now it’s time for units to enjoy the limelight.
The leading consensus is that the return of migrants once borders reopen is expected to drive stronger unit price growth and close the enormous gap with houses in Sydney. As temporary workers and international students begin to re-enter the rental market, demand for apartments and units (particularly in suburbs within close proximity to the CBD and universities) will rise significantly. It’s not the international students or skilled workers that will be entering the market, but investors looking to capitalise on their need for rental properties while they work or study.
Across the country, investor lending has been increasing, with the Australian Bureau of Statistics (ABS) data for July 2021 showing that investor lending commitments almost doubled in value from $4.7 billion last July to $9.35 billion this year.
It’s no secret that unit price growth has stalled in Sydney since the pandemic hit. A large portion of the rental market left Australia last year and has been locked out ever since. Couple that with new remote working conditions leading many to move outside of the city, and you’re looking at more supply than demand in high density areas like Pyrmont, The Rocks, and the CBD.
By the end of 2020, the value of units in Sydney fell about $20,000 from pre-pandemic levels—the biggest loss across all capital cities in Australia. Between January 2021 and 30 August 2021, the median house price rose more than twice as rapidly as the average unit price, growing 23.3% compared to 11.5%, according CoreLogic data. The price gap between the two property types has never been wider, with the median house price currently close to 80% higher than a unit (nope, that’s not a typo). But the reopening of borders could change that.
The timing of the Government allowing the resumption of travel might prove tricky for investors looking to capitalise on the influx of foreign renters heading to our shores, though. For the first time since before the pandemic hit, the appeal of apartments has begun to change as many Australians, particularly first home buyers, find themselves priced out of the housing market and see better value in owning a unit.
Combine these growing affordability challenges with regulator APRA’s moves to tighten lending to more leveraged borrowers, and we’re likely to witness an uptake in buyers looking at family-suitable units and other attached dwellings over multi-million-dollar houses.
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