The recent Covid-19 pandemic has sent stock markets across the world reeling. US futures and Asian stocks tanked as policymakers worldwide took dramatic steps to cushion the economic blow caused by the outbreak.
The US Federal Reserve and Bank of England slashed interest rates to a historic low of near-zero, with the former launching a massive $700 billion quantitative easing program to shelter the economy from the effects of the virus.
Investors are having concerns over the volatility of the property markets, as many countries go into full or partial lockdown to deal with the spread of the coronavirus.
But how much of an impact could current health fears actually have on house prices? The stock markets have fallen dramatically, but compared to property, stocks are largely driven by sentiment.
A rush in overseas buyers is expected ahead of the stamp duty surcharge enforcement in April 2021.
The UK government has announced an additional 2% surcharge on all non-resident buyers of property in England and Northern Ireland, prompting a potential scramble from foreign investors before its enforcement on 1 April 2021.
What’s the outlook for Australian property in 2020?
With a strong start to the year, Australia’s property market is looking bright for investors once again. We expect house prices to rise substantially this year, led by double-digit gains in Sydney and Melbourne.
Australia prices are forecasted to be led by double-digit gains in Sydney and Melbourne
Having made a rapid comeback in recent months, home price gains are forecasted to reach as high as 15% in Melbourne and 14% in Sydney in 2020. The other Australian capital cities are expected to have low to mid single-digit price increases — up to 7% in Hobart, 6% in Canberra, 5% in Perth and Brisbane, and 3% in Adelaide.
Historically low interest rates, strong population growth and tight supply of housing are providing support for price growth. Sydney and Melbourne, in particular, are tipped to surpass their previous house price records towards the end of 2020.
Prior to the slump of the last two years, house prices were at their highest in 2017, with the average house costing $859,500 in Melbourne, while Sydney’s broke the 7-figure mark at a staggering $1.05 mil.
Australia’s economic growth is expected to pick up this year, but risks to that include the recent global outbreak of the Covid-19 virus, and damage from the bushfire crisis.
The Reserve Bank has already taken steps to boost a flagging economy, having cut rates late last year to a record low of 0.75%. Economists have predicted further cuts this year to stimulate growth and increase employment.
Demand from a growing population
Australia has one of the highest population growth rates in the developed world. The World Bank puts it at fifth place behind Iceland, Luxembourg, New Zealand and Israel, although the first four are significantly smaller countries.
The growth in population comes mostly from migration, which accounted for 62% of total growth, according to latest figures from the Australian Bureau of Statistics (ABS).
Although the number of residents continues to go up, housing supply has decreased. The number of completions declined severely last year, and construction activity is expected to remain weak going towards 2020/21, which will fuel a higher demand for housing.
While interest rate serviceability thresholds for most borrowers has been reduced, lenders are expected to maintain their more conservative approach towards assessing borrower income and expenses.
Hence, although a market rebound is expected, it is unlikely that we will see a repeat of the surge that lifted prices by about 75% in Sydney and 65% in Melbourne from 2013–2017.
Melbourne is the clear winner in capital growth over the last 15 years (Image: abc.net.au)
Currently, the favourable exchange rate is opening a window of opportunity for Malaysian investors. The Australian dollar fell to a 10-year low against the Malaysian ringgit in February 2020, at RM 2.74 to the dollar.
With the cheaper exchange rate, investment property in Australia is more affordable.
Here is our investor’s pick of Australian cities for 2020:
Melbourne (Victoria)
Australia’s star performer, this state has the highest economic and population growth of the nation. More than any other city in the country, Melbourne sees a continuing increase in migrants each year. Its present population of 5 million is not far off from Sydney’s 5.2 million, and is set to replace it as Australia’s largest city in the next few years.
House prices made a comeback at the end of 2019, attributable to lower interest rates and easier credit conditions. Melbourne rose a total of 8.2% in the year to Jan 2020.
The demand for housing in Melbourne will increase due to the continued migration and tightening supply. This will support the rental market and push values higher.
Vacancy rates, historically lean in this city, are at a tight 2.1% according to data in as recent as January. Although Melbourne has the largest supply pipeline of apartments of all the capital cities, this has significantly shrunk over the past two years. The number of starting projects has decreased, and we have seen several sites converted to other uses, like hotels, offices and purpose-built student accommodation.
Sydney (New South Wales)
Sydney’s sentiment and market activity have picked up in recent months, and demand continues to improve on the back of lower interest rates and easier credit conditions.
House prices went up by 7.9% in the year to Jan 2020, and auction clearance rates are hovering at around 70%.
