Expert’s take: How each state’s property market is performing

With the year set to end in less than three months, seven experts from Property Investment Professionals of Australia (PIPA) give us a deeper insight into the major markets. 

PIPA chair Nicola McDougall said the significant rise in interest rates in such a short period of time has led to many borrowers, particularly investors, not being able to secure lending for their property purchases.

In addition to higher mortgage costs, Ms McDougall said that the Australian Prudential Regulation Authority (APRA)’s decision to boost the lending buffer in October 2021 is still being felt by borrowers. 

“In fact, many of these borrowers are stuck on the sidelines due to the servicing buffer of 300 basis points still being applied to lending applications — even though interest rates are significantly higher now than when APRA announced the measure in October last year,” she said.  

The body’s latest national report also showed that the Reserve Bank’s fast-paced interest rate hike cycle has clearly started to impact property markets, with prices softening with each passing month. 

But while the downturn is hitting the broader part of the country’s housing market, the report showed that it’s the larger capital cities that are bearing the brunt. 

Here is a closer look at what’s unfolding in each capital city, according to local experts:

NSW

Kate Hill, a property buyer from Adviseable, commented that the sentiment is mixed among buyers and sellers across the state. 

“It’s muted and cautious in some quarters because of the sharp and unexpected level of interest rate rises, and it’s buoyant and opportunist in others as people try to sniff out a bargain,” Ms Hill said.

She also highlighted that current market conditions are reminiscent of the early pandemic days. “Low stock levels continue across the board, and while there are still good attendances at some opens, others are reporting much-reduced attendance numbers.” 

Ms Hill added that even trophy markets — which have seen strong gains during the pandemic — are finding it difficult to find a spring in their step. “Many of the more prestige Sydney markets are struggling to drum up any real action, which is typical in the earlier stages of a flatlining market,” she said.

But the expert pointed out that there are still investors who are unfazed by the less-than-desirable conditions and who know that opportunities remain in the market. 

“Many agents report that the July and August markets have been filled with keen and opportunistic investors,” she commented. 

With agents reporting more properties being passed in at auctions, average selling days of around 20 days and taking several opens to sell, Ms Hill advised sellers to temper their expectations.  

“The selling environment now is all about adjusting seller’s expectations as there is reduced urgency from buyers, and we have thankfully seen an end to last year’s buyer frenzy and general FOMO. 

“With a wider softer sentiment creeping in, the biggest challenge for sellers is to understand what their price benchmark should be. They are having to benchmark property prices on what happened this week, two weeks ago or in the same month, rather than a couple of months ago and expecting to achieve the same or better result,” she recommended.  

Within the state’s rental space, she reflected that the market is undergoing a transformation. 

“Investment portfolios are shrinking across many property management businesses because property investors have been largely ostracised from buying and borrowing for several years,” Ms Hill stated. 

She also forecast that the trend of declining vacancy rates and rising rental yields would “continue for some time to come” due to strong demand, which is expected to be under further pressure from the return of migrants to Sydney and other NSW markets. 

Victoria 

While Victoria was the runt of the state market litter in 2021 due to the series of lockdowns imposed to prevent COVID-19 spread, Cate Bakos, a local buyers advocate from Cate Bakos Property, highlighted that the region has “exhibited a reasonable degree of resilience” so far in 2022. 

The expert noted that in the face of several headwinds, including supply chain issues, inflationary pressure pain and most importantly, interest rates rising, Victoria’s rate of retraction had been unexpectedly “softer” than anticipated. 

“Our regions have held up remarkably, particularly considering so many regions exhibited record growth over a short period during COVID. For those who anticipated an elastic pull-back in values, our ‘work-from-home’ culture that was borne from COVID lockdowns has somewhat protected regional assets from price falls,” she explained. 

She also observed that seasoned investors are not deterred by the current conditions. “While those who haven’t ever experienced increasing interest rate environments remain jittery, more mature property buyers and investors alike have broadly remained committed to their property acquisition plans,” she said. 

Ms Bakos stated that the state’s market strength is underpinned by the “star of the show for 2022”: Victoria’s quality inner-city apartment market. 

“This LGA outperformed every other this year so far (as of September 2022), and it can be put down to the combination of our city appeal rebounding and regional escapees doubling up their housing options with a city pad in tandem with their country house,” she remarked. 

She also highlighted that the recent easing of the rate hikes to 25 basis points during the last RBA meeting could be the sign that buyers on the sideline have been waiting for as an indication of the market bottoming out. 

Queensland 

Buyers advocate Joanna Boyd said that while the Sunshine State’s market has “officially settled down” into some semblance of “normality”,  buyers are hesitant to make the purchase now or to wait till prices skid lower. 

“The median values are trending downwards because of these changing market conditions, but prices are remaining relatively stable as Brisbane demonstrates a less volatile marketplace compared to other capital cities,” she stated. 

The local expert also highlighted that Brisbane continues to enjoy strong popularity with its strong potential for growth, due to infrastructures being created in preparation for the Olympic Games — which is seen to have a flow-on effect of growth in job opportunities and steady migration. 

“As a result, we are starting to see an emergence again of interstate investors and buyers relocating to secure their slice of Brisbane,” she stated. 

Providing some on-the-ground insights, Ms Boyd shared that they have observed the “Mexican stand-off” scenario play out between some sellers and buyers. 

“Sellers are still setting prices in their minds with figures that were being achieved six months ago, whereas buyers are not feeling as pressured to pay for a property above what they perceive to be the current market value,” she explained. 

Ms Boyd said that the FOMO sentiment, which has fuelled urgency among buyers during the boom, has dissipated, adding that “buyers are making more informed decisions through additional research and due diligence. 

