Expert commentary

Residential sector

 
Last week, auction clearance rates across the capital cities dropped for the first time this year. Nationally, 2898 homes returned a 72.8% clearance rate, slightly down from 73.5% the week prior. Read more on CoreLogic...
 
The AFR reported that Sydney is likely to record its first drop in housing prices since October 2020. On 19 February, CoreLogic’s 28 day rolling average index showed Sydney’s housing prices dipping by 0.2% & into the negative territory, reversing the slight growth felt in January this year. CoreLogic’s research director Tim Lawless comments that this indicates the market levelling out, reflecting a decrease in demand, and will ultimately benefit future buyers with decreased pressure on housing prices. AMP Chief Economist Shane Oliver says that a peak in the Sydney market was expected in the second half of 2022, but that the market is probably peaking now, a bit earlier than anticipated. (Sydney house prices record slight fall, Nila Sweeney 22/02/22)
 
Despite the easing buyer demand, unaffordable rent and a lack of rental properties generally remains an issue for Sydney and Melbourne especially. The AFR reported that across 320 suburbs nation-wide with vacancy rates of less than 1%, landlords are selling their investment properties. First-home buyers are stifled by a lack of affordable supply, and increasingly opt for rental apartments, therefore rental properties are being taken out of the market & not being replaced. As tenants return to offices & compete for housing, we can expect to see affordability in rental pricing worsen, projected to increase by at least 10% each year. (Rental supply set to shrink as landlords sell up, Nila Sweeney 22/02/22)

Australia has now opened its borders for the double vaccinated and visa holders. However, the return for residents will be slow and housing demand will follow steadily.  CoreLogic examines how this will impact the housing in the short and long term: The return of overseas arrivals and Australia’s property market. 

OTHER KEY HEADLINES

Commercial sector

The AFR reported that commercial property is becoming an increasingly competitive market, with agents expecting childcare and hospitality assets to attract the most buyers over the coming weeks. Yields for assets sold last week at auction include a pub bought at 5.3% yield and a car yard sold at 5.17% yield. (Rain, hail or shine, investors bidding hard for commercial property, Martin Kelly 22/02/22)
 
Retail
The AFR reported that a flurry of retail deals in the final quarter of 2021 resulted in an upsurge in transactions to $12.8bn, trumping the previous high by 47%. This provides solace to investors and landlords, as the dramatic write-downs on retail values during the first wave of the pandemic are overturned by rising prices and rents. (Midland Gate joins rush of malls deals at $500m, Nick Lenaghan 24/02/22)
 
Industrial
Knight Frank’s Asia-Pacific Warehouse Review for H2 for FY21 revealed that warehouse rents increased a marginal 0.5% year-on-year. However, rents are expected to grow by at least 3% in the region throughout 2022. Read more: Rents in logistics forecasted to grow by 3-5% in 2022 across Asia-Pacific.
 
Hotels
The AFR reported that as tourists return to Australia, hotel owners and operators will be relieved by rising occupancy rates. However, Event Hospitality & Entertainment boss Jane Hastings believes that the full opening of key tourism markets of New Zealand and China is required to have any meaningful impact on the sector. (Return of China, NZ travellers key to hotel rebound: Event, Larry Schlesinger 21/02/22)
 

OTHER KEY HEADLINES
1. Brisbane’s office market takes off with more than $500m in sales – AFR 23/02/22
2. Acquisitions, cheaper debt drive upgrade at HomeCo Daily Needs REIT – AFR 23/02/22
3. Commercial property investors push yields down to new low – Commercial Real Estate 25/02/22
4. Cromwell flags $3b office float as it goes capital light – Commercial Real Estate 25/02/22
5. Commercial buildings putting the environment first – The Australian 24/02/22
6. Property Council calls for skilled migration to aid shortages across hotel and hospitality sector – Mirage 22/02/22

Construction & development

In important news this week, Probuild, one of Australia’s largest construction companies has been forced into administration after it’s Johannesburg-listed majority owner Wilson Bayly Holms-Ovcon will no longer provide financial assistance to the firm. Deloitte has been appointed as the administrators after it is evident the company may have lost $50m on a project in central Brisbane. Probuild recorded revenue of $1.3b last year but with a profit  of just over $4m. The Urban Developer explains the administration details in Probuild Owner Calls in Administrators.
 
The AFR reported that the collapse of Probuild leaves 18 active projects in limbo and several hundred of workers unemployed. Most of Probuild’s sites are in Melbourne, including the Caulfield Village Precinct project, West Side Place on Spencer Street, as well as Sydney’s The Ribbon and Brisbane’s 443 Queen Street. (The major projects left in limbo by Probuild collapse, Martin Kelly 24/02/22)
 
Business Insider attributes the retraction of South African funding to ‘severely depleted’ resources and racked up ‘significant losses’ to the detriment of the parent company’s financial performance; combined with soaring material prices, Covid delays and supply chain shortages. Financial assistance from WBHO was retracted from 22 February, with Deloitte allocated as administrators. Business Insider elaborates: The collapse of Australian construction giant Probuild will leave $5 billion worth of projects unfinished across the country.
 
Housing supply
The Sydney Morning Herald reported that Sydney has reached a historic drop in new housing supply after a collapse in apartment developments. Sydney’s Planning Department recorded fewer than 30,000 homes were completed in 2020-21, down from 42,000 in 2017-18 and well below the target of 36,000 a year. This could exacerbate the shortage and push up prices even more as population growth is posed to increase post-pandemic. Property Council analysis also revealed that the city was failing to capitalise on huge transport infrastructure investment by building higher density developments near commuter hubs. (‘Historic’ drop in supply of new Sydney homes prompts shortage warning, Michael Koziol 24/02/22)
 

OTHER KEY HEADLINES
1. Home builder Simonds hit by materials, labour shortages – AFR 23/02/22
2. Lendlease plunges to loss on weak development, construction – AFR 21/02/22
3. ‘Not in good shape’: more construction industry collapses could follow Probuild – The Guardian 25/02/22
4. Construction giant blames high-risk Australian sector as Probuild collapse threatens tradies – The New Daily 24/02/22
5. Australia dangles cash to get developers building with wood – Global Construction Review 04/02/22

Finance sector

Australia’s official unemployment rate in January remained at a historically low 4.2%, with prospects of it returning to below 4% in 2022 according to Scott Morrison. The RBA’s central forecast is 3.75% by the end of 2022. However, real wage growth is stagnant, creating a complex but key issue to the upcoming election. Read more: Vital Signs: Unemployment steady at 4.2%, but it will need to go lower still to lift wages.
 
The AFR reported that real estate agency McGrath does not think that Australia’s low unemployment and potential interest rate rises will be dramatic enough to halt the growth in the residential market. CEO Mark Law believes that the market is making its way to sustainable growth and does not forecast a drop in house prices. (McGrath says interest rate rises will normalise property market, Martin Kelly 21/02/22)
 
Lending
The Australian reported that Australians could be paying 25% more on their mortgages in as little as 18 months if the RBA hikes the cash rate to 2.25% by September 2023, according to NAB analysis. However, the bank’s economists believe that borrowers could afford the lift in repayments because the APRA-mandated minimum interest rate buffer to test borrowers’ capacity to pay would be effective. (Loan repayments to jump 25pc, Patrick Commins 22/02/22)
 
The Age reported that the federal government may assist low-income earners in purchasing homes through a shared equity scheme. This scheme would allow the federal government to co-purchase up to 30% of a property’s value to help arrest declining rates of homeownership among poorer Australians. The proposed scheme would enable first-home buyers and older Australians re-entering the market to buy with as little as a 5% deposit when co-purchasing with the government, which would then take the same proportionate share, of up to 30%, of any profits when the home was sold. (Would you co-buy with the government if it meant you could own a house?, Kate Burke 20/02/22)
 
Tax Reform
The Age reported that the Victorian state government is expected to abandon its controversial $800mn social housing tax after Dan Andrews accused the property sector of reneging on a deal to give them “massive windfall profits” through faster approval rules if they accepted the new levy. Last week it was announced that developers would be forced to hand over 1.75% of the expected value of all newly built developments with three or more dwellings to pay for an extra 1700 social and affordable homes each year. (Andrews pulls $800m property tax bill, claims industry reneged on deal, Josh Gordon and Paul Sakkal 23/02/22)

Ukraine-Russia conflict
With the current Russia-Ukraine conflict, Australian economists and the Treasurer Josh Frydenberg are concerned pressures on prices would have a broader impact on the global financial system, on equity markets and stabilisation. The AFR reported that there is weakened confidence in the cost of living as petrol prices rise and worker shortages. (Confidence down, inflation expectations up as Ukraine tension grows, Ronald Mizen 22/02/22)
 
The New York Times reported that the combination of spikes in energy and food prices, fuel inflation fears and spooked investors threatens investments and growth in global economies like Australia’s. However, the immediate economic impact of the conflict will not equate to the damage experienced during the first lockdown of Covid. (What’s at stake for the global economy if Russia invades Ukraine, Patricia Cohen and Jack Ewing 22/02/22)

OTHER KEY HEADLINES
1. Own now, pay later: FrontYa launches new property ownership model – AFR 22/02/22
2. Voters worry about falling wages, back lower migrant intake – The Sydney Morning Herald 23/02/22
3. Wage growth is still lagging behind inflation, new ABS figures show, complicating the RBA’s plans to tighten monetary policy – Business Insider 23/02/22
4. When we open up, let’s open up big: top economists say we need more migrants – The Conversation 20/02/22
5. Developers say Victoria social housing tax will hit first home buyers – AFR 20/02/22

The lack of affordable housing is a critical issue which is hurting older Australians, as the percentage above 55 who are homeless has increased by 28% according to the 2016 census. For some, house-sitting has provided some reprieve from rental stress. According to a 2022 study published in the Australian Geographer, a sample group of 20 house-sitters between 53-78 cite this as their primary reason for long-term house sitting. Despite this, participants reported perpetual insecurity from this lifestyle, as these short-term living situations provide no long-term certainty, particularly as health-issues arose with age. The Conversation elaborates on the need for affordable housing for vulnerable age-groups.

1. Bundanon Art Museum: Arthur Boyd’s Estate Reimagined: March 5th - Bundanon, NSW

During Australia’s devastating bushfires of 2020, Arthur Boyd’s estate was nearly destroyed, which housed over $40mn worth of Australian art at the time. The collection will be reimagined in a new habitat in Shoalhaven, which has opened this new sustainable gallery. The innovative gallery will be open to the public on March 5th. 
 

2. Architectural Drawings Workshop: by Lyon Housemuseum and Galleries: March 5th - Melbourne, Victoria

Spend Saturday morning learning how to draw with perspective! Here you’ll learn the fundamentals of how to sketch and colour like an architect. 

3. Retirement Outlook Forum: March 1 - Melbourne, VIC  

The Property Council Australia invites you to a discussion around the rapidly changing landscape of housing & its effects on retirement living. COVID has demonstrated the importance of social connection, and ensuring the well-being of those in aged care & ageing well. This is an opportunity to network & bring vitality to Australia's fastest growing demographic.