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Australian Property Market Trends: What's in Store?

CEO Khai Intela
The Australian residential property market has always been subject to various factors that influence its performance. As Australians gear up for the upcoming federal election, investors find themselves hesitant to make any major decisions, including...

The Australian residential property market has always been subject to various factors that influence its performance. As Australians gear up for the upcoming federal election, investors find themselves hesitant to make any major decisions, including real estate transactions. This hesitation is not only due to the election but also because of a decline in activity within the market after months of exceptional growth.

Rising Cash Rate Target

To combat higher inflation figures, the Reserve Bank of Australia made the decision to raise the official cash rate by 25 basis points to 0.35%. This marks the first rate rise since November 2010. Many financial institutions had already increased mortgage lending rates prior to this to adhere to a more responsible lending environment.

Australian cash rate target raised 25bps to 0.35% Australian cash rate target raised 25bps to 0.35%

Declining Clearance Rates

Clearance rates, which reflect sales activity and capital values, have been trending lower across Australia. In the first four months of 2022, the average clearance rate was 69.1%, slightly below the 79.1% achieved during the same period in 2021. This slowdown in auction activity suggests a potential cooling of the market.

Clearance rates trending lower across Australia Clearance rates trending lower across Australia

Shrinking Share of First Home Buyers

First home buyers experienced a brief window of opportunity in 2020 when property values subsided. However, as the market recovered and investors returned, prices surged, making it increasingly difficult for first home buyers to enter the market. The share of first home buyers decreased to 29% of all Australian owner-occupier new loan commitments by the end of 2021.

Australia’s share of first home buyers shrinks Australia’s share of first home buyers shrinks

Uptick of International Buyers

The Australian government continues to encourage foreign investment in the residential property market, with no proposed changes to the Foreign Investment Review Board application process framework. However, the opposition government plans to double foreign investment application fees and financial penalties from July 2022. Despite this, international buyers have made a comeback, with their share of new residential property rising to 7.9% in March 2022.

Uptick of international buyers in Australia Uptick of international buyers in Australia

Sites Sold Outside City Boundaries

As housing supply declines, developers have started selling more low-density sites on the outskirts of major cities. This shift aims to provide more affordable options for homebuyers. However, developers and buyers face challenges such as rising construction costs and extended weather events, which impact project delivery.

Increasingly more sites being sold outside greater city boundaries Increasingly more sites being sold outside greater city boundaries

Outlook

With the expectation of multiple cash rate hikes to combat inflation, rising mortgage lending rates may impact consumer sentiment. As a result, sales activity is likely to slow down, leading to a short-lived correction in price growth. Furthermore, the supply of new homes is expected to diminish considerably in the coming years across most of Australia.

It's important for investors and homebuyers to stay informed about these trends in order to make informed decisions. Keep an eye on the Australian residential property market as it continues to evolve and adapt to various economic and political circumstances.

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