But she predicts that the FOMO will return in the coming months due to the usual interstate migration occurring over the Christmas and New Year period for jobs and schooling opportunities. 

Rather than give her predictions for the rate of trajectory of the rate hikes, she posed a question on when the ceiling interest rate will be reached. 

“The RBA has announced more interest rate rises, of which the banks quickly passed onto their consumers. The answers everyone wants to know — is there an end to these hikes nearing, and when can we have more certainty to invest within the Queensland property market again with more confidence?” she said.  

South Australia   

Although the South Australian property market has cut a strong figure over the current quarter, the director and principal strategist at Prospa Property Advisory, Adam Hindmarch, admitted that there are now indications of the sector cooling down “ever so slightly”. 

“CoreLogic reports a second consecutive month of negative price growth in September, something that we have not seen since the market started its upward climb in 2020,” he stated. 

But he cited other data to support his view that the declines are not as steep as they initially appeared.  

“With a current median price of $651,000 in Adelaide, it is of note that the September price drop was only 0.16 per cent, according to PropTrack. So, we are still looking at very minor drops and prices potentially stabilising in Adelaide.  

“The regional South Australia property market has continued to remain relatively strong, being the only regional market in Australia to have positive price growth in the last month. PriceTrack recorded a 0.55 per cent  price increase in September, which is great news for regional investors,” he explained. 

However, he acknowledged that there is an observed softening in market demand among property buyers, as agents report prospective purchases have become more hesitant and the days of receiving multiple offers over the asking price also subsiding. 

According to Mr Hindmarch, agents are also reporting that finance issues are becoming more common problems for buyers who negotiated a long settlement. 

He attributed the issue of finance cropping up more often during real estate transactions to the impact of recent interest rate rises, which have reduced many purchasers’ borrowing capacity. 

As for the rental market, he said that the low vacancy rates are not just an elephant in the room — but rather, the issue has grown “a second trunk”. 

“It is still extremely hard for tenants to find a quality (or even poor quality) rental property in Adelaide, and the rental crisis is worsening,” he stated. 

Overall, he had a positive investing outlook for Adelaide due to the strong demand from interstate investors driven by the region’s offerings of strong rental market pressure, solid yields and affordable properties. 

Western Australia 

From a data perspective, Performance Property Advisory director David McMillan commented that the Perth property market is showing the “classic signs of a market about to go on a moderate and possibly sustained run in pricing”.

“Classic in terms of having the combination of a) massive affordability and b) a clear undersupply at the same time,” he stated. 

He cited that the city’s current Affordability Index (AI) is 23 per cent — indicating that 23 per cent of the average wage is going towards the average new mortgage. 

“This is almost as low as Perth gets, and in direct contrast to Sydney, which is sitting at an AI of 66 per cent,” he explained. 

The expert said that the massive affordability in Perth is coinciding with a clear undersupply, evidenced by the city’s vacancy rate falling from 5.9 per cent in 2017 to 0.6 per cent in the last quarter. 

“This has resulted in rents increasing 30 per cent to 40 per cent since 2017. The undersupply is further evidenced by the downward trends in both the stock on market and days on market,” Mr McMillan stated. 

He predicts that the city’s supply shortage will be exacerbated by the slow creation of new stock due to skills shortage in the state post-pandemic. 

“With most of the workforce employed (current unemployment rate is 4.2 per cent), this can only mean the problem has to be solved via migration. This will push up wages, rents, and property prices,” he added. 

On top of this, Mr McMillan said that new stock needed to be constructed at current construction and labour prices which are around 30 per cent to 40 per cent higher than pre-pandemic levels and are still rising. 

“This should drag up the cost of secondary housing, which is trending well below replacement cost in many areas,” he stated. 

He forecast that the rate hikes would not be a thorn in the Perth property market’s side. “Looking forward, interest rates are set to rise further, and this is bad news for Sydney; however, it’s highly unlikely to stop the positive momentum in the Perth market as it will still be affordable after these rate rises occur,” he said. 

Tasmania

According to Paul Glossop, the managing director of Pure Property Investment, Tasmania’s property market is now taking a U-turn on its set trajectory in the last half-decade. 

“Well, the records that were getting broken quarter on quarter for the Tasmanian market over the past five years are now starting to turn the other way,” he observed. 

While there continue to be hotspots within the region — namely the Hobart, Launceston, Devonport, and Burnie markets — which continue to outperform market averages both on capital growth and rental yields, he acknowledged that the lofty heights of growth and increased cash flows are now set to subside, at least on the capital growth front. 

The expert stated that as the state’s economy continues to be very strong and with little indication that it will waver over the coming years, the main concern for property owners would not be whether the economy will underpin the housing market. 

Mr Glossop explained that property owners’ main focus would be more on affordability issues, due to the strong 70 to 80 per cent capital growth the market recorded over the last five years.   

“Based on the most recent CBA and CoreLogic data, the average home buyer in Tasmania is now contributing in excess of 40 per cent of their total household income to mortgage repayments if they were entering into the market based on average house price versus average household income. 

“When you compare this to the long-term average of 30 per cent to 33 per cent, you start to understand that many household budgets will start to become stretched with the recent interest rate cycle increase,” he said. 

Mr Glossop predicts that the state’s market will go through a transitional phase in the coming years, where it will see a decrease in value of  around five to 15 per cent and hold steady at that stage for the coming one to two years after.  

The expert also offered his predictions for the rental market. 

“Rental yields will still be strong, and vacancy rates will still maintain the very low sub-1 per cent position due to the very limited future supply coming to the market and the steady population growth numbers, which will mean that cash flow should still be relatively sound given there has been an average of 10 per cent annual rental increases for the past five years alone,” he concluded.