Real estate quarterly reviews: Overview and residential

• Market remains positive despite Omicron surge
• A-REIT index (+8.9%) outperformed ASX S&P 200 (+1.5%)
• Residential to slow, expected growth only 8%

Quarterly results and reports continue to roll in, with the latest overall market insights released from Dexus and Knight Frank.

Broader market

As the current wave of Covid sweeps through the nation, the real estate market is expected to remain positive, according to Dexus’ Australian Real Estate Quarterly Review Q1 2022.

The actual impact will likely hinge on hospitalisation rates and any restrictions introduced, with the Dexus report making five key assumptions:

• That “Infrastructure investment and non-residential building activity will contribute to economic growth despite a softening in residential construction.”
• A strong labour market that will support an increase in consumption,
• Low interest rates and accumulated savings continuing to support retail spending,
• That the inflation rate continues to float around 3% per annum this year, “… but subside after that.”
• Interest rates remaining low, but rising by some 1% in 2023.

It also noted that harsh lockdowns “appear unlikely”.

In Knight Frank’s Australian Residential Review Q4 2021, the report said Australia had the fifth largest residential market in the world at the end of September 2021.

The metric determining this was an 18.9% price growth figure, with seven of the eight capital cities in Australia also recording double-digit price growth.

The Knight Frank report also noted that Australia last ranked in the top five during the final quarter of 2015, ranked fourth for its 10.7% annual growth.

Dexus said both listed and unlisted real estate performed well, the ASX 200 A-REIT index finished the year up 8.9%, as compared to ASX S&P 200 index (+1.5%).

“Unlisted fund continued to strengthen, helped by firming valuations. Of the 13.1% return in the year to December, 4.4 percentage points was income return and 8.4 percentage points capital gain.”

Dexus Australian Real Estate Quarterly Review Q1 2022

Residential overview

Throughout the pandemic, several factors contributed towards a rising property market, factors which are expected to either disappear or ease.

Knight Frank’s report said the residential market is expected to slow by the end of this year, with forecast growth only at 8%.

A tipping point in affordability is the principal reason behind the slowed growth, according to the Knight Frank report, following further borrowing restrictions put in place by regulatory body APRA.

Other factors include stock coming onto market, but also hesitation from buyers given the likelihood of rising interest rates on the horizon.

Key Drivers

Sources: As cited in Knight Frank: Australian Bureau of Statistics (ABS), Reserve Bank of Australia (RBA), Real Estate Institute of Australia (REIA), Australian Property Monitors (APM).

City highlights

Across Australia’s major cities, most recorded rental growth with Melbourne being the exception (-2.3%). The east coast continued to drive the national average house price up, with Sydney close to $1.5 million, both Melbourne and Canberra were also above $1 million apiece.

Highs and lows of Australian housing

Major city data: Apartments

Regional highlights

Housing away from the major cities also saw considerable movement, with median house values recorded at $616,000, moving up 19.2%, for the year ending September 2021. This metric relates to major regional areas of Australia where local government areas had more than 10,000 dwellings.

Regional Western Australia experienced the highest annual growth in sales volume for regional Australia, the state also recorded the highest average gross rental yield for regional Australia.

Regional Tasmania topped the other regions for annual house price growth and had the lowest number of average days on market.

Regional housing data