RPM Quarterly Report - Q1 2020

M A R C H

2 0 2 0

MARKET REVIEW

Q U A R T E R

RESIDENTIAL

RPM REAL ESTATE GROUP IS VICTORIA’S MOST SUCCESSFUL

WE ADVISE OUR CLIENTS ON ALL ASPECTS OF THE SALES

ADVISORY AGENCY. WE SPECIALISE IN SALES WITHIN

AND RISK MITIGATION THROUGH TO PRODUCT MIX, PRICING,

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INSIDE

COMMUNITIES

48

APARTMENTS / TOWNHOUSES

INDUSTRY LEADER INSIGHTS

10

56

INTERNATIONAL

DEVELOPMENT SITES

12

60

RESIDENTIAL INVESTMENT

FROM OUR CEO

LEAD INDICATORS

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

Q1 MARKET OVERVIEW

4 6

16

3

FROM OUR CEO

WELCOME TO RPM REAL ESTATE GROUP’S Q1 2020

Gross lot sales reached an 18-month high in

TO SHARE THIS COMPREHENSIVE UPDATE

for the quarter increasing by 2.1% from the previous

Q1 MARKET OVERVIEW

RESIDENTIAL MARKET REVIEW. WE ARE PLEASED AND OUTLOOK FOR VICTORIA’S HOUSING AND INVESTMENT MARKETS.

This quarter is undoubtedly one for the history

books. We saw a seismic shift in our way of life as

CHIEF EXECUTIVE OFFICER RPM REAL ESTATE GROUP

house prices until that point 12.5% higher than a year ago, and unit prices up 9.29%.

unsurprisingly – and rapidly – reflected growing

rising sharply (the latter expected to climb towards

caution in consumer behaviour, with an immediate

drop in listings and prices from the moment the state of emergency was declared.

with the Australian market operating in seeming

isolation from the rest of the world. Lower interest rates, decreasing unemployment and strong

population growth continued to bolster the housing market; indeed, buyers at the time were able to

secure homes in growth corridors on mortgages

requiring no greater monthly outlay than average R P M R E A L E S TAT E G R O U P

before the impact of COVID-19 hit the market, with

However, from mid-March the change was abrupt.

Before that point, Q1 2020 results were favourable,

4

period. The quarter’s sales results were promising

social distancing measures were implemented in

response to COVID-19 in March. The housing market KEVIN BROWN

February, with sales across Melbourne and Geelong

middle- or inner-city rental expenses.

With under-employment and unemployment levels the 10% mark), buyers were suddenly met with

income uncertainty and enquiry levels in land sales reflected that. With migration such an integral

part of population growth and our local property story, Australia’s closed borders in response to

the COVID-19 pandemic will no doubt have broad economic impacts. Fewer migrants over the

coming months means we are likely to see a major impact on supply and demand in the housing

sector, and consequently, downward pressure on property prices.

While we cannot forecast the final toll of the current

Developers have an opportunity to respond to the

MICHAEL STAEDLER

a broad-reaching slowdown across the property

than ever. While we will undoubtedly face a tough few

m.staedler@rpmrealestate.com.au

circumstances with any certainty, we do anticipate

restrictions, employment prospects or economic

uncertainty, will adjust their behaviour. However, there will be groups for whom these market conditions,

including potentially lower prices, will be favourable.

One group is those employed in sectors that will be unaffected, or in fact grow, as a result of the

pandemic. These potential purchasers, including

first home buyers, may have increased access to

the land market aided by more affordable product, developer promotions, Government stimulus and

long-term employment confidence. Another group who may benefit is englobo developers, given the nature of greenfield projects spanning multiple economic lifecycles, and being well-backed by

many years of previous lucrative growth to invest in future opportunities.

months ahead, developers who continue to tailor product to the wants, needs and price-points of

RESEARCH MANAGER

Q1 MARKET OVERVIEW

industry. Purchasers, whether impacted by travel

market, with diversity and agility more important

+61 434 619 280

potential buyers will have a competitive advantage in this market.

The reality is, we’re living through unprecedented times. We simply can’t know all the answers. But overly grim forecasts are premature as we can

The data contained within this report was prepared

by RPM’s research team consisting of economists, property experts and GIS analysts.

already see innovation and opportunities burgeoning

Research underpins the core strategic decision-

great time to buy, and with Australia’s response to the

on current economic and housing conditions,

across numerous industries. We believe it’s still a

COVID-19 pandemic more swift and effective than

most other countries, we hope the impact of reduced

immigration is quickly negated as borders reopen and internationals once again turn their minds to starting a new life on our shores. Home ownership is still the

Australian dream, and Victoria will always be a great – and very desirable – place to live.

making capability at RPM, providing in-depth analysis sales rates and pricing, future supply and demand assessments, and buyer demographics. This rich intelligence enables clients to make informed

decisions that underscore the success of their

developments. RPM’s research is also highly valued in assisting clients to secure capital funding and

enhance their ongoing marketing and ROI strategies.

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

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ECONOMIC ACTIVITY GROSS DOMESTIC PRODUCT (GDP)

1.85% 2.42% 12 month change to Dec qtr. 2019

5 year average

CONSUMER PRICE INDEX (CPI) Q 1L E M AA DR KI N ET D I OC VA ET RO VR ISE W

2.19%

Mar-20

Source: ABS

1.33%

Same month year earlier

VIC POPULATION

STATE FINAL DEMAND (SFD) - VIC

2.01% 4.08%

12 month change to Dec qtr. 2019

5 year average

RETAIL TURNOVER - VIC

6.01% 4.89% Mar-20

Same month year earlier

NATURAL INCREASE

8,593 Sep-19

10,087

Same qtr. year earlier

% change - same qtr. last year

14.8%

% change - 12 months earlier

12.4%

OVERSEAS MIGRATION

23,208 Sep-19

24,339 Same qtr. year earlier

CASH RATE

VARIABLE RATE

% change - 12 months earlier

3.6%

2,030

0.25 % 4.52% Mar-20

0.75% Dec-19

1.50% Mar-19

Source: RBA 6

R P M R E A L E S TAT E G R O U P

Mar-20

4.80% Dec-19

5.37% Mar-19

3.91% Mar-20

4.15% Dec-19

3 YEAR FIXED RATE

2.54% Mar-20

3.10% Dec-19

4.68% 4.05% Mar-19

Mar-19

12 months to Sep-19 4.6%

Sep-19

DISCOUNTED RATE

82,113

% change - same qtr. last year

NET INTERSTATE MIGRATION

BORROWING RATES

35,849

12 months to Sep-19

2,599

Same qtr. year earlier

11,629

12 months to Sep-19

% change - same qtr. last year

21.9%

% change - 12 months earlier

16.8%

NATIONAL TOTAL CHANGE

VIC TOTAL CHANGE

373,733

132,369

1.49%

2.04%

change from Sep-18 to Sep-19 % change - same qtr. last year VIC share

35%

■ Negative change ■ Positive change

TOTAL POPULATION

AUS 25,464,116 VIC 6,629,870

VIC EMPLOYMENT EMPLOYMENT GROWTH (JOBS CREATED) Jobs (‘000s) TOTAL Dec-19 to Mar-20

FULL TIME Dec-19 to Mar-20 Last 12 months PART TIME Dec-19 to Mar-20 Last 12 months

12.84 19.14 -5.79 55.53

0.2% 15.9% 2.1% 30.8% 0.6% 25.2% 0.8% 20.3% 0.5% 87.5% 4.9% 37.9%

$1,707 $1,666 $1,625 May-19

2.5% Source: ABS

5.2% 4.9% 4.6% Mar-20

Source: ABS

Dec-19

Same time last year

CONSUMER SENTIMENT

91.9 Mar-20

98.8 Mar-19

Source: Westpac-Melb institute

BUSINESS SENTIMENT

-23.1 Mar-20

7.9

Source: RBA/NAB

Mar-19

The Westpac-Melbourne Institute Consumer Sentiment

WAGES

Nov-19

UNEMPLOYMENT RATE

Q 1L M E AA D R KI E N TD IOC VA ET ROVR I SE W

Last 12 months

7.06 72.67

% Change

Vic contribution to AUS

Nov-18

Index is the most widely quoted barometer of consumer sentiment in Australia. A score of greater than 100 means that optimists outnumber pessimists, with readings of below 100 indicating that pessimistic consumers are in the majority.

NAB’s Business Survey has been tracking Australian

5.1%

business confidence levels for more than two decades.

Businesses are approached quarterly, with two smaller

monthly surveys conducted in the intervening months to capture changes on a more regular basis. The panel now exceeds 2,700 businesses.

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

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VIC FINANCE NO. OF FHBS FINANCED

8,624

6,933

Mar-20

Same qtr. year earlier

NO. OF NON-FHBS FINANCED

16,658 17,640 Q 1L E M AA DR KI N ET D I OC VA ET RO VR ISE W

Mar-20

Same qtr. year earlier

FINANCE FOR NEW DWELLINGS

6,212 Mar-20

5,244

Same qtr. year earlier

VALUE OF LOANS - OWNER OCCUPIERS

$12.00B $9.63B Mar-20

Same qtr. year earlier

24% 6% 18% 25%

AVERAGE LOAN SIZE (FHBS)

$437,871 $384,105 Mar-20

Same qtr. year earlier

AVERAGE LOAN SIZE (NON-FHBS)

$493,673 $394,949 Mar-20

Same qtr. year earlier

FINANCE FOR ESTABLISHED DWELLINGS

15,184 Mar-20

15,268

Same qtr. year earlier

VALUE OF LOANS - INVESTORS

$4.44B Mar-20

$3.84B

Same qtr. year earlier

14% SHARE OF FHB LOANS

25% 1% 15%

34.1% 28.2% Mar-20

Same qtr. year earlier

Source: ABS

MELBOURNE PROPERTY MEDIAN HOUSE PRICE

$893,000 Previous qtr.

$794,000

Same qtr. year earlier Source: REIV 8

R P M R E A L E S TAT E G R O U P

MEDIAN LAND PRICE

Mar-20

Mar-20

$641,000

Mar-20

$861,500

MEDIAN UNIT PRICE

3.7% 12.5%

$637,000 Previous qtr.

$586,500

Same qtr. year earlier

AUCTIONS HELD

$311,000

0.6% 9.3%

$307,000 Previous qtr.

$325,500

Same qtr. year earlier

3,107

CLEARANCE

Mar-20 1.3% 4.5%

2,753 Dec-19

3,318

Same month year earlier

73% 74% 56%

VIC BUILDING DETACHED HOUSE APPROVALS 8,705 Mar-20 8,444 Same qtr. year earlier 35,151 Last 12 months

3.1% 8.3%

HOUSE COMMENCEMENTS

11.9% 8.0%

5.4% 7.8%

4,121 Dec-19 5,778 Same qtr. year earlier 22,077 Last 12 months

28.7% 33.8%

4.1%

Mar-20

14,610 6.8%

Same qtr. year earlier

58,609 8.2%

Last 12 months

13,316 Dec-19

15,496 14.1%

Same qtr. year earlier

57,446 19.9%

Last 12 months

TOTAL COMPLETIONS

OTHER COMPLETIONS

2.0%

15,604

TOTAL COMMENCEMENTS

OTHER COMMENCEMENTS

HOUSE COMPLETIONS 9,579 Dec-19 9,774 Same qtr. year earlier 37,328 Last 12 months

6,899 Mar-20 6,166 Same qtr. year earlier 23,458 Last 12 months

Q 1L M E AA D R KI E N TD IOC VA ET ROVR I SE W

9,195 Dec-19 9,718 Same qtr. year earlier 35,369 Last 12 months

TOTAL DWELLING APPROVALS

OTHER DWELLING APPROVALS

9,662 Dec-19 6,535 Same qtr. year earlier 28,053 Last 12 months

47.9% 9.0%

19,241 Dec-19

16,309 18.0%

Same qtr. year earlier

65,291 1.1%

Last 12 months

Source: ABS

MELBOURNE PROPERTY VACANCY RATE - MELB

2.3% 2.2% Mar-20

Mar-19

AVERAGE DAYS ON MARKET - METRO MELB

33 Mar-20

42 Mar-19

MEDIAN METRO HOUSE RENT

$470 Mar-20

$450 Mar-19

4.4%

MEDIAN METRO OTHER DWELLING RENT

$430 Mar-20

$430 Mar-19

0.0 %

Source: REIV Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

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FEATURE STORY:

INDUSTRY LEADER INSIGHTS

market was still solid in Q1, continuing to improve

significantly. This will likely put downward pressure

lower interest rates, decreased unemployment and

greater the impact on the housing sector.

upon last year’s encouraging progress, fuelled by steady population growth.

