Population and Housing Market
Over the past decades, property industry is one of the dominating engines of Australia’s economy. As at the end of September this year, its estimate of the total value of residential real estate in Australia has surpassed a new record of $9.1 trillion (CoreLogic Home Value Index).
No doubt that the record increase over the past year is driven in large part by low-interest rates and favourable lending policies. But if we view it in a longer time frame, population growth, primarily through migration, is outpacing the development of properties in Australia, especially in capital cities, which is contributing to the rapid rise in property values. Even in the lock-down period, the population migration is also a positive contributor to the growth of housing market.
Returning Aussies contributes to net increase of participants in housing market
At the initial stage of lock down due to pandemic, one of the most obvious impact is the abrupt halt to migration with Australia’s border’s effectively closed, which impaired the arrival of tourists and foreign students, and oversea migration as well. Economists has concerned the housing market would get a bit hit due to diminishing demand.
However, the loss of these groups has been offset by a rebound in numbers of returning citizens and the arrival of new permanent residents, according to QBE’s Australian Housing Outlook for 2021-2024.
QBE’s analysis shows that the shift of more Australians staying in-country and many overseas Australians choosing to come home and their purchasing capacities as well, which has had a significant impact.
“Returning citizens and new permanent residents moving to Australia have added a new source of demand to the market, while the drop in outflows means that some properties that would have been sold (as the owners move overseas) have not entered the market,” the report states. “Overall, this shift in overseas migration has added to the upward pressure on prices.”
Overseas immigrants are coming back
With Net Overseas Migration (NOM) contributing to around 60 per cent of Australia’s population growth, international border closures have effectively shut down NOM.
Will they come back if the border reopens?
Firstly, let us view the situation for international students. International students are particularly important in NOM since it accounts for around 50 per cent of all NOM. The number of students is clearly large enough to change NOM with flow-on effects to underlying housing demand, particularly in the apartment markets of Sydney.
According to the statistics from Department of Home Affairs, the gap between visas lodged and visas granted hasn’t widened significantly since last year. This suggests demand for Australia as a study destination remains reasonably strong.
The other proportion of NOM comes from skilled migrants. According to 2020 – 21 Migration Program Report by Department of Home Affairs, as at 30 June 2021, there were 97,385 first stage Skill applicants in the pipeline, an increase of 12.3 per cent compared to the pipeline as at 30 June 2020, and lodgements for Global Talent increased by 49.3 per cent, indicating that Australia is seen as one of the safe havens in the world for skilled professionals.
Besides, according to Global Wealth Migration Review by AfrAsia Bank, thanks to Australia’s points-based immigration system which favours wealthy people, business owners, Australia was the top country worldwide for High Net Worth Individual (HNWI) inflows in 2019, Sydney and Melbourne ranked 1st and 3rd respectively regarding to top cities for HNWI inflow. Australia’s COVID response is one of the best in the world, enhancing its attractiveness to wealthy family.
In October, Prime Minister Scott Morrison has announced the international border will reopen next month for states that have reached 80 per cent vaccination rates, starting with New South Wales. NSW is expecting to welcome overseas students and tourists back.
In addition, according to NSW government advice to new Premier Dominic Perrottet, it is advised that Australia needs an explosive post-World War II-style immigration surge that could bring in 2 million people over five years to rebuild the economy and address worsening labour shortages.
Considering Australia, especially Sydney outperformed all other 1st tier countries regarding the response to Covid, more and more wealthy families and professional investors would consider moving to Australia in the near future once the world is out of pandemic.
Hence, the demand for the property market will be further increased since the population growth will increase again as soon as overseas immigrants will be allowed to come.
But the supply may not catch up soon, the oversupply of dwellings in many Australian locations is now dwindling and there are very few new large projects on the drawing board. Considering how long it takes to build new estates or large apartment complexes, it is going to experience an undersupply of well-located properties in capital cities in the next year or two.
The long-term fundamentals supporting the housing market is still solid.
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Reference
https://www.nhfic.gov.au/media/1407/20200921-covid-19-australias-population-and-housing-demand.pdf
https://www.macrobusiness.com.au/2021/09/developers-lobby-demands-rapid-return-of-mass-immigration/
https://metropole.com.au/sydney-housing-market-update/
https://www.dginstitute.com.au/investment-property-sydney-market-trends-2021/
https://www.afr.com/politics/australia-needs-explosive-surge-of-2-million-migrants-20211011-p58z0n