Australia Property Market Insights
Australia’s remarkable recovery from recession
The Coronavirus-induced economic disruption caused Australia to enter its first recession for the first time in 28 years. Australia’s economic growth dipped 0.3% in the first quarter of 2020, followed by a 7% decline in the following quarter.
Backed by a robust domestic sector, the economy bounced back faster than expected. Official figures released on 2 Dec 2020 revealed a 3.3% economic growth in Q3 2020 compared with the previous quarter.
Australia’s relative success in its pandemic health response, renders positive outlook on Australia’s economic recovery as social restrictions relax and domestic borders open up.
Australian Property Market remains unshakeable amidst global pandemic
Australia’s largest Asset Class
As the most prominent asset class in Australia, real estate is quintessential to any well balanced investment portfolio. Australia’s combined residential and commercial property market is worth more than A$8 trillion, compared to A$2.7 trillion in superannuation and A$2 trillion invested in the ASX.
Resilience in Australian property market
According to a report on Australia Home Value Index by Corelogic Inc., Australian residential property transactions experienced a 40% plunge through March and April 2020. Despite that, the year ended with almost 8% more transactions, compared to the previous year. Dwelling prices also showed incredible resilience with a mere 2.1% drop during the peak of the covid-fuelled economic downturn, before “rebounding with strength throughout the final quarter of 2020”.
Dwelling values finished 3% higher as compared to the start of the eventful year, and the private residential market is primed for growth in 2021.
Source: CoreLogic Hedonic Home Value Index report
Strong government support
The Australian federal and state governments are aware of the key role property plays in the Australian economy. Their pro-property policies have been a strong pillar of support for the property market. Examples of pro-property policies include the recent $680 million HomeBuilder scheme, low cash rates, high immigration quotas, negative gearing, first-home buyers grants, the First Home Super Saver Scheme and the First Home Loan Deposit Scheme.
With these in mind, we believe that the attractiveness of Australian real estate is not dampened by the current economic conditions, and interested investors are encouraged to explore various options to gain exposure to the Australian property market.
The rise of real estate debt strategies
The Australia interest rates hit a historic low of 0.1% when the Reserve Bank of Australia (RBA) cut the official cash rate in November 2020. To stimulate the economy during this Coronavirus-induced economic downturn, the RBA has given strong guidance that interest rates will remain low for at least the next three years.
With the shift to a lower return environment, we expect to see a further deepening in the real estate debt market with a surge in the number of lending and the diversity of debt strategies. According to Ben Burston, Chief Economist of Knight Frank Australia, “lower expected capital growth will narrow the gap between expected returns on equity and debt strategies, tilting the risk/return dynamic toward debt”.