February Property Market Update
This year has marked particularly strong performance in the property market, and February has been no different. This strength has come from a few specific sources, such as increased activity in low density property markets, lifestyle markets and regions with international buyer appeal. Activity and prices in the market are consistently high, and buyer confidence is exponentially increasing. So, what can we expect this month?
Low density housing increases in popularity
Many buyers are opting to purchase houses and townhouses over units and apartments in high density situations. Across Australia, for every unit that is sold, three houses are sold, much higher than the decade average.
In Sydney, the distribution of house purchases and unit purchases is often an even split, with the decade average being 53.5% of activity as house purchases. In January 2021, the distribution changed to 58.3% activity being house purchases, which is a substantial jump.
This is likely due to three reasons. Firstly, buyers have an increased desire for space because the pandemic prompted a shift in mindset. Lower density housing is now seen as safer and the general sentiment around houses is far better than that of apartments.
People are purchasing houses over apartments because first home buyers are incredibly active in the market. Historical data demonstrates that first home buyers are extremely reactive to stimulus. With the government providing many different concessions to first home buyers, they are particularly active in the market. These people tend to purchase low density options as they often plan to grow their family.
The introduction of the HomeBuilder grant for new builds and substantial renovations are responsible for increased interest in houses.
This has overall caused house prices to rise more rapidly than inner city unit prices. However, this is often the case, as house prices grow faster than apartments.
International buyers are consistently active
Although media sources suggest that international buyer enquiry has dropped off and negatively impacted the property market, both data and analogical evidence suggest the opposite. Master Real Estate agents report that 40% of buyer enquiries they receive are from international buyers, mostly Chinese nationals.
These international buyers continue to also purchase in the market, even sight unseen if they have a trusted buyers’ agent. For example, a Neutral Bay agency recently sold 148 Tennyson Road in Tennyson Point for over $3.4 million sight unseen to Chinese nationals that they had a previous client relationship with. They communicated over WeChat and the property was purchased quickly.
Anecdotal evidence suggests that international buyers are still active in the market, perhaps even stronger than before, as the Chinese dollar gains purchasing power in Australia.
Owner-Occupier participation in the market is high
This cycle of growth is different compared to previous cycles because we are seeing demand driven by owner occupiers rather than investors. This is because these buyers taking advantage of the various concessions and schemes in the market. This, combined with the fact that interest rates are at an all-time-low highlights the amount of incentive for home buyers.
Over Australia, investors comprise of 23% of mortgage demand at the moment, a drop compared to the decade average of 33%. However, in NSW, investor participation is still much higher than the national average at roughly 29% of mortgage demand.
This could suggest a potential rental property shortage in the near future, as less investors purchase properties for renters to occupy. This could suggest that it is a pre-emptively smart move to purchase an investment property now.
Mortgage holidays and some government schemes such as JobKeeper are set to reduce or dissolve altogether in February. However, many concessions were already reduced around December and there was minimal impact on the market. In fact, it increased confidence from buyers and sellers. This suggests that there will be continued strength in the market, regardless of the incentives available.