The city saw a period of strong supply that reached its peak in 2018. Supply has since dropped and it is likely Sydney will fall into a position of undersupply for the next two years, causing rentals to stabilize, and support price growth.
Infrastructure spending and increased commercial construction activity will bolster economic growth in Sydney over the next few years, with projects like the $45 bil WestConnex and $12 bil Sydney Metro well underway.
Brisbane (Queensland)
Brisbane’s population growth has increased over the past few years and is expected to remain strong, growing by about 2% annually.
Housing remains very affordable compared to Sydney and Melbourne. The recent drop in house prices here has been quite shallow compared to the big two cities, with local values only 2.4% below their peak.
Supply is already very thin, and there are fears of undersupply in the coming years, especially as the population continues to expand. Increased infrastructure spending from key inner city projects such as the $3.6 bil Queens Wharf and $5.4 bil Cross River Rail are expected to support jobs growth, migration and housing demand.
Vacancy rates have fallen to 2.4% in Jan 2020 since their 4.1% peak at the end of 2016. The improving rental market, with relatively high yields, is expected to draw more investor interest this year.
Property values of Australia’s state capitals as of Dec 2019 (Source: Domain)
Perth (Western Australia)
After a long decline since 2014, property in Perth has become one of the most affordable in Australia. Vacancy rates have also fallen dramatically to 2.1% early this year since peaking at 5.5% in 2016, indicating a ripe environment for growth.
Early in 2019 we saw the state government follow the trend to introduce a stamp duty surcharge for foreign buyers, but this was pulled back by the announcement of a stamp duty rebate just a few months later.
The stamp duty rebate is limited to buyers of off-the-plan apartments, and will last until the end of this year. Investors should take advantage of this window to benefit from the stamp duty savings.
Perth’s local economy is expected to bounce back strongly over the next few years with a recovery in the mining industry, which will boost jobs growth, migration and housing demand.
Article by Ian Choong; Edits by VP
If you are looking for property in the cities of Sydney, Melbourne, Perth, Brisbane and more — fill out the form below, give us a call at (+65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com.
What to look out for when you invest in UK property this year.
Brexit has happened. How rosy — or bleak — is the outlook for the UK in 2020? As the UK braces itself for change, we take a look at several fundamentals: population, the economy, and the housing market.
UPDATED 12 MARCH 2020
The UK has had quite an eventful start to the year. Fresh out of a General Election that saw the Conservatives’ win by a clear majority in Dec 2019 (its second in 2.5 years!), the country finally saw Brexit “get done” once and for all — at least, somewhat**.
After three years of Brexit-related hubbub, the crossover from Brexit Day on 31 Jan to 1 Feb was, paradoxically, quite undramatic. Henceforth, what’s left is for the UK to chart new territories while transitioning out of the EU.
Property experts expect a rush from overseas property investors looking to save hundreds of thousands before the new foreigner stamp duty surcharge is introduced in April 2021 . Image by PA.
Time is ticking — and it’s ticking FAST. From April 2021, the price of property will increase significantly for foreign investors, up to hundreds of thousands*!
If you’ve been thinking about investing in UK property, don’t wait too long. Foreign investors have 1 year before prices increase.
It seems like the worst is over for the Australian residential property market, with home values back on the rebound.
In the 3 months to October, values surged by 2.9% nationally, with top performer Melbourne rising by an astounding 5.5%. Sydney came in second at 5%, while third-placed Canberra rose 2.4%.
Here are 5 things that property investors need to know about the London property market now.
UPDATED JAN 2020
Boris Johnson is now the Prime Minister and he sure has gotten his way to get Brexit done. Talks are going back and forth between the UK and EU, but back in London, it’s pretty much business as usual. Investors are getting off that fence that they were sitting on over the past two years. Looking into London property? Read on.
Manchester remains the No.1 UK city on the Economist Intelligence Unit’s annual Global Liveability Survey for the 9th consecutive year, trumping London and underlining a continued demand by people to live and work there.
Manchester has once again clinched this year’s No. 1 spot of Most Liveable City in the UK, for its ninth year running.
The Economist Intelligence Unit’s annual Global Liveability Survey rated 140 of the world’s largest cities based on factors such as education, social stability, education, infrastructure and access to healthcare.
The survey paints a picture of the appeal and desirability of Manchester as a place to live and work.
Melbourne & Sydney experienced its strongest auction showing in almost 2 years.
Good news for the Australia Property Investment market — after another successful weekend of auctions, the worst appears to be finally over for the Sydney and Melbourne property markets.
Across the weekend, 78% of all Sydney and 74% of Melbourne homes were sold, according to real estate platform Domain.
