Urban Property Australia Founder and Managing Director, Sam Tamblyn said that the growth of Melbourne house prices has been underpinned by a disconnect between demand and supply. Total advertised listings remained extremely low throughout 2021 to date with buyer demand consistently outweighing new advertised supply.
While Victoria’s strict lockdown proved successful at halting the spread of the virus and the state forecast to expand the fastest of all Australia’s states in 2021 the impact of the pandemic on the property sectors will be everlasting. Urban Property Australia explores the effect of the pandemic on the property market to date and what may be next for Melbourne’s property markets.
Melbourne house prices have surged in the first quarter of 2021, to fully recover the losses experienced during the pandemic.
Urban Property Australia Founder and Managing Director, Sam Tamblyn said that the growth of Melbourne house prices has been underpinned by a disconnect between demand and supply. Total advertised listings remained extremely low throughout 2021 to date with buyer demand consistently outweighing new advertised supply.
Melbourne residential prices have grown by 5.6% to reach a new all-time high with buyer demand driven by owner occupiers.
Mr Tamblyn added, “in response to a range of factors including record low interest rates and recent economic conditions that have consistently beaten forecasts, Australians are feeling optimistic and confident in making high commitment decisions related to the property market.”
Total Victorian housing finance commitments reached 20-year highs in December 2020, and as at February 2021, is 45% higher than levels 12 months earlier. In terms of the composition of loans, the proportion of loans to first home buyers has risen to 41%, well above its 10-year average; whereas investor loans now account for 24% of total loans, significantly below its 10-year average.
Elsewhere, for the third consecutive year, both Victorian Regional houses and apartments outperformed their metropolitan counterparts with strong price gains recorded over the year.
Mr Tamblyn said, “The performance of Victoria’s regional housing markets has been supported by the trend of people relocating from the metropolitan area with employees increasingly seeking to work remotely encouraged by their experiences during the pandemic.”
Both the median Regional house price and median Regional apartment price have reached all-time highs as at March 2021.
Similar to the regional property market, the local prestige market experienced particularly strong conditions buoyed by the record low interest rates and homebound Australians coupled with limited stock on offer.
According to Urban Property Australia, while the Victorian residential property market generally has gathered momentum through 2021, the outlook for the commercial property sectors of the retail, industrial and office markets are mixed.
Mr Tamblyn said, “for the first time on record, Victorian retail trade contracted last year as the influence of the Victorian lockdown reduced consumer spending patterns.”
Although retail trade grew in Victoria has recovered in 2021, the variance of the performance of the individual retail sub-sectors illustrates the impact of the pandemic with retail trade for cafes and restaurants 49% lower than levels last year whereas retail trade for household goods has increased by 12%.
“Investment activity in the Victorian retail property sector in 2020 totalled $1.1 billion, the lowest annual transactional level since 2012 reflecting the subdued buyer sentiment of the sector at present,” Mr Tamblyn said.
Mr Tamblyn added, “while COVID-19 impacted supply chains, a rapid acceleration of e-commerce has led to a large amount of enquiry for additional space. Increased spending on consumer staples and demand from logistics occupiers has underpinned tenant demand.”
With the on-set of the pandemic highlighting the importance of the industrial sector, and its resilience compared to the office and retail sectors, investor demand for industrial assets continued to be incredibly strong.
In contrast to the office and retail property sectors, yields for the industrial sector have firmed through the past 12 months, according to Urban Property Australia.
Mr Tamblyn said, “with the Victorian economy the hardest hit hardest by the COVID-19 pandemic, Victoria’s total employment has only just surpassed pre-COVID levels having lost approximately 240,000 jobs at the height of the virus.”
“While employment levels have recovered to pre-COVID levels, leasing activity in the Melbourne metropolitan office market was still subdued with few tenants growing,” he said.
According to Urban Property Australia, the vacancy rate of the Melbourne metropolitan office market has increased to its highest level in 15 years having been unfavourably impacted by the record levels of completions and soft tenant demand.
Looking ahead, Victoria’s economy is forecast to outperform all other Australian states and territories in 2021 having experienced a strong rebound in the December 2020 quarter.
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