Australia’s property market defies logic

Real estate experts believe traditional property valuation metrics and sales performance don’t provide an accurate prediction of property sales prices in many parts of Australia.

When property prices leave some of the most seasoned real estate professionals shaking their heads in disbelief, you know you need to pay attention to what’s going on.

Late last month, investment service provider AltX brought together some of country’s leading valuation and property experts for a webinar discussion about the Australian property market to find out what’s happening around the country.

“The prices being achieved in the middle of 2020 are just not relevant in the current climate,” JPM Valuers Director Jason Matigian said.

“We did a valuation in Manly recently. The house next door sold for $4.1 million in May or June 2020, so our thinking was around $4 million on the property, which was similar.

“It sold for $6.3 million.

“We see this across the eastern seaboard in Sydney and even once we go to the middle and the outer rings.”

RT Edgar Director and Auctioneer Mark Wridgway was seeing similar scenarios in the Victorian property market.

“Dollar per square metre rates have been thrown out the door,” Mr Wridgway said.

“From September 2020 to now, some places across the peninsula have experienced an average of probably 30 per cent to 40 per cent growth.

“In some of those key assets, those generational properties on the cliff top… some of those have grown 50 per cent to 60 per cent.”

What’s fuelling the growth of Australia’s property prices?

Current market conditions are thanks to a unique combination of events, according to the panel.

Low interest rates, a lack of supply and a newfound appreciation for more space have sent property prices surging across most markets around the country – with no signs of slowing down.

Ray White TRG Principal Gavin Rubinstein noted even the latest lockdowns hadn’t put the brakes on the market in Sydney and beyond.

Property prices are even higher than before we went into lockdown,” Mr Rubinstein said. 

“It’s just gotten more bullish and more aggressive because of low interest rates and lack of supply.

“I’ve never seen the market so tight in terms of options for people to purchase.

“A lot of people now are putting a lot more value on having and wanting space, so with a lack of lifestyle assets – something with a view or close to the beach where you can really improve your lifestyle – the numbers people are paying are insane.”

Preston Rowe Paterson National Director Neal Ellis explained this new focus on lifestyle has completely changed the market.

“If you’d asked me 20 years ago where you should invest, I never would have said go to the outer areas and have a look at what you can buy,” Mr Ellis said.

“(I would have suggested) buy something in a city that’s smaller at the same price point and you get better capital growth. But I’m not sure that applies anymore.”

And the heat is not limited to residential markets – it seems to be extending to retail as well, according to Mr Ellis.

“We recently assessed a retail property with eight tenants. They had fallen somewhat behind on their rent,” he said.

“The asset was in a secondary location with an historic building on it – and it sold on a 3 per cent yield for $12 million.

“If you look at the strength of the tenant and a three per cent yield, it just defies logic.

“But people still have the confidence to invest. There’s a lot of money out there.”

Property price surges across Australia

It’s not just the Sydney and Melbourne metro areas that are affected.

Ray White Projects Director Hamish Bowman said the Queensland market has seen new growth thanks to the influx of people from states south of its border.

“In 2020, 30,000 people came north over the border,” Mr Bowman said.

“Growth had been quite moderate in last five years, but the last 18 months (has been different).”

“We just sold a property 18 months ago, a very entry-level house in New Farm. It had traded for $1.1 million then and it just traded, just with a house DA plans, for $1.8 million.”

Mr Matigian has also seen the recently stagnant Queensland markets kick into gear.

“A coastal lifestyle has become extremely important,” he said.

There’s been a significant uplift in some coastal towns (as well). We’ve seen those lifestyle properties really kick up in value.” 

In fact, this focus on lifestyle and space has led the regional market to grow by 25 per cent year-on-year – with room to grow.

“We’re definitely seeing those regional markets move,” Mr Matigian said.

“They’re coming off an extremely low base, trading at the same price for the last 10 years plus.

“I think that there’s room to grow with some of those regional markets.”

Looking ahead

US and Europe trends suggest buyers are prepared to look through the fog of lockdowns, keeping markets well supported.

And with the prospect of more expats coming home, along with skilled migrants returning, residential markets are likely to keep growing well into next year.

“There are people buying properties, getting ready to come back next year,” Mr Matigian said.

“I think that in the middle of next year there’s going to be a decent influx of people coming through and those people that come over will go to Sydney and Melbourne.

“People will cash out of Sydney and Melbourne, and they’ll probably continue to move more north into the Queensland market.

“So I think there’ll be a bit more pressure on pricing as the market continues next year.”

Even so, Mr Matigian recommended treading with caution.

“Go forward with caution. We’re certainly hitting those record prices, but we’ve seen the market when it has gone backwards the other way and you don’t want to be hanging your hat on one sale out there that just sold,” he said.

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