In the Melbourne housing market, prices have already

started to fall and are likely to continue declining, with new listings for all types of houses and greenfield developments dropping off sharply. So far we are seeing all segments equally affected.

Q1 MARKET OVERVIEW

Banning auctions and inspections created large

headwind, but we are seeing innovative approaches DANIEL GRADWELL

ASSOCIATE DIRECTOR PROPERTY AT ANZ

WITH MAJOR SHIFTS IN CONSUMER BEHAVIOUR IN RESPONSE TO THE COVID-19 MEASURES,

RPM CONTINUES ITS INDUSTRY LEADERS Q&A

WITH DANIEL GRADWELL, ASSOCIATE DIRECTOR, PROPERTY AT ANZ TO DISCUSS THE SHORT AND LONG TERM IMPACTS OF SUCH A SIGNIFICANT

ECONOMIC EVENT ON THE HOUSING MARKET. RPM: How did we see Victoria’s residential property market impacted in Q1?

We saw an immediate impact on the property

market from the day the state of emergency and

lockdown restrictions were announced in response

to COVID-19. Before that, price growth in the housing 10

R P M R E A L E S TAT E G R O U P

in this space, like virtual tours and online auctions,

which may prove successful and stick around after the physical restrictions are removed.

RPM: How will the current climate impact supply and demand in the housing market?

I think supply and demand will likely be one of

the biggest challenges for the housing sector.

Our population growth has always been such an important part of the story, for both the housing

market and the economy. About 60% of Australia’s population growth in the past 10 years has come from overseas migration, and with our borders closed, that falls to zero immediately.

The problem is a lot of housing in Australia has

been targeted to a projected population level, and with 200,000 to 250,000 fewer migrants over the

next 12 months, the demand for housing will shift

on prices, and the longer migration is impinged, the

There may be some winners in that scenario, however, like first home buyers. Over the past 20 years the housing market has been somewhat inflated, and

there’s been a decline in younger people (under 35) entering the housing market. Lower migration and

easing housing prices may be an opportunity for this demographic to enter, but only for those who remain gainfully employed.

RPM: What are other key economic indicators telling us?

From an economic point of view, the labour market is the most important. Employment levels are an

immediate indicator, and while key economic data

often lags, the Australian Bureau of Statistics (ABS) has started releasing new data sets specific to

COVID-19 which helps firm up the bigger picture. We can already see by the start of April the total number of people employed had fallen by around 6%, with a similar drop in overall incomes too.

Rising unemployment will impact the broader

economy as well as property, and we are likely to see workers at the ends of the age spectrum being hit

disproportionately hard. Longer term we may need to look at retraining people in different industries, given the stark impacts on certain sectors to date and the possibility of longer-term shifts across spending

have the right education and training programs in

place, as well as investing in infrastructure and major projects to boost the economy.

RPM: What’s the outlook in the coming months and longer term?

We’re already seeing people’s spending patterns

change significantly. Places like supermarkets are

MONTHLY HOUSING PRICE GROWTH %

patterns. It will be important for the Government to

doing really well, with spend up 15% from a year

particular is suffering, dropping by around 50%.

State of emergency announced

3.00 2.50 2.00 1.50 1.00 0.50 0.00 -0.50 -1.00 -1.50 Apr-19

May-19

Sydney

Jun-19

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

Jan-20

Feb-20

Mar-20

Apr-20

Source: CoreLogic, ANZ Property

Melbourne

Q1 MARKET OVERVIEW

ago, while of course the hospitality industry in

3.50

There was an immediate impact to the housing market when the state of emergency was declared in response to COVID-19.

From a broad economic point of view, that sort of data is really interesting. We may even see preferences

patterns shift completely from what we had before.

In the housing market, it’s hard to see anything other than lower prices in the short to medium term as

demand is hit by rising unemployment and the lack of population growth. The extent of the falls will depend on the number of forced sellers who need to offload their property in a hurry, and when restrictions on migration are lifted.

We strongly expect that population growth will rebound

ANNUAL ROLLING SUM - 000’S

change as industries reopen, and we’ll see spending

500 450 400 350 300 250 200 150 100 50 0

01

02

Change in population

03

04

05

06

Net overseas migration

07

08

09

10

11

12

13

14

15

16

17

18

19

Source: ABS, ANZ Research

Natural increase

Migration is the key driver behind population growth, which in turn drives demand in the housing market.

in time. Australia is an attractive place to live and long

term that won’t change. Our handling of the COVID-19 situation has so far been respectable compared with

many parts of the world, so that in itself may clear the way for migration to improve.

EMPLOYMENT DATA IS KEY TO WATCH. IT’S A GREAT INDICATOR OF PEOPLE’S EVERYDAY LIVES, AND THE IMPLICATIONS ARE FAR-REACHING. DANIEL GRADWELL Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

11

OVERVIEW

OVER THE PAST FEW MONTHS COVID-19 HAS UNDENIABLY WREAKED HAVOC ON GLOBAL MARKETS. WHILE THE DATA IS CHANGING

RAPIDLY, THE IMMEDIATE IMPACT TO BUSINESSES

DEVELOPMENT SITES

AND SUBSEQUENTLY EMPLOYMENT RATES HAS BEEN STARK.

The start of 2020 saw the englobo development

market maintain its strong resurgence continuing

from December quarter 2019, with a wide range of buyers aggressively chasing opportunities,

particularly those with approved precinct plans.

This was demonstrated when, in January, a 12 hectare site in Officer was purchased for $26 million, the

highest rate ever for a medium-scale development

site in this area. The sale was executed on cash terms indicating confidence around both the market and forecast sales for the immediate period. However

by March 2020 transactions rates had stalled, with investors anticipating potential impacts on the Australian economy.Â

In that month alone we saw a dual cash rate reduction to a record low of 0.25%, significant changes to fiscal

12

R P M R E A L E S TAT E G R O U P

CHRISTIAN RANIERI

DIRECTOR, TRANSACTIONS & ADVISORY christian@rpmrealestate.com.au +61 416 445 078

and monetary policy, and dramatically reduced

When we consider the current situation in relation

Fast forward to December 2019, and house prices

Across the board, transaction levels drastically

we garner some insight on how the situation may

median house prices in Sydney and Melbourne rose

business activity across a large number of industries. reduced as purchasers began facing the unknown of COVID-19. Even experienced investors, who

survived previous downturns, began to take leave

from the market to focus on pressing demands on existing projects and investments, particularly those companies impacted by the drop in the Australian Stock Exchange.

WHILE THERE IS LITTLE DOUBT THE PROPERTY INDUSTRY WILL BE IMPACTED BY COVID-19, WE ANTICIPATE THERE WILL BE OPPORTUNITY FOR PROTRACTED PROSPERITY IN THE DEVELOPMENT SITE SPACE, WITH PREVIOUSLY SUCCESSFUL INVESTORS WELL-BACKED TO ACQUIRE LAND DURING THE DOWNTURN WITH A LONG-TERM DEVELOPMENT VIEW.

unfold in relation to the property and development industries. In Australia during the GFC, despite

economic growth slowing and unemployment rates rising, banks had little exposure to the flailing US

property market and our economy was supported

by a large export boom to the emerging China market.

Conversely, the COVID-19 pandemic has broaderreaching flow-on effects. Without the option to

were higher than ever. According to Domain figures, to $1.14 million and $901,951 respectively. Coupled with high household debt and an impending rise in

unemployment rates, there is significant risk to the housing market broadly. However, as with the GFC,

stimulus packages and a lowered cash rate have the potential to support the market’s recovery in the medium to long term.

leverage the strength of international markets to

While the impacts of this situation will transcend the

dollar, it may result in a prolonged downturn.

insulated by the sheer nature of land development

reverse the downswing in the economy and Australian

The post-GFC property boom may be another

indicator in predicting the outcomes of the current

climate. At that time, house prices in Australia were relatively low, and following significant cuts to the official cash rate as well as a strong government

stimulus package, confidence within the business

community buoyed, employment rose, and industries such as property benefited.

QD1E V M EA LROK PE M T EONVT E S R IVTI EE SW

in terms of the immediate and medium-term impacts

to the Global Financial Crisis (GFC) in 2008-2009,

property market, the englobo space is somewhat sites. Conditioned by historically long project

lifespans that encompass multiple economic cycles, as well as benefiting from recent lucrative growth, many developers are well positioned to capitalise on future opportunities. Recognising a potential

reduction of competition in the market due to the

uncertainty caused by COVID-19, savvy investors have already increased their focus on securing projects in the short term.

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

13

DEVELOPMENT SITES

OUTLOOK The reality is all industries will be impacted by the

As investors seek to recall these loans, land values

groups take a more conservative approach, as

pressure on overall values – providing favourable

current conditions. We’re already seeing listed

we anticipate impact on a broad economic scale

comparative to World War II in terms of consumer

sentiment, spending, GDP and business continuity.

With billions in private lending currently deployed to the development and construction sector, and

may be reduced as distressed buying puts downward

Given employment is so intrinsically linked to

conditions for developers who are well-placed to

stimulus decisions will play an important role in the

buy. This type of market cycle has previously proved lucrative for seasoned land developers who can see the medium-term recovery and longer-term uplift in the englobo land market.

property ownership, Federal and State Government endurance of this sector. Equally, industry-specific

stimulus such as a first home buyer package, coupled with low interest rates, could help pivot the trend to deliver a much needed boost to sales.

making up a huge proportion of private investment

Home ownership is the Australian dream. While

The flow-on effects of COVID-19 on the economy

market will no doubt be apprehensive. If property

balance sheets will likely trigger declines in house

effect on the property industry, signifies that we

in englobo land development, the secondary debt sales, construction and settlements slow, and

valuations reduce significantly against secured

assets, these groups may remain supportive in the short term, but there is potential for this to shift.

14

numerous factors over the coming months.

R P M R E A L E S TAT E G R O U P

dramatic changes to household and business

prices and increase mortgage stress, we anticipate

the property industry will continue to play a major role in the Australian economy. The industry’s recovery,

and stabilisation of property prices, is dependent on

as a whole, coupled with the anticipated lagging

may see impacts from this crisis for a long time yet.

We simply don’t know what the ‘new normal’ is yet, but our economy, and the property industry, has rebounded before.

DEVELOPMENT SITES

SAVVY INVESTORS HAVE ALREADY INCREASED THEIR FOCUS ON SECURING PROJECTS IN THE SHORT TERM

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

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OVERVIEW

MARCH 2020 WILL FOREVER BE DEFINED BY

THE RAPID CHANGES THAT OCCURRED ALMOST IMMEDIATELY AFTER THE IMPLEMENTATION OF

COMMUNITIES

RESTRICTIVE SOCIAL DISTANCING MEASURES

TO MITIGATE THE SPREAD OF COVID-19. BUT THE FIRST QUARTER OF 2020 HAD IN FACT BEEN A

PROMISING ONE FOR THE HOUSING MARKET IN THE MONTHS PRIOR TO THIS SEISMIC SHIFT.

Prior to the impact on vacant lot demand in the last

two weeks of the three month period, the rebound in

sales activity that emerged during the second half of 2019 had continued to strengthen. This was evident as gross lot sales were higher in January compared with the similarly seasonally impacted month prior, followed by gross lot sales in February reaching an

18-month high. This trend was on track to escalate

further in March, based on sales activity during the first half of the month.

16

R P M R E A L E S TAT E G R O U P

LUKE KELLY

DIRECTOR, COMMUNITIES luke@rpmrealestate.com.au +61 400 688 520

Subsequently, gross sales across Melbourne and

Geelong growth areas increased by 2.1% from the

previous quarter to 3,363 lots in March quarter 2020,

Geelong growth areas, which contracted by almost

half, and in turn slowed sales activity considerably.

This is supported by data from the Australian Bureau

result since September quarter 2018.

26,700 employed Victorians worked fewer hours in

through March. This was also the highest quarterly

Titled lots continued to account for a significant proportion of gross sales, estimated at 37%

throughout the March quarter 2020. This reduced the requirement for new supply to drive sales activity, as evidenced by releases for the March quarter being somewhat lower at 2,585 lots while overall sales

remained almost identical to the previous quarter.

From the second half of March, purchaser sentiment weakened in response to the surge in job losses and incomes impacted by COVID-19. This manifested in

falling new enquiry levels across the Melbourne and

of Statistics (ABS) which showed approximately

March compared to February due to lack of work

or stand downs. Furthermore, there was a spike in

workers taking annual and long service leave, which cannot be attributed to holidays given the ban on international and domestic leisure travel.

Another indication of demand deteriorating was the

$311,000

MELBOURNE’S MEDIAN LOT PRICE RECORDED A MODERATE RISE OVER MARCH QUARTER 2020 TO $311,000.

400sqm

level of unsold stock on the market at the end of

PER SQUARE METRE LOT PRICE INCREASED BY

This was a reverse of the trend seen in the previous

STATIC AT 400SQM.

March, exceeding the February number by over 400.

COMMUNITIES

despite the abrupt shift in new house demand midway

1.3%. THE MEDIAN LOT SIZE REMAINED

four months where lot absorption outpaced new lot supply and excess lots on the market reduced.

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

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OVERVIEW

MELBOURNE GROWTH CORRIDORS

8,000

250

% OF TOTAL GROSS LOT SALES

5,000

150

4,000 100

3,000 2,000

50

1,000 0

Mar-17

Active estates

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

Gross lot sales

$301 $325

430 425

$300,000

420

$250,000

415 410

$200,000

405 $150,000

400 395

$100,000

390

$50,000 $0

$325>

$275 $300

$350,000

MEDIAN LOT PRICE ($)

GROSS LOT SALES

6,000

385 Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

380

MEDIAN LOT SIZE (SQM)

COMMUNITIES

NUMBER OF ESTATES

7,000 200

$251 $275

<$250

0% March quarter 2020

Median lot size

18

Median lot price

R P M R E A L E S TAT E G R O U P

10%

20% March quarter 2019

30%

40%

50%

March quarter 2018

Source: RPM

% CONTRIBUTION TO TOTAL GROSS LOT SALES MARCH QUARTER 2020

NORTHERN

SOUTH EAST

GREATER GEELONG

$308,000

$299,000

$331,000

$278,900

-$8,450

-$11,000

-$23,500

$2,950

% change from March quarter 2019

-2.7%

-3.5%

-6.6%

1.1%

March quarter 2020 median lot size

394.0

400.0

392.0

448.0

-6.0

5.0

-8.0

0.0

% change from March quarter 2019

-1.5%

1.3%

-2.0%

0.0%

March quarter 2020 gross lot sales

1,323

761

806

473

523

266

415

82

% change from March quarter 2019

65.4%

53.7%

106.1%

21.0%

March quarter 2020 sales contribution

39.3%

22.6%

24.0%

14.1%

March quarter 2019 sales contribution

38.5%

23.8%

18.8%

18.8%

March quarter 2020 active estates

91

54

45

37

Change from March quarter 2019

12

9

5

6

March quarter 2020 lot releases

1,028

558

635

364

Change from March quarter 2019

104

183

113

15

11.3%

48.8%

21.6%

4.3%

March quarter 2020 no. of trading days

189

180

145

166

Change from March quarter 2019

-25

-27

-137

-61

-12%

-13%

-49%

-27%

March quarter 2020 median lot price Change from March quarter 2019 Casey

20%

Hume

11%

Cardinia Whittlesea

Sunbury & Macedon MARCH QUARTER 2019

Mitchell

Wyndham Melton

Moorabool

Greater Geelong

4%

6% 3% 3%

16%

22% 1%

14%

Casey

16%

Hume

12%

Cardinia Whittlesea

Sunbury & Macedon Mitchell

Wyndham Melton

Moorabool

Greater Geelong

4%

8% 2% 3%

17% 21% 2%

16%

Change from March quarter 2019

Change from March quarter 2019

% change from March quarter 2019

% change from March quarter 2019

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

COMMUNITIES

WESTERN

19

WESTERN GROWTH CORRIDOR THE PROPORTION OF TOTAL LOT SALES FOR THE

WESTERN GROWTH CORRIDOR IMPROVED TO 39% IN

MARCH QUARTER 2020, ENDING THE DECLINING TREND UNFOLDING SINCE LATE 2018.

While this share is still relatively low compared to its

high of 49%, it was a 9% uplift from the previous quarter,

MOORABOOL

COMMUNITIES

with 1,323 gross lot sales in March quarter 2020. This

growth occurred exclusively in Melton, with sales activity continuing to contract in Wyndham and Moorabool.

MELTON

While the increase in new lot supply was lower by 5% with 1,028 releases, the volume of unsold stock across the Western growth corridor still increased further by the end of March to approximately 2,740 lots. This was

attributed to cancellations, which picked up notably

in the second half of March after purchaser sentiment deteriorated substantially in response to the impacts

WYNDHAM

on job and wage security following the introduction of COVID-19 social distancing measures.

A high level of overhang stock continues to restrain price growth. While the median lot prices of Wyndham and PORT PHILLIP BAY

Melton both recorded quarterly growth of 3%, much of this increase was derived from larger median lot sizes.

As a result, per square metre lot prices improved marginally in Wyndham but contracted in Melton.

20

R P M R E A L E S TAT E G R O U P

PETER GRANT

WYNDHAM

DIRECTOR, COMMUNITIES

peterg@rpmrealestate.com.au +61 411 494 499

Gross sales in Wyndham remained steady at 546

lots throughout March quarter 2020, edging down by

less than 1% from the previous quarter. However, this

reduction is coming off already low sales activity levels for Wyndham, leading to new supply experiencing a larger decline of 9.3% to 350 lot releases.

Some upward pressure was applied to lot prices as

45

demand outpaced new releases, leading to a quarterly

sold during March quarter 2020 to 400sqm.

The improvement in gross lot sales has mostly been

30

20

1,000

15 10

500

5 0

underwhelming across Wyndham, compared to

1,500

25

GROSS LOT SALES

corresponding 2% increase in the median size of lots

2,000

35

COMMUNITIES

part of this price growth has been derived from a

NUMBER OF ESTATES

3.2% rise in the median lot price to $320,000. Although

2,500

40

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

other growth areas, during the short-lived recovery cycle for vacant lot demand from the second half

Active estates

New estates

Gross lot sales

by increasingly scarce availability of lots for sale in

Landing, with their few active estates almost complete.

New house demand within Point Cook/Williams

Landing originated from a relatively wider expanse of suburbs than sub-markets traditionally derive from, including suburbs outside the Wyndham corridor.

Consequently, it is more likely demand from these

buyers has shifted to other growth areas rather than to other estates within Wyndham.

MEDIAN LOT PRICE ($)

the sought-after sub-market of Point Cook/Williams

$350,000

415

$300,000

410

$250,000

405

$200,000

400

$150,000

395

$100,000

390

$50,000

385

$0

Median lot size

Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

of 2019 to early 2020. This is likely to be influenced

380

Source: RPM Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

21

WESTERN GROWTH CORRIDOR

MELTON Melton recorded the highest number of gross sales with 730 lots in March quarter 2020. This equated

to significant growth in sales activity up 20% from

the previous quarter, and more notably, represented the only quarterly increase in sales activity in a

ample new supply to meet purchaser demand, as

an additional 596 new lots were released onto the

market during the three month period. Furthermore, new supply is encompassing a diversified product

1,200 40

sub-400sqm figure for a quarterly period. This

highlights small lots and medium density products

continuing to feature prominently in sales volumes.

Nevertheless, the median lot size is still 5% above the previous quarter, which underpinned a 3% escalation

600 400

10

200 Mar-17

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

Gross lot sales

410

$350,000

MEDIAN LOT PRICE ($)

growth corridor and was also the fourth consecutive

800

20

Active estates

median lot size of 385sqm was the smallest for a

1,000

30

0

make them attainable to purchasers. However, its

1,400

50

offering to capture more segments of demand.

Relatively affordable conventional lot prices in Melton

1,600

400

$300,000

390

$250,000

380

$200,000

370

$150,000

360 350

$100,000

340

$50,000 $0

GROSS LOT SALES

a further two in March quarter 2020, which ensured

NUMBER OF ESTATES

COMMUNITIES

The high number of active estates in Melton rose by

60

330 Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

Melbourne growth area.

320

in Meltonâ&#x20AC;&#x2122;s median lot price to $298,000 in March quarter 2020.

22

R P M R E A L E S TAT E G R O U P

Median lot size

Median lot price

Source: RPM

ROD ANDERSON

DIRECTOR, COMMUNITIES rod@rpmrealestate.com.au +61 417 595 859

MOORABOOL 8

in sales activity, with gross sales declining by 7.8% to 47 lots.

It seems new lot releases missed the mark in

2020 being significantly larger than the 448sqm

140

5

120

4

100 80

3

60

2

40

1 0

capturing purchaser preferences. This is highlighted by the 533sqm median lot size in March quarter

160

6

Active estates

GROSS LOT SALES

2020. However, this did not initiate an escalation

180

COMMUNITIES

the previous quarter to 82 lots in March quarter

200

7

NUMBER OF ESTATES

New supply in Moorabool almost doubled from

20 Mar-17

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

Gross lot sales

quarter accounted for under a third of sales during the period.Â

The resultant 6.7% reduction in the median lot size led to a commensurate quarterly decline of 6.3% in the median lot price to $225,250. Notably, this was the largest fall in median lot price across all

MEDIAN LOT PRICE ($)

last year. Unsurprisingly, lots released in the March

$300,000

600

$250,000

500

$200,000

400

$150,000

300

$100,000

200

$50,000

100

$0

Melbourne growth areas.

Median lot size

Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

median size of those sold during the same period

0

Source: RPM Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

23

NORTHERN GROWTH CORRIDOR THE NORTHERN GROWTH CORRIDOR RECORDED THE GREATEST QUARTERLY DECREASE IN

SALES ACTIVITY IN MARCH QUARTER 2020,

REDUCING GROSS SALES BY 8% TO 761 LOTS.

CONSEQUENTLY, THE CORRIDORâ&#x20AC;&#x2122;S PROPORTION OF TOTAL GROSS LOT SALES DECLINED TO 23%.

COMMUNITIES

in Whittlesea remains below that for Hume, in

response to weak purchaser demand. This has led

to the greatest per square metre lot price contraction of 7% in Whittlesea.

NEVERTHELESS, LOT SALES STILL OUTPACED NEW

Sunbury and Diggers Rest have been removed from

MODERATELY BY 3% TO 558 LOTS.

areas within Macedon to form the new Sunbury &

SUPPLY, AS TOTAL RELEASES INCREASED ONLY

Titled lots continued to account for a greater share

of gross sales in Hume and Mitchell compared to all other growth areas. This reduced the need for new

supply to match lot absorption and has also impacted on median lot prices, with the annual median lot price correction of 11.4% in Hume and 8.9% in Mitchell surpassing other growth areas.

24

Despite containing more active estates, new supply

R P M R E A L E S TAT E G R O U P

the Hume region and joined newly added growth

Macedon region. These peri-urban areas are distinct from the Hume growth areas, containing different price points and demand drivers. The Sunbury &

Macedon growth area was formed to better examine and understand movements within its new house

market. This will be increasingly important given the recent approval of the Precinct Structure Plans of Sunbury South and Lancefield Road as numerous estates come onto the Sunbury market.

LUKE KELLY

DIRECTOR, COMMUNITIES luke@rpmrealestate.com.au +61 400 688 520

HUME Humeâ&#x20AC;&#x2122;s median lot price witnessed the largest annual contraction of 11.4%, declining to $299,000 in March

quarter 2020. Significantly, this was the first quarterly

preferences shifting to smaller lots as the median lot

size remained static at 400sqm, resulting in the same rate of decline for per square metre lot prices.

The fall in the median lot price was primarily attributed

generally priced at a slight discount to new release

700

10

600

8

500

6

400 300

4

200

2 0

to Humeâ&#x20AC;&#x2122;s continued relative high incidence of titled lots amongst its gross sales, given titled lots are

800

Active estates

COMMUNITIES

Moreover, this fall was not in response to purchaser

900

12

NUMBER OF ESTATES

price for Hume dropped below the $300,000 mark.

14

GROSS LOT SALES

period in almost three years that the median lot

100 Mar-17

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

Gross lot sales

40% of total gross sales in March quarter 2020.

As a result, sales activity is less reliant on the timely

release of new lots. Subsequently, new supply remains markedly under lot absorption despite increasing by a sizeable 33% from the previous quarter to 222 lot

releases. Overall, Hume recorded 378 gross lot sales

MEDIAN LOT PRICE ($)

highest number of titled lot sales, which accounted for

$400,000

440

$350,000

430

$300,000

410

$200,000 400

$150,000

390

$100,000

380

$50,000 $0

in March quarter 2020, which was marginally below December quarter 2019.

420

$250,000

Median lot size

Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

stock. This was evidenced with Hume containing the

370

Source: RPM Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

25

NORTHERN GROWTH CORRIDOR

MITCHELL

lots in March quarter 2020. The drop in purchaser

demand led to corresponding declines of 11.7% for

new releases, totalling just 68 lots, and 3.6% for the median lot price, reducing it to $265,000.

10 8

150 6 100 4

0

on lot prices, as the price of these lots are generally

Active estates

discounted compared with similar sized newly released lots.

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT PRICE ($)

0

Gross lot sales

600

$300,000

500

$250,000

400

$200,000 300 $150,000 200

$100,000

100

$50,000

Median lot size

R P M R E A L E S TAT E G R O U P

Mar-17

$350,000

$0

26

50

2

Almost half of gross sales in March quarter 2020 were titled lots, which placed further downward pressure

200

GROSS LOT SALES

COMMUNITIES

sales activity of 18.3%, with gross sales falling to 89

250

Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

Mitchell recorded the largest quarterly decrease in

NUMBER OF ESTATES

12

0

Source: RPM

PETER GRANT

DIRECTOR, COMMUNITIES

peterg@rpmrealestate.com.au +61 411 494 499

WHITTLESEA

weak recovery in sales activity during the second

half of 2020. In response, new supply continues to diminish, slipping by 5.9% to 127 lot releases for the quarter.Â

While the 6% quarterly growth in the median lot

price to $317,000 in March quarter 2020 belies the

800

25

700

20

600 500

15

400 300

10

200

5 0

Active estates

GROSS LOT SALES

over the March quarter 2020. This follows a relatively

900

COMMUNITIES

largest quarterly falls, declining by 17.6% to 187 lots

NUMBER OF ESTATES

30

Gross sales in Whittlesea experienced one of the

100 Mar-17

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

Gross lot sales

weakness in purchaser demand, it was underpinned

declined by 7%, resulting in the greatest reduction amongst all growth areas, and reflective of the current subdued demand levels.

MEDIAN LOT PRICE ($)

14%. Subsequently, per square metre lot prices

$350,000

410 400

$300,000

390

$250,000

380

$200,000

370

$150,000

360 350

$100,000

340

$50,000 $0

Median lot size

330 Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

by a higher rate of growth in the median lot size of

320

Source: RPM Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

27

NORTHERN GROWTH CORRIDOR

SUNBURY & MACEDON 7

Macedon region.

New supply contracted by 14% in March quarter 2020 from the previous quarter down to 141 lot releases. It

the median lot size of 392sqm in Sunbury & Macedon

100

MEDIAN LOT PRICE ($)

0.7% contraction in the median lot price to $287,000.

20 Mar-17

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

Gross lot sales

700

$350,000

600

$300,000

500

$250,000

400

$200,000 300

$150,000

200

$100,000

100

$50,000

Median lot size

R P M R E A L E S TAT E G R O U P

40

$400,000

$0

28

60

1

Active estates

corridor, with the 2.5% reduction in size leading to a

80

2

0

was the smallest amongst the Northern growth

120

3

remained higher than the 107 gross lot sales, which experienced a corresponding fall of 3.6%. Notably,

140

4

GROSS LOT SALES

areas within Macedon to form the new Sunbury &

160

5

Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

COMMUNITIES

the Hume region and joined newly added growth

180

6

NUMBER OF ESTATES

Sunbury and Diggers Rest have been removed from

200

0

Source: RPM

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

COMMUNITIES

DESPITE THE DROP OFF FROM MID-MARCH, GROSS SALES ACROSS MELBOURNE AND GEELONG EXPERIENCED THE HIGHEST QUARTERLY RESULT SINCE 2018

29

SOUTH EAST GROWTH CORRIDOR

THE SOUTH EAST GROWTH CORRIDOR’S SHARE OF OVERALL GROSS LOT SALES IN MARCH QUARTER 2019 DECLINED TO 24%, WITH SALES FALLING BY COMMUNITIES

7% FROM THE PREVIOUS QUARTER TO 806 LOTS. Casey and Cardinia’s median lot prices ($327,000

and $345,000 respectively) are still the most expensive among all growth corridors, and in March quarter 2020 experienced the highest annual growth in gross lot sales of 113% and 81% respectively.

This growth in sales activity has been underpinned by relative affordability in March quarter 2020 being

much improved from the corresponding quarter in 2019 in Casey, highlighted by the 6% contraction in per square metre lot prices, and aided further

by increasing new lot supply. Conversely in Cardinia, relative affordability has deteriorated and new lot

supply has fallen throughout March quarter 2020, with

lot sales derived mostly from the jump in active estates.

PORT PHILLIP BAY

CARDINIA

CASEY

30

R P M R E A L E S TAT E G R O U P

ROD ANDERSON

DIRECTOR, COMMUNITIES rod@rpmrealestate.com.au +61 417 595 859

CASEY 35

by one to 32. Still, this relatively high number of active estates supported a modest improvement in new releases of 6.5% to 561 lots.

600 500

15

400 300

10

200

5

Furthermore, with titled lots constituting a

new lot supply was increasingly important in

700

20

0

diminishing share of lot sales in the March quarter,

800

25

Active estates

GROSS LOT SALES

led to the overall number of active estates reducing

900

COMMUNITIES

however, the completion or inactivity of other estates

1,000

30

NUMBER OF ESTATES

Casey added two estates in March quarter 2020,

100 Mar-17

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

Gross lot sales

stimulating sales activity. Gross sales ended at 663

Continuing improved relative affordability for a house and land package has also been key to driving sales activity. Although only declining marginally by less

than 1%, the subsequent median lot price of $327,000 was a near three year low for Casey. With the median

450 440

$300,000

430

$250,000

420

$200,000

410 400

$150,000

390

$100,000

380

$50,000 $0

lot size also remaining static at 392sqm, it is resulting in more attractive price points for lot sizes.

460

$350,000

MEDIAN LOT PRICE ($)

was still the second highest amongst all growth areas.

$400,000

Median lot size

370 Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

lots, and while this equated to a 6.5% quarterly fall, it

360

Source: RPM Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

31

COMMUNITIES 32

R P M R E A L E S TAT E G R O U P

LUKE KELLY

SOUTH EAST GROWTH CORRIDOR

DIRECTOR, COMMUNITIES luke@rpmrealestate.com.au +61 400 688 520

additional active estate lifting the total to a three year high of 13.

The reduction in sales activity to 143 gross lot

300

12

maintaining Cardiniaâ&#x20AC;&#x2122;s status at the most expensive

at $345,000, upward pressure resulted in solid per square metre lot price growth following a sizeable 6.3% decrease in the median size to 400sqm.

50

2 Mar-17

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

Gross lot sales

$400,000

600

$350,000

MEDIAN LOT PRICE ($)

While the median lot price in Cardinia was steady

100

4

Active estates

Melbourne and Geelong.

150

6

0

vacant lot market across the greenfield markets of

200

8

sales was significantly less at 9%, with the widening divergence between lot releases and lot absorption

250

10

500

$300,000 400

$250,000 $200,000

300

$150,000

200

$100,000 100

$50,000 $0

Median lot size

GROSS LOT SALES

reducing to just 74 lots. This occurred despite an

350

14

COMMUNITIES

quarterly decline of 45% in the March quarter,

16

Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

New releases in Cardinia recorded the largest

NUMBER OF ESTATES

CARDINIA

0

Source: RPM Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

33

GREATER GEELONG GROWTH CORRIDOR

THE RECOVERY IN THE NEW HOUSE MARKET THAT STARTED DURING THE SECOND HALF OF 2019 IN

MELBOURNE EMERGED MORE NOTABLY ACROSS COMMUNITIES

GREATER GEELONG’S GROWTH AREAS IN MARCH QUARTER 2020. SUBSEQUENTLY, GROSS SALES

ESCALATED BY 22% TO AN 18 MONTH HIGH OF 473 LOTS DURING THIS PERIOD, WHICH ALSO LIFTED SHARE OF TOTAL GROSS LOT SALES TO 14%.

New supply outpaced sales activity in the previous

quarter, augmenting the build-up of unsold lots on the market through 2019. As a result, these lots absorbed some of the vacant lot demand in March quarter

2020, reducing the need to increase new supply to

align with lot sales. Consequently, releases declined by 8% over the quarter to 364 lots.

GREATER GEELONG

Overhang stock also offset any upward pressure PORT PHILLIP BAY

on prices from improving demand, with Greater

Geelong’s median lot price edging down marginally

to $278,900 in March quarter 2020 and its median lot size unchanged at 448sqm.

34

R P M R E A L E S TAT E G R O U P

PETER GRANT

DIRECTOR, COMMUNITIES

peterg@rpmrealestate.com.au +61 411 494 499

releases and 224 gross lot sales. This was assisted by active estates rising by two to a total of 11.Â

As a result of supply closely matching demand, the

10

500

8

400

6

300

4

200

2

100

0

median lot price for Armstrong Creek remained the median lot size also static at 400sqm.

Active estates

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

460 450

$250,000

440 430

$200,000

420

$150,000

410 400

$100,000

390

$50,000 $0

Median lot size

0

Gross lot sales

$300,000

MEDIAN LOT PRICE ($)

unchanged at $271,900 in March quarter 2020, with

Mar-17

GROSS LOT SALES

2020 from the previous quarter, lifting to 201 lot

600

COMMUNITIES

activity escalated by around 25% in March quarter

12

380 Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

In Armstrong Creek, both new supply and sales

NUMBER OF ESTATES

ARMSTRONG CREEK

370

Source: RPM Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

35

14

450

200

MEDIAN LOT PRICE ($)

150

4

100

2

50 Mar-17

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

Gross lot sales

$400,000

540

$350,000

520

$300,000

500

$250,000

480

$200,000 460

$150,000

440

$100,000

420

$50,000 $0

Median lot size

Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

400

MEDIAN LOT SIZE (SQM)

NUMBER OF ESTATES

COMMUNITIES

250

6

Active estates

R P M R E A L E S TAT E G R O U P

300

8

0

36

350

10

GROSS LOT SALES

400

12

ROD ANDERSON

DIRECTOR, COMMUNITIES rod@rpmrealestate.com.au +61 417 595 859

140

6

120

5

100

4

80

3

60

2

40

1

20

0

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

$400,000

800

$350,000

700

$300,000

600

$250,000

500

$200,000

400

$150,000

300

$100,000

200

$50,000

100

$0

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

COMMUNITIES

7

0

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

37

GREATER GEELONG GROWTH CORRIDOR

LARA

into 101 gross lot sales in Lara over March quarter

2020, which was also its highest total in two and a half years. The majority of lots sold were existing stock, with new supply declining by 69% to just 44 lots.

resulted in Lara maintaining its status as the most

affordable growth area in Geelong. This was below

120

5

100

4

80 3 60 2

40

1 0

A 1.9% correction in the median lot price to $257,900

140

Active estates

GROSS LOT SALES

COMMUNITIES

The 27.8% quarterly jump in sales activity translated

NUMBER OF ESTATES

6

20

Mar-17

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

0

Gross lot sales

MEDIAN LOT PRICE ($)

As a result, per square metre lot prices increased.

$300,000

600

$250,000

500

$200,000

400

$150,000

300

$100,000

200

$50,000

100

$0

Median lot size

38

R P M R E A L E S TAT E G R O U P

Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

a 7.4% reduction in the median lot size to 396sqm.

0

Source: RPM

LUKE KELLY

DIRECTOR, COMMUNITIES luke@rpmrealestate.com.au +61 400 688 520

TORQUAY

lots, with the median lot price contracting by 5% to

$415,000 and the median lot size shrinking by 7.8% to 448sqm.

100

4

80 3 60 2

40

1 0

Active estates

20

Mar-17

Jun-17

New estates

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

700

$450,000

MEDIAN LOT PRICE ($)

0

Gross lot sales

$500,000

600

$400,000

500

$350,000 $300,000

400

$250,000 300

$200,000 $150,000

200

$100,000

100

$50,000 $0

Median lot size

GROSS LOT SALES

Vacant lot demand shifted to smaller, more affordable

120

5

Mar-17

Jun-17

Median lot price

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

MEDIAN LOT SIZE (SQM)

of 16 lots, which fell by 58% from the previous quarter.

140

COMMUNITIES

March quarter 2020, outpacing the total new releases

NUMBER OF ESTATES

6

Sales activity improved to 25 lots in Torquay over

0

Source: RPM Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

39

OUTLOOK While the projected depth of the contraction in the

more advantageous as the long settlement means

amenities, location and fit-out. There is opportunity

the contraction will be, with the Reserve Bank of

weaker rental market given the temporary

packages and remaining open to negotiation.

economy will not be unprecedented, the speed of Australia forecasting a 10% fall in national gross

domestic product (GDP) over the first half of 2020.

While predicting the full impact of the COVID-19

The current situation is creating a buyer’s market.

pandemic on the residential market is impossible

the spread of COVID-19 will be at their most restrictive,

significantly shorter settlements, potential buyers

situation on a global scale, we believe a number

be in a favourable position to enter the market in the

lot sales in March and April were 1,045 and 638

on the market for the first time in two years, as well as

point in the previous cycle (first six months of 2019),

buyers who retain employment security during this

to average this in upcoming months, it would slash

foot on the property ladder.

hinge on multiple variables including the impact of

job losses and income reductions, reintroduction of

may be put off in the short term by the uncertainty in

IT IS MORE IMPORTANT THAN EVER THAT DEVELOPERS RESPOND TO CHANGING CUSTOMER NEEDS BY PROVIDING DIVERSE AND INNOVATIVE PRODUCTS TO CATER TO HEIGHTENED PRICE SENSITIVITY, WITHOUT COMPROMISING ON QUALITY.

purchasing a new dwelling in growth areas is currently

lower price points, buyers are not willing to give up on

and subsequent impacts to the economy will be most severe.

COMMUNITIES

cessation of migration and tourism.

for developers to meet the market, with affordable

Much of this decline is expected during June quarter 2020, where social distancing measures to mitigate

There was a 180-degree direction change in the new housing market during March, with strengthening

purchaser demand collapsing virtually overnight. For

the residential market, further impacts on employment and income from April will be most pertinent to the

level of purchaser demand and how that translates to sales activity going forward. We anticipate that while the $130 billion JobKeeper initiative is projected to

save six million jobs and alleviate income reductions,

this stimulus package will drive very little sales activity in the residential market.

Owner occupiers are expected to be the dominant

vacant lot buyers for the remainder of 2020, following

a strong 77% representation in the March quarter, with April indicating similar proportions. While investors

the rental market and expected rent declines in 2020,

40

they will avoid having to compete for tenants in a

R P M R E A L E S TAT E G R O U P

With the increase of titled stock available providing

given the lack of precedent for this economic

who were previously priced out of the market may

of factors will shape the outcome of 2020. Gross

short to medium term. And with more smaller stock

respectively. The result for April aligns with the lowest

the continuation of rebates and incentives, first home

and if Melbourne and Geelong growth areas were

period have an opportunity to secure an affordable

the annualised sales rate by a third. However, results

While we are seeing demand shift to smaller lots and

the JobSeeker and JobKeeper initiatives, breadth of immigration and tourism, and ultimately consumer

sentiment and resulting behaviour. We anticipate the June quarter 2020 will provide key indicators for the property market moving forward.

The new housing market will no doubt be impacted in the coming months, but with gradually rising enquiry levels occurring in April, we are optimistic. With

historically low borrowing costs setting the stage for the next two to three years, and Australia’s relatively efficient containment of COVID-19, our country’s

appeal as a place to buy and live in remains strong.

Wallan $230,000 Beveridge $239,000 Kalkallo $280,000 Sunbury $265,000 Mickleham $272,000

Donnybrook $298,000

Craigieburn $370,000 Diggers Rest $297,000

Wollert $339,450 Doreen $307,500

Greenvale $410,000

Bacchus Marsh $215,000 Kurunjang $250,000

Bonnie Brook $347,000

Fraser Rise $337,000

Rockbank $317,000 Thornhill Park $309,000 Weir Views $259,000

Strathulloh $269,000

Mount Cottrell $336,900

Taylors Lakes $438,000

Deanside $346,000

WHAT DOES A 400SQM LOT COST? March quarter 2020

Tarneit $322,950

COMMUNITIES

Mt Atkinson $333,000 Truganina $367,000

Manor Lakes $288,000 Mambourin $295,000

Wyndham Vale $294,000 Werribee $280,000

Berwick $428,000 Officer $349,000

Lara $252,900

Officer South $342,000 Cranbourne $330,000

Cranbourne East $329,500

Junction Village $368,000 Geelong $340,000

Armstrong Creek $277,000

Torquay $380,000

Pakenham $310,000

Bellarine $252,000

Cranbourne South $369,000

Clyde North $315,000 Clyde $344,500

41

COMMUNITIES BUYER SURVEY DATA

The share of owner occupiers purchasing in the

their previous rental expense. RPM’s survey data

an elevation in household income. In the March

2020 at 77%, in line with the same period in 2019, but

buyers in the land market compared with this quarter

household income above $100,000, up from 29% a

COMMUNITIES

land market remained elevated in the March quarter

above the long-term level of around 65%. This figure highlights the proliferation of first and subsequent

underlines this, showing an increase of 11% in renter last year.

home buyers in the past 12-18 months, given the

Trends showed an uplift in older demographics

Melbourne land market.

the increasing presence of subsequent buyers,

absence of overseas and local investors in the

First home buyer prevalence has fallen marginally in

the greenfield space since last year, yet interestingly, the share of subsequent home buyers increased

entering the greenfield market, so we see not only

42

R P M R E A L E S TAT E G R O U P

two quarters.

isolation to the rest of the globe.

45%

buyers in the March quarter 2020 were historically

corridor without having their new mortgage exceed

‘professional’, increasing from 23% to 45% over the

across the board, it’s unsurprising the data reveals

upgrade into the growth corridor. Favourable to

middle and inner suburbs, to purchase in a growth

the primary income earner as being employed as a

Until mid-March the market was largely unaffected by

increase. With an older population of purchasers

confidence to sell into the established market, and

first home buyers, particularly those renting in the

year earlier. Further still, these households reported

but also the age of first home buyers continues to

somewhat. This highlights that those buyers regained

low borrowing costs which in many cases allowed

quarter 2020, 51% of purchasers reported a

the ramifications of COVID-19, operating in relative

46%

45% OF BUYERS WERE PREVIOUSLY RENTING,

HOUSEHOLDS OF THREE OR MORE OCCUPIERS

QUARTER 2019.

SIZE OF BUILDS.

A SIGNIFICANT LIFT FROM 34% IN MARCH

INCREASED TO 46%, IMPACTING TYPE AND

However, the pronounced change came quickly. It

occurred alongside increasing shutdown measures

market with unknown demand levels.

widespread stand-downs and redundancies.

Nevertheless, we do not believe activity in the

In general, we anticipate a slowdown in overall

While there are many industries that have been

buyer activity for at least the next two quarters. The impact on buyers is likely to be non-discriminatory.

For instance, we expect first home buyers and

investors to be more conscious of taking on debt, while upgraders and downsizers will be cautious

51%

OVER HALF OF ALL PURCHASERS REPORTED A HOUSEHOLD INCOME ABOVE $100,000.

property market will come to a complete standstill. impacted, there will be prospective buyers who are

employed in largely unaffected or growing sectors,

including healthcare, government departments and

essential services. These potential purchasers will be gainfully employed and have access to an abundant

11%

REALESTATE.COM DROPPED FROM 22%

TO 11% AS THE PRIMARY ADVERTISEMENT SOURCE FOR BUYERS.

land market – with lots both titled and untitled –

and developers likely to be open to negotiation.

In addition, first home buyers will be boosted by

COMMUNITIES

and subsequent impacts to the workforce, including

about selling their existing home in a depressed

considerable existing savings through stamp duty removal, grants and the newly established

First Home Loan Deposit Scheme. There is also

potential for further first home buyer assistance, as witnessed in previous downturns, to assist in

stimulating the property industry, and by extension, the wider economy.

THE DROP OFF IN BUYER ACTIVITY CAUSED BY COVID-19 WILL NOT BE LIMITED TO ANY PARTICULAR BUYER TYPE. Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

43

COMMUNITIES BUYER SURVEY DATA

MARCH QUARTER 2020

COMMUNITIES

MARCH QUARTER 2019

OWNER OCCUPIER VS. INVESTOR

Owner Occupier

3rd Home

6%

2nd Home 1st Home

Other

With parents

44

R P M R E A L E S TAT E G R O U P

Investor

5%

Group

LIVING CIRCUMSTANCE

24%

Other

4th Home

OWNER OCCUPIER TYPE

76%

Renting

Owner occupier

0% 20%

69%

2% 2%

Owner Occupier

23%

Investor

Other

2%

3rd Home

7%

4th Home

2nd Home

1st Home

Other

Group

27%

With parents

34%

Owner occupier

34%

77%

Renting

3%

24%

64%

1% 1%

22% 45% 31%

MARCH QUARTER 2019

60>

18-24

11%

18-24

25-34

Three Two

One

52%

2%

12%

One

24%

<$40k

Four

21%

45%

$80-$100k $40-$60k

Five or more

Three

13%

$60-$80k

25-34

21%

$120k>

$101-$120k

35-49

44% 11%

6%

21%

19%

37%

$120k>

29%

$80-$100k

18%

16%

35%

$60-$80k

1%

8% 32%

Two

$101-$120k

12%

4%

$40-$60k <$40k

COMMUNITIES

35-49

Four

HOUSEHOLD INCOME

60>

50-59

Five or more

HOUSEHOLD NUMBER OF PERSONS

3%

11% 22%

50-59 COMBINED AGE

MARCH QUARTER 2020

17%

22% 22% 8%

1%

Source: RPM Source: RPM

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

45

COMMUNITIES BUYER SURVEY DATA

MARCH QUARTER 2020

MARCH QUARTER 2019 Other - Student, Part time Not employed Technicians & Trades workers

COMMUNITIES

Sales Professionals Managers & Administrators

PRIMARY INCOME EARNER

Machinery operators & drivers Labourer & related workers Community & Personal service Clerical & Administrative

Other Builder Referral Family or Friend Signage

ADVERTISEMENT SOURCE

Google Realestate.com Project Website

4% 1%

Other - Student, Part time Not employed

12%

Technicians & Trades workers

23%

Professionals

6% 9%

Sales Managers & Administrators

9%

Machinery operators & drivers

7%

Community & Personal service

16% 13 % 4%

16%

Labourer & related workers Clerical & Administrative

Other Builder Referral

21%

Family or Friend

10% 22%

Google

26%

1%

Signage Realestate.com Project Website

3%

0%

16% 7%

45% 8% 2%

2% 7%

11%

9%

15%

24%

28% 9% 11% 3%

Source: RPM

46

R P M R E A L E S TAT E G R O U P

COMMUNITIES

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

47

OVERVIEW

A P AQR1T M E AN R TK SE T/ O TO VW E RN VH IOE UWS E S

WITH THE PROPERTY MARKET PEAKING IN EARLY 2018 BEFORE EXPERIENCING A SUSTAINED

APARTMENTS & TOWNHOUSES

DOWNTURN OVER THE FOLLOWING 12 MONTHS, SEVERAL INTERRELATED MACROECONOMIC AND POLITICAL MEASURES PROPELLED A

TURNAROUND THROUGH THE BACK HALF OF 2019.

This set the market up for a potentially robust 2020

with an anticipated focus on how to effectively tackle affordability concerns in a market that was likely to grow by 10% through the year.

While the first two months of 2020 followed this

trend, the significant drop off in market activity and severe weakening in consumer sentiment over the

final two weeks of March was a direct consequence of the lockdown and social distancing regulations

to mitigate the spread of COVID-19. Nevertheless, a

modest increase in dwelling prices over the month of

March occurred with the early signs of the true fallout not showing a material effect until April, with a fall of 0.3% (CoreLogic).

48

R P M R E A L E S TAT E G R O U P

Enclave at Riverhills, Wollert Developer: Dahua Group Builder: TownLiving by Metricon

migration levels. As a result, what we are likely to see

These include lifts, aluminum, window frames and

pronounced demand issues surfacing in April. This,

pipeline waiting for the market to turn. Unfortunately,

in the first quarter will have a flow on effect for our

resulted in volumes halving through March, with more coupled with the closure of the country to overseas buyers and a rapid rise in job losses, will ultimately have homeowners taking a pause for the coming months while they recalibrate and adjust to the current market.

In general, Melbourne relies considerably on

purchaser and consumer activity from overseas migration. As a result, the closure of borders will have a profound effect on the economy overall with a more pronounced impact on the rental

market â&#x20AC;&#x201C; particularly in the inner CBD with the absence of international students.

Much of the new housing demand in the prior boom came from overseas buyers purchasing within

high-rise buildings. Subsequently, many apartment

is a bottleneck of apartment permits sitting in the

recently or soon-to-be completed apartments will be faced with buyers who bought 12 to 18 months ago when the market was stronger. They will now

tiles. The extended shutdown of Chinese factories developers with building contractors facing upwards of a monthâ&#x20AC;&#x2122;s delay.

be attempting to settle in a falling market which will

This interruption in the development phase is

result in developers dealing with increased levels

out by up to six months across larger projects, and

create valuation issues for buyers. This may also of defaults due to buyers potentially becoming unemployed or underemployed.

COVID-19 WILL IMPACT THE HIGH-RISE APARTMENT SECTOR IN MORE WAYS THAN JUST BUYER AND RENTAL DEMAND. A LARGE PROPORTION OF MATERIALS ARE SOURCED THROUGH ASIA, WITH CHINA AS THE CENTRAL HUB.

A P AQR1T M E AN R TK SE T/ O TO VW E RN VH IOE UWS E S

The banning of open houses and public auctions

anticipated to push the completion dates of projects potentially increase material costs. This delay will

coincide with the postponement of bank settlements at a time the market is likely to be falling in value.

Ultimately this will not only impact valuations for the buyer, but it will impact on profits for the developer.

developments in the pipeline or commencing

construction will find it difficult to sell and settle

over the next 12 months with the absence of these Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

49

A P AQR1T M E AN R TK SE T/ O TO VW E RN VH IOE UWS E S

The apartment and townhouse market has been

driver has largely been removed. This suggests that

an expanding and ageing population. Additionally,

will further exacerbate price reductions. This will

undergoing a profound and structural shift driven by developers and buyers alike have been hampered

by numerous regulatory changes which caused the

market to stutter, particularly in the apartment sector.

In previous quarterly reports we have discussed the likely shortfall of supply to the market in 2020/21 on

the back of significant falls in the number of approvals across other dwellings (apartments and townhouses).

Since peaking at approximately 13,100 in December

quarter 2017, approval activity for medium and highdensity dwellings continually declined in the seven quarterly periods since through to the December

quarter 2019 where an increase took place. While

it improved to 7,471 approvals it was still well below the 2017 peak. It was this sustained reduction

in approval activity which indicated a projected

supply to market issue in 2020/21. However, with no overseas migrants entering at present, the demand

50

R P M R E A L E S TAT E G R O U P

we may be facing a short-term supply surplus which be particularly apparent in investment-grade inner

city high-rise apartments following both the drop in

overseas migration and reduced demand from local and overseas students.

WHILE COVID-19 IS LIKELY TO HAVE A DETRIMENTAL IMPACT ON APARTMENTS, THE SAME CANNOT BE SAID FOR TOWNHOUSES; AT LEAST NOT TO THE SAME DEGREE. WHILE ALL DWELLING TYPES WILL BE IMPACTED BY THE PANDEMIC, TOWNHOUSES ARE LARGELY OWNER OCCUPIED AND TEND TO BE PURCHASED BY FIRST HOME BUYERS OR BUDGETCONSCIOUS BUYERS IN THE OUTER-MIDDLE TO OUTER RING

OF MELBOURNE. SIMILARLY, TOWNHOUSES IN THE BLUECHIP SUBURBS OF MELBOURNE TEND TO BE PROFESSIONAL COUPLES. TOWNHOUSE SALES ARE ALSO LESS EXPOSED TO THE OVERSEAS MARKET. Further still, townhouse development is far less

complex in terms of generating finance, pre-sales

and build timeframes. This is demonstrated by the

increased activity in the sector over the past decade, increasing from an average of 7,350 approvals in the first five years to 11,500 approvals in the latter. The

most pressing concern for townhouse developments is sourcing suitable sites in amenity-rich and well-

connected suburbs of Melbourne, which is becoming increasingly difficult to do. Additionally, many

potential sites in attractive locations are simply not feasible from a development perspective (dwelling prices wonâ&#x20AC;&#x2122;t cover high land costs).

Image: Enclave at Riverhills, Wollert, Developer: Dahua Group, Builder: TownLiving by Metricon

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

A P AQR1T M E AN R TK SE T/ O TO VW E RN VH IOE UWS E S

WITH NO OVERSEAS MIGRANTS ENTERING THE COUNTRY AT PRESENT, A KEY DEMAND DRIVER HAS LARGELY BEEN REMOVED, WHICH MAY RESULT IN A SHORT-TERM SUPPLY SURPLUS.

51

OTHER DWELLING APPROVALS Victoria recorded 6,899 other dwelling approvals

in March quarter 2020, representing a fall of 7.7%

in approval activity from the previous quarter, but

an improvement of 11.9% from the same quarter in

2019. This highlights the majority of the quarter was

A P AQR1T M E AN R TK SE T/ O TO VW E RN VH IOE UWS E S

unaffected by COVID-19 and demonstrated a market

that was showing a robust gain from 12 months earlier.

While down from December quarter 2019, it was still a strong result, considering December was the highest level since the March quarter 2018.

Townhouse approvals recorded a modest gain over the quarter (1.4%) with a more pronounced gain of

16.7% comparative to the same period a year earlier.

In addition, while approvals over the 12 months to

March 2020 fell 15.5% from the corresponding period

a year earlier, it was coming off a record level from

2019 was the lowest outcome since 2009, but the

result of 10,237 townhouse approvals is compared

quarter 2018.

is significantly higher (up 27%). This robust level of

Notwithstanding this volatility, the result in the March

townhouse developments in greenfield areas, and is

corresponding period and down only a modest 1.1%

2018/19. It is worth noting when the recent annual to the yearly average across the past 15 years, it approvals highlights the increasing popularity of

offsetting the easing number of approvals taking place in the built-up middle ring of Melbourne.

occurs with approvals. It often takes only one or two

large-scale developments to have a material effect on the overall number. For instance, September quarter

11,000

10,000 9,000

8,000 7,000

6,000 5,000

4,000

-

52

19 13%% Year to Mar-16

R P M R E A L E S TAT E G R O U P

69%%

Year to Mar-17

25 20%% Year to Mar-18

6%% 10

Year to Mar-19

24 16% % Year to Mar-20

APARTMENT APPROVALS

TOWNHOUSE APPROVALS

12,000

1,000

glimmer of hope that developers were slowly coming

This, however, has been stopped in its tracks. The

possibility of a high rise or student accommodation

development in the CBD or Docklands, or a mid-rise development in Footscray coming to market in the foreseeable future, looks highly unlikely.

24,000

14,000

2,000

from the previous year. This outcome provided a

and demand fundamentals moved back into alignment.

challenging to analyse due to the movement that

13,000

3,000

quarter 2020 was up a substantial 8.9% from the

back into the high-rise apartment market as supply

Apartment activity on a quarterly basis is more

15,000

following quarter recorded a high not seen since March

22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 -

3%

Year to Mar-16

4%

Year to Mar-17

2%

Year to Mar-18

37%

Year to Mar-19

1%

Year to Mar-20

Source: ABS

KEY MEDIUM DENSITY BUILDING DATA

APPROVALS

TOTAL APARTMENTS

TOTAL

March quarter 2020

2,766

4,133

6,899

Change from previous quarter

1.4%

-12.8%

-7.7%

Change from previous year

16.7%

8.9%

11.9%

12 months to March quarter 2020

10,237

13,221

23,458

% change 12 months earlier

-15.5%

-1.1%

-8.0%

COMMENCEMENTS December quarter 2019

OTHER DWELLINGS 4,121

COMPLETIONS

OTHER DWELLINGS

December quarter 2019

9,662

Change from previous quarter

-18.8%

Change from previous quarter

49.6%

Change from previous year

-28.7%

Change from previous year

47.9%

12 months to December quarter 2019

22,077

12 months to December quarter 2019

28,053

% change 12 months earlier

-33.8%

% change 12 months earlier

TOTAL APARTMENT & UNIT PRICES

MEDIAN PRICE

March quarter 2020

$641,000

December quarter 2019

$637,000

March quarter 2019

$586,500

A P AQR1T M E AN R TK SE T/ O TO VW E RN VH IOE UWS E S

TOTAL TOWNHOUSES

9.0%

CHANGE FROM PREV. QTR.

0.6%

CHANGE FROM PREV. YR.

9.3%

NOTE: Approvals are to the current quarter (March 2020), while commencements and completions are delayed by a quarter (December 2019).

Image: Enclave at Riverhills, Wollert, Developer: Dahua Group, Builder: TownLiving by Metricon

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

53

OUTLOOK

price growth reaching double digits underpinned by

FORTUNATELY, LENDERS HAVE PROVIDED LENIENCY TO DISTRESSED BORROWERS, WHICH MEANS FORCED SALES WILL BE LIMITED AND ULTIMATELY REDUCES THE LEVEL OF SUPPLY THAT WOULD OTHERWISE BE ON THE MARKET. AS A RESULT, WITH LIMITED SUPPLY ON THE MARKET WE MIGHT ACTUALLY SEE SOME RESILIENCE IN VALUES OVER THE COMING MONTHS AS THERE WILL BE BUYERS, PARTICULARLY FIRST HOME BUYERS, WHO ARE SECURE IN THEIR EMPLOYMENT AND WILL LOOK AT THIS PERIOD AS PRIME TIME TO BUY.

potential affordability concerns and the inability of

However, if the pandemic continues beyond six

Conversely, the more positive outlook indicates a fall

was likely to be the next mini housing-price boom

must be reinstated, consumer sentiment will be

buffered by support put in place by the Government

A P AQR1T M E AN R TK SE T/ O TO VW E RN VH IOE UWS E S

Over the course of a single quarter the outlook

for other dwellings, particularly apartments, has pivoted 180 degrees. As part of the December

quarter outlook, the discussion was around strong buyer fundamentals at play, including historically

low interest rates, improved borrowing capacity and strong employment growth. The consensus was for

buyer urgency and fear of missing out. The focus was first home buyers to enter the market through what through 2020.

Unsurprisingly, this outlook rapidly changed. While affordability concerns are on the horizon, it is not

limited to first home buyers. It is now all mortgage holders who are looking at a state unemployment rate reaching 11% by the end of the year and remaining elevated through most of 2021.

54

R P M R E A L E S TAT E G R O U P

months, or a second wave occurs and restrictions rocked once more, and activity will plummet. At this

point in time the protection that is currently in place,

in values of between 5% and 10% by the end of 2020, and financial institutions.

including JobKeeper and bank payment holidays,

Melbourne will likely see a more prolonged downturn

sales resulting in a sharp fall in values. This outcome

vast majority being rentals, and a significant number

may cease and we could see an increase in forced

is in line with commentators who anticipate prices to fall between 20% and 30%.

in the apartment and unit market simply due to the

located within the middle and inner rings, occupied

by overseas students or migrants on short-term visas, who have largely all returned home.

LUKE KELLY

DIRECTOR, PROJECT MARKETING luke@rpmrealestate.com.au +61 400 688 520

instant positive surge to both business and

COVID-19 long after the broader market goes back

reduces significantly in 2021, result in the nation

this specific market sector will feel the fallout of to a level of normality.

Most of the driving demand fundamentals for

property in Melbourne remain uncertain in the near

consumer confidence. This could, if unemployment

This is in addition to other factors including quality

property prices.

institutions all acting as magnets to overseas

expect, and this will have a positive influence on

In addition, once travel restrictions are removed it

robust migration, and will in fact have a sharp spike

Victoria, will be held in high regard following our

in unemployment and not see any meaningful migration until the middle of 2021 at best.

On a positive note, once the Government begins

to lift social distancing restrictions, there will be an

rules and regulations.

returning to economic activity sooner than many

term. While the borrowing environment is at a record low, we will not have strong employment growth or

transparent market with scale, along with clarity of

of life, weather, clean air, and world class education migrants.

is widely considered that Australia, and particularly

While there will be a price correction in 2020 which

response to COVID-19. Prior to the pandemic,

home buyers and other budget-conscious buyer

Victoria was a highly desirable investment option

for buyers from Asia. This may be enhanced after

COVID-19, given the market offers a deep, liquid and

A P AQR1T M E AN R TK SE T/ O TO VW E RN VH IOE UWS E S

With the country closed through to the start of 2021,

will make detached housing more affordable to first groups, a continued shift in demand to less expensive townhouses in the middle and outer ring will also be highly sought after.

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

55

OVERVIEW

OVERSEAS DEMAND FOR RESIDENTIAL PROPERTY IN VICTORIA REMAINED RELATIVELY LOW IN MARCH QUARTER 2020. FOREIGN BUYERS

INTERNATIONAL

ACCOUNTED FOR 12% OF NEW DWELLINGS

PURCHASED AND JUST 2.3% OF ESTABLISHED DWELLINGS PURCHASED; A LONG-TIME LOW.

DEMAND FROM CHINA, THE LARGEST SOURCE

FOR OVERSEAS BUYERS IN VICTORIA, IS LIKELY

TO HAVE WEAKENED DURING MARCH QUARTER

2020 AS THE COUNTRY DEALT WITH THE HARSH

ECONOMIC REALITIES OF COVID–19 THROUGHOUT MUCH OF THE PERIOD.

However, this continues the downward trending

proportion of overseas buyers for much of the last three years. A myriad of factors can be ascribed,

including; a tightening of domestic credit to foreign purchasers; increased restrictions on capital

transfers in home countries; the introduction and subsequent increase to 8% of Victoria’s foreign

resident additional stamp duty rate; and other state taxes such as vacancy fees.

56

R P M R E A L E S TAT E G R O U P

JINYIN ZHANG

DIRECTOR, RPM INTERNATIONAL jinyin@rpmrealestate.com.au +61 451 898 886

Consequently, the number of residential real estate

approvals by Foreign Investment Review Board (FIRB)

The expected downturn in property markets over the remainder of 2020 will make purchasing a dwelling in Victoria relatively more affordable and attractive for

overseas purchasers. This could lead to a reverse in the persistent low share of overseas buyers, driven by rebounding interest from buyers from China in

particular, as their economy recovers more quickly comparative to most countries.

EARLY SIGNS ARE POSITIVE, WITH REAL ESTATE PLATFORMS REPORTING A SIGNIFICANT INCREASE IN OVERSEAS BUYER ENQUIRIES FOR VICTORIAN DWELLINGS IN APRIL.

% OF FOREIGN PURCHASERS BY DWELLING TYPE

approvals in 2015/16.

Q 1 IMNAT RE KR ENTA TO IVOENRAVLI E W

22%

in Victoria over 2018/19 was 82% below peak in

20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

New

14%

21%

14%

14%

12%

12%

13%

8%

5%

12%

7%

12%

12%

Established

7%

9%

8%

9%

8%

6%

6%

4%

5%

4%

4%

6%

2%

Source: NAB Quarterly Residential Property Survey

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

57

AUSTRALIAN ECONOMIC OUTLOOK

The rapid deterioration in Australia’s economic

the Australian Tax Office show that between March

in effort to kick-start the economy from hibernation

distancing measures implemented in late March

7.5% and total employee wages decreased by 8.2%.

back of these measures will be gradual, with some

outlook, directly attributed to restrictive social

to mitigate the spread of COVID-19, is particularly Q 1 IMNAT RE KR ENTA TO IVOENRAVLI E W

evident in the rapid changes of economic forecasts.

It is estimated that gross domestic product (GDP) will contract by an historic 7-8% in June quarter

Weakening employment conditions were further highlighted by the additional 81,500 people who

worked fewer hours in March compared to February.

2020 alone, eliminating all gains to economic

This has led to the unemployment projection more

in the Australian economy declining by a forecast

2020, which would have been worse without the

activity in the previous three quarters, and resulting 0.3% over financial year 2020. It should be noted that these forecasts take into consideration the

combined massive $320 billion stimulus measures

than doubling in just one month to 11.7% by June

JobKeeper initiative which has kept an estimated five million people in employment.

from the Federal Government and Reserve Bank

Australia’s handling of the COVID–19 pandemic has

16.4% of GDP.

when considering number of cases and deaths.

of Australia, which equates to approximately

Early employment indicators released from the

Australian Bureau of Statistics in conjunction with

58

14 and April 18, total employee jobs declined by

R P M R E A L E S TAT E G R O U P

been more effective compared to most countries

This has allowed the country to begin winding back some of the social distancing measures from May,

and get people back into work. However, the roll

sectors of the economy, such as the tourism industry, to experience little recovery through 2020. This will continue to act as a drag on family finances,

with almost one third of households reporting their

financial position has deteriorated from COVID–19.

Furthermore, people’s confidence to return to

normal activities will take time to recover as we learn to live with the threat of COVID–19 before a vaccine is released. Consequently, the initial opening

period for retail, cafes, restaurants, fitness and

entertainment is expected to lead to only a minor upturn in economic activity.

An important driver of economic growth over the past two decades has been population growth,

with overseas migration into Australia the largest

from overseas migration in financial year 2021 will

While growth in quarterly GDP is projected to return

to Australia will reduce this inflow from tens of

years prior. A substantial decline in dwelling demand

and industries gradually returning to normal activity,

segment. However, the ban on overseas migration thousands per quarter to zero in June quarter 2020, Federal Government projects Australiaâ&#x20AC;&#x2122;s net inflow

will follow, impacting the entire residential property

industry, particularly the new house sector which has the largest multiplier benefits on the economy.

AUSTRALIAN ECONOMY ECONOMIC INDICATORS (% CHANGE)

in the second half of 2020, in line with fewer restrictions annual GDP at June 2021 is still forecast to be 2.5% lower than June 2020.

MARCH 2020 FORECAST

Q 1 IMNAT RE KR ENTA TO IVOENRAVLI E W

and remain extremely low through 2020â&#x20AC;&#x201C;21. The

decrease by 85% from the corresponding figure two

APRIL 2020 FORECAST

2019-20 F

2020-21 F

2019-20 F

2020-21 F

GDP

1.60

1.90

-0.30

-2.50

Employment

2.00

0.20

-0.10

-7.00

Unemployment Rate

5.20

5.60

11.70

8.90

Average Earnings

2.90

2.60

2.70

1.20

Inflation

2.10

2.20

2.00

1.30

RBA Cash Rate

0.68

0.71

0.25

0.25

$A/US cents

0.59

0.60

0.57

0.67

Source: NAB. The Forward View. F = Forecast.

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

59

OVERVIEW

THE TAIL-END OF 2019 AND THE START OF THE

NEW DECADE MARKED WHAT MANY HAD HOPED

RESIDENTIAL INVESTMENT

FOR; A STEADY UPWARDS RETURN TO THE

PREVIOUS 2017/18 PEAK. THIS WAS FUELLED BY

THE IMPACT OF APRA’S RELAXATION OF LENDING

SERVICEABILITY TESTS, AND MULTIPLE CASH RATE REDUCTIONS RESULTING IN THE LOWEST RATE IN RECORDED HISTORY.

However, the widespread health, productivity and economic impacts of COVID-19 saw hope of a

continued recovery dashed by the end of March quarter 2020. As such, the quarter is a unique

statistical period. It marked the start of an upwards

recovery in both housing price and market sentiment, but the final weeks of the quarter were characterised by significant social and economic changes as a

result of stringent (but as we have now seen, effective) lockdown measures.

Overall, house prices in Metropolitan Melbourne still

rose by a healthy 3.7% during the March quarter 2020,

60

R P M R E A L E S TAT E G R O U P

Enclave at Riverhills, Wollert Developer: Dahua Group Builder: TownLiving by Metricon

LYNN NIE

DIVISION MANAGER, PROPERTY MANAGEMENT lynn@rpmrealestate.com.au +61 488 210 951

The slight increase in vacancy rates can be directly

comparing house and unit prices to the same period

sectors most heavily hit by COVID-19 impacts,

compared to the previous quarter. Nevertheless, a year ago (during the middle of the ‘slump’), the

evidence of recovery at the outset of 2020 is clearly

apparent. House prices are 12.5% higher than a year ago, with unit prices up 9.29%.

attributed to job losses or underemployment in

such as retail and hospitality industries, along with overseas students, leaving many unable to live

independently and consequently leaving their rental

WHILE THE OCCASIONAL DWELLING TYPE HAS SEEN RENT INCREASING IN THE MARCH QUARTER, MANY HAVE SEEN NO MOVEMENT OR EVEN A DROP.

property.

Rental increases in smaller dwellings, such as inner

The market rebound was supported by overall good

While we expect the vacancy rate to increase above

and one bedroom units, have seen their growth

saw a robust demand for rental accommodation.

quarter, Government initiatives at both Federal and

sentiment through much of the March quarter and

This was as a result of sustained underlying factors

including low unemployment and strong population

growth. However, this all changed in mid-March. The immediate response pushed up Melbourne’s overall vacancy rate to 2.3%, compared with 2.2% in the

previous quarter. This rate is now also slightly higher than the two year average of 2.1%.

the 3% equilibrium industry benchmark in the June State levels are aimed at limiting this rise.

OVERALL VACANCY RATES HAVE REMAINED TIGHT IN THE MARCH QUARTER 2020, ALTHOUGH THERE HAS BEEN VOLATILE MOVEMENT IN RENT PRICING FOR HOUSES, AND UNITS AND APARTMENTS.

R E QS 1I DME AN RT KI A E LT IONVVEERSVTI M EW ENT

although unit prices increased by a mere 0.63%

and middle ring two and three bedroom houses from December quarter 2019 largely wiped off.

For two bedroom houses in all areas, stagnant or

negative growth has occurred. This indicates that renters (particularly those living alone or with a

single housemate) have dropped off during the

quarter, again reflecting the hardest hit industries,

and overseas students who have returned home to

complete the year’s curriculum online. We anticipate this downturn to be even more pronounced in subsequent quarters.

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

61

OVERVIEW

Conversely, larger houses of three and four

Inner-ring Melbourne one and two bedroom units

bedroom houses) have seen the highest upwards

gains, with rents increasing 6% and 3% respectively

recorded no growth from a year ago.

by $65 and $125 (10% and 16%) respectively. These

bedrooms in the inner ring recorded the healthiest

dropped by 1% from the previous quarter, and have

relative to the previous quarter. The only other

houses that recorded notable rent increases above

While inner-ring three bedroom units and apartments

ring. On an annual basis, these homes have seen

this time last year, all other dwellings in all areas have

3% were two and three bedroom houses in the outer

saw 10% growth from both the previous quarter and

notable growth at 6% and 3% respectively. However, R E QS 1I DME AN RT KI A E LT IONVVEERSVTI M EE WN T

inner ring four bedroom houses have seen the

despite a modest 3% growth quarter on quarter.

fluctuate to a lesser degree.

bedroom units and apartments have fallen by 7%, two

strong performance the previous quarter. From 2017

$10, and three bedroom dwellings falling by $5 or 1%.

than houses across all product types in all areas.

find consistently that upmarket dwellings generally

From a regional perspective, Geelong has seen very

bedroom dwellings have only increased slightly by

Units and apartments have generally fared worse

larger dwellings tend to be premium offerings, and we

seen growth beneath 3%, or even negative change.

This is most notable in outer Melbourne, where one

greatest growth year-on-year at an impressive 16%,

increase year on year, with the dwelling types increasing

Interestingly, the largest dwelling types in the inner

ring (three bedroom units and apartments, and four

weak performance in the March quarter 2020 after

Geelong has seen strong growth across all bedroom

and dwelling types due to the Government relocating offices to the area, creating significant demand for rental accommodations.

MEDIAN RENTS HOUSE: BEDROOMS

MAR-19

Inner

2

$560

Middle

2

4

$800

3

$440

Outer

Geelong

3

4

2

MAR-20

$580

$560

-$20

$925

$25

$680

$900

$400

$400

$580

$630

$341

$460 $350

$380

$380

2

$320

$325

4

3

R P M R E A L E S TAT E G R O U P

$720

$380

3

4

62

$743

$430 $360 $423

CHANGE FROM PREVIOUS QUARTER

DEC-19

$430

$380

$440

$40

-3% 6%

$10

3%

$330

$5

$385

$440

$0 $5

$0

1%

3.1%

5%

$390

$430

4.0%

$20

-7%

$10

5%

0%

-$45

3%

0% 2% 1%

0%

$20 $5

$20

6%

$0

0%

$25

7%

$10

$10 $18

0.9%

5.0%

16%

$585

$360

0%

2 YEAR AVERAGE ANNUAL GAIN

-3%

$125

0%

$0

-$23

3%

$0

$460

$0

CHANGE FROM PREVIOUS YEAR

3%

3% 4%

1.7%

3.4% 1.3%

1.3%

0.0% 4.9%

4.9%

3.6%

LYNN NIE

DIVISION MANAGER, PROPERTY MANAGEMENT lynn@rpmrealestate.com.au

While this underlying factor is still present, during

+61 488 210 951

this quarter Geelong recorded very little or no growth across all dwelling types and sizes.

The largest growth in Geelong can be seen in two

bedroom houses where rent increased by $5 relative to the last quarter; a mere 2% increase. Units and

change, with one bedroom unit rents increasing by

just $3 relative to the previous quarter, while two and three bedroom units recorded no change at all. This

indicates Geelong may have reached a growth plateau,

10%

with renters who moved into Geelong for employment

MELBOURNE’S VACANCY RATE INCREASED

INNER RING THREE BEDROOM HOUSES AND UNITS

permanently or move into their newly built home.

IMPACTS ARE LIKELY TO DRIVE THIS RISE HIGHER.

FROM LAST QUARTER, UP 6% AND

potentially now having decided whether to stay

MARGINALLY, BUT ANTICIPATED COVID-19

R E QS 1I DME AN RT KI A E LT IONVVEERSVTI M EW ENT

2.3%

apartments have seen even more diminutive levels of

RECORDED THE HIGHEST RENTAL INCREASES 10% RESPECTIVELY.

UNITS & APARTMENTS:

Inner

Middle

Outer

Geelong

BEDROOMS

MAR-19

1

$380

2

3

1

DEC-19

MAR-20

$385

$380

$495

$500

$320

$350

$350

$540

$535

$350

$360

$228

$230

$670

$670

2

$403

$400

1

$300

$290

3

$400

3

2 1

2 3

$503 $350 $220 $310

$398

$420

$330

$400

$495

CHANGE FROM PREVIOUS QUARTER

-$5

-$5

-1%

-1%

$0

$0

9%

3.0%

6%

3.4%

$413

$13

$270

-$20

-7%

-$30

-10%

$415

-$5

-1%

$15

4%

$0

0%

$330

$400

$10 $3

$0

0%

$30

-1%

$33

3%

3% 1%

0%

$11

$10

$10

$20 $3

1.3%

0.5%

$65

-$5

$65

0%

2 YEAR AVERAGE ANNUAL GAIN

0%

$735

$0

10%

CHANGE FROM PREVIOUS YEAR

10% 3%

3% 5%

6% 1%

2.5%

2.3%

2.9%

2.9% 2.5%

2.2%

4.9%

4.0%

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

63

OVERVIEW

VACANCY RATES & YIELDS Vacancy rates in the March quarter reflect a minimal

However, vacancy rates in the coming quarters

quarter overall. Across the board, all areas remained

COVID-19.

middle ring (up marginally to 3.5%) and outer ring

Rental yields have been, and continue to be, below

These consistently low vacancy rates reinforced

seen in both detached houses and other dwellings

and likewise current dwelling approval rates have

market a rental yield above 2.5% is far more appealing

will be interesting to witness following fallout from

R E QS 1I DME AN RT KI A E LT IONVVEERSVTI M EE WN T

uplift, although trends still follow the previous

below the accepted norm of 3%, excepting the

including Mornington Peninsula (remaining at 3.4%).

long-term levels due to the significant capital gains

the consensus that the market is not oversupplied,

over the past five years. Nevertheless, in the current

remained low compared to 2017/18 boom levels.

than other types of investment due to the incredibly

Inner total

Inner (0-4km)

Inner (4-10km)

MAR-19

DEC-19

MAR-20

2 YEAR AVERAGE

1.4

1.7

2.0

1.6

2.0 2.1

1.9 2.1

2.0

poor for those investing in detached housing in the outer and regional areas, land value appreciation

tends to be the driving force in the earlier stages.

2.2 1.6

64

R P M R E A L E S TAT E G R O U P

MAR-20

2.51%

2.32%

2.33%

2.82%

2.66%

2.34%

4.22%

UNITS

MAR-19

DEC-19

MAR-20

Middle

3.26%

2.93%

2.96%

3.4

2.2

2.3

2.2

2.2

1.6

2.6 2.1

1.8

Metro

Inner

Outer

Metro

Source: REIV, RPM

4.44%

2.92%

2.52%

4.20%

3.1

Regional Source: REIV

DEC-19

2.83%

4.21%

1.8

3.4

Middle

MAR-19

Regional

1.8

2.3

Inner

1.7

1.5

1.9

HOUSES

1.8

Outer (20+km exc. Mornington Peninsula)

1.6

1.9

3.08%

3.5

Geelong

While a rental yield of sub 2.5% would be considered

Outer

3.3

Melbourne total

within the market offering far more attractive yields.

2.0

3.6

Outer (Mornington Peninsula)

Over the March quarter 2020, there were segments

2.0

Middle (10-20km) Outer total

uncertainty of the world’s stock markets.

YIELDS:

VACANCY RATE: MELBOURNE

low interest rate environment and significant

4.10%

2.92% 2.61%

4.05%

3.66%

3.35%

3.40%

4.67%

4.66%

5.07%

3.99%

3.67%

3.61%

LYNN NIE

DIVISION MANAGER, PROPERTY MANAGEMENT lynn@rpmrealestate.com.au +61 488 210 951

OUTLOOK In the coming months we expect there will be

seems to be a movement from the middle to the outer

and rental market due to the impacts of COVID-19

likely to change in subsequent quarters), and what

ring for renters, yields are at the higher end for these outlier areas.

Houses and units in regional areas recorded an

average yield of 4.2% and 5.1% respectively during

this period. These strong returns are generally due to two factors; a lowering house price in regional areas, and rental prices staying almost completely level.

Similarly, units in the inner ring recorded an attractive average yield of 4.05% in the March quarter which,

although is slightly down from 4.10% in the previous quarter, suggests continued robust demand for

significant deterioration in the residential investment

not to go home over the end-of-year break period have remained.

and its containment measures. To date, the rental

Following the closure of Australia’s borders, tourism-

within the broader property sector, with companies

hope of recovery from the bushfires dashed as

market has seen the most immediate disturbance

closing their doors in the final weeks of March and unemployment figures skyrocketing in mere days.

Casual workers and those in industries such as

retail, hospitality and tourism were immediately

impacted. Landlords and agents suddenly found their tenants were unemployed through unprecedented circumstances. These circumstances further

compounded the consequences of the December 2019 bushfires on the regional tourism industry.

dependent regional communities have seen any international tourism numbers plunged to zero.

Furthermore, Stage three domestic restrictions

reduced travel to essential users only, ending all

domestic tourism demand. In turn, swathes of Airbnb properties have now moved back into the rental

market. This increases the supply when there is little to no demand, as well as increasing competition for landlords already facing rent reductions in order to lease their property.

one and two bedroom units in the CBD and fringe

Over the balance of 2020, Victoria’s reliance on

However, State and Federal Governments have

the 2-year average. However, while the inner ring and

February, all flights from China to Australia were

evicted. Further still, the Federal Government

suburbs. Vacancy rates have now moved just above

regional areas are still attractive in the March quarter

2020, vacancy rates are anticipated to move upwards in the coming months which will bring down yields as the full fallout of COVID-19 can be quantified.

overseas students will come to the fore. From

banned, and in late March, all non-Australian Citizens were prohibited from entering. This significantly decreases overall demand of inner-city rental

properties, as many international students are

unable to enter Australia; only those who chose

R E QS 1I DME AN RT KI A E LT IONVVEERSVTI M EW ENT

However, with vacancy rates at acute levels (although

introduced measures to protect tenants from being introduced the most comprehensive support

package ever offered to Australians in the form of JobKeeper. This package was designed to keep

employers and employees in work and in business as we navigate the current climate.

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

65

OUTLOOK

R E QS 1I DME AN RT KI A E LT IONVVEERSVTI M EE WN T

TO DATE, IN BENEVOLENT FASHION, LANDLORDS WHO HAD TENANTS IN CHANGED CIRCUMSTANCES HAVE BEEN OVERWHELMINGLY SUPPORTIVE AND EMPATHETIC. WE COMMEND THE MANY LANDLORDS WHO HAVE BEEN GRACIOUS IN DEALING WITH TENANTS IN DISTRESS DURING COVID-19.

It is worth noting that many landlords are also facing distressing circumstances of their own. However, protections at the national and state levels have been predominantly weighted towards tenants,

with comparatively few concessions for landlords, including in many states rent moratoriums and

restrictions on rent increases for the next six months.

In Victoria, the state government has announced a $500 million rent rescue package. A further $420 million has been earmarked for land tax relief for

landlords. While this is something, for the average

residential investor it does not provide the assistance

they require. Land tax concessions are not accessible until the end of the financial year and will therefore

not provide immediate support if tenants can’t pay.

In addition, land tax only applies on valuations above $250,000. Consequently, apartments, townhouses

and even some smaller lots will not meet the criteria.

This package, in essence, is targeted to commercial

landlords where their sites are larger, and by extension, more expensive. Additionally, the tax relief is in the

form of a 25% reduction if landlords can demonstrate they have offered rent relief to their tenant. If the land valuation is $300,000, the owner will be billed $375 in

tax, so the 25% relief results in just $93.75 of savings.

Supported by RPM’s survey results, we know the

majority of landlords are average wage earners. As such, they rely on rental payments alongside job

income to manage their mortgage as well as running expenses of the investment, including council and

water rates, strata levies and repairs. While landlords

can apply for a mortgage repayment reprieve from the

banks, there are potentially considerable costs further down the track, with major banks confirming that any pause in payments will be capitalised into the rest of the loan term.

WHILE THERE IS CONSIDERABLE UNCERTAINTY AT PRESENT AND SIGNIFICANT HEADWINDS ON THE HORIZON, FOR POTENTIAL INVESTORS WHO