State of the market property report for September 2023

The Australian housing market maintained its recovery momentum in August, with home prices experiencing accelerated gains for the sixth consecutive month.

The property market could see its performance further improve, with speculation the Reserve Bank of Australia (RBA) has hit a peak in its current hiking cycle.

Home prices rise for six months straight

Home prices posted their sixth consecutive month of growth in August, with CoreLogic’s national Home Value Index (HVI) rising 0.8 percent compared to the same period last year. The increase marks a modest acceleration compared to a rise of 0.7 percent in July.

The HVI has risen 4.9 percent after staging a recovery since February, adding around $34,301 to the median dwelling value in Australia.

All of Australia’s capital cities posted gains in August with the exception of Hobart, which saw a 0.1 percent decline. Brisbane led the pack with a 1.5 percent increase, while Sydney and Adelaide followed with a 1.1 percent rise in home values.

CoreLogic research director, Tim Lawless highlighted the strength of gains in Australia’s larger capital cities.

“Sydney has led the recovery trend to date with a gain of 8.8 percent since values found a floor in January this year,” Lawless said.

“Brisbane has also posted a strong recovery with values up 6.2 percent since bottoming out in February.”

Other drivers of recovery include a listings drought, caused by owners delaying sales following a 4 percentage point rise in interest rates, as well as an increase in demand from returning migrants.

As interest rate rise expectations stabilise and prices begin to tick up in time for spring, prospective vendors are seeing an increase in listings. However, if inflation continues to rise, prompting further interest rate adjustments, it could alter the market’s dynamics.

This rise in home prices and transaction volumes is set to benefit state governments, with the NSW budget raising its forecast for stamp duty revenues over the next four years by $9.5 billion.

State governments could also reap the benefits of an incentive plan from the federal government, designed to encourage them to over-deliver on the housing supply targets outlined in the Housing Australia Future Fund.

VIC and NSW deficits can benefit from housing targets

In this week’s NSW budget, treasurer Daniel Mookhey didn’t put a big emphasis on housing, aside from pointing to a $2.2bn housing spend in the budget, mostly for infrastructure that would enable future growth.

“If we don’t build the streets, no one will build the homes,” Mookhey said.

CrowdProperty Australia CEO David Ingram said this is only one part of a housing solution and neglects the need for an increase in medium-density housing within existing communities, especially around transport hubs.

“This is the domain of small-scale and SME developers who build infill homes where the big developers (who need streets built for them) don’t, won’t, or can’t act,” Ingram said.

The NSW budget has a focus on bringing down the level of debt. With net debt in NSW forecast to represent 12.6 percent of the state’s economy by 2026-27, compared to 24.4 percent in Victoria the same year, it’s reported that to return NSW to surplus and pay down debt relies on an anticipated increase in income tax.

Victoria is also facing a large deficit. As reported in the AFR this week, “For Victoria alone, facing a $4 billion deficit this year, the prospect of receiving federal incentive funds – which Grattan Institute’s Brendan Coates says could be worth $1 billion over five years for the immigration-fed, fast-growing southern state – is a big incentive.”

“A smart state government would be grabbing the federal incentives to build more homes with both hands,” Ingram said.

“However, the roadblocks for the SME developer sector are many, including adequate access to funding (number one issue), with most banks not wanting to play in this smaller space; inconsistency in rules and regulations between individual councils across the country, limited fast track approval processes for smaller scale projects, a lack of understanding or commitment at council level for smaller-scale affordable product types, and limited access to builders due to so many of them having gone out of business after the housing ‘boom’.

“To create these changes means coordinated action and a need to activate private capital to fill the funding gap left by banks and large on-bank lenders who have backed away from small-scale developers.”

Ingram said small-scale developers typically work within the existing planning frameworks and are ready to build homes now, while the big developers are busy sorting out their three-to-five-year projects.

“In two and a half years we’ve seen over $750m in project loan applications from small-scale and experienced SME developers, who are DA approved and ready to build,” he said.

“By unlocking the capital the federal government wants to activate, we can move those funds to where they’re needed and help the small-scale community build more homes in existing communities where people actually want to live.

“If the governments can act on the other roadblocks, we think we could help triple the output of this community and enrich communities with more quality homes for families.”

Victorian government takes control of planning to build 2m homes

The Victorian government announced this week that it would aim to build 800,000 new homes across the next 10 years. To enable this, planning processes will be streamlined for major housing projects worth over $50m in Melbourne and $15m in regional Victoria, with a requirement for 10 per cent affordable housing.

To speed up approvals, 90 planners will be brought in to process a backlog of 1400 applications for multi-unit housing that have been waiting for a decision for longer than six months.

According to the AFR report, ’the plan includes a new $1 billion regional housing fund the government claims will deliver 1300 new homes, and $500 million extra to help 3000 more first home buyers through a shared equity scheme in which the state government takes a 25 per cent stake in house purchases.

‘The Property Council of Australia said it had identified almost 80 office buildings it claimed were underused that the government could convert into residential apartments, creating up to 12,000 homes.’

RBA extends pause on rate hikes

At his final rates announcement as RBA governor on 5 September, Philip Lowe said the cash rate target would remain unchanged at 4.10 percent.

The decision marks the third consecutive month the RBA has held off raising interest rates, fuelling speculation the current hiking cycle could soon be over.

Rob Flux, developer and educator from the Property Developer Network, said the move is a positive sign of sentiment at the RBA, as well as reflecting concern over the impact of hikes on mortgage borrowers.

“By keeping interest rates on hold for the third time in a row the RBA is suggesting inflation is starting to come under control,” Flux said.

“There is also still a whole bunch of household distress, with the mortgage cliff impacting some people. The RBA is keeping rates on hold in order not to cause a crash in the shorter term.”

Flux expects a series of interest rate cuts to kick off as early as the start of 2024, which could induce a renewed boom in housing prices.

“Most of the banks are predicting that it will be four to six months before the first rate cuts start, in which case we should see a series of three to four interest rate cuts over the 12 months after that,” Flux said.

“We are set for the impact of a reasonable boom in the not-too-distant future.”

Buying opportunities still available

While the Australian property market could be on track for another boom in 2024, strong buying opportunities should still be available before the RBA resumes rate cuts.

“There will be some significant buying opportunities in the next three to six months as interest rates stay on hold,” Flux said.

“People are still under mortgage stress, and some of them will be forced to sell as this eats into their savings.

“That’s going to create some buying opportunities, which means we can buy low and potentially sell high as interest rates then start to drop in the six to 18 month time horizon.

“This means that any investor looking to buy now should be in for a really nice upswing in the not-too-distant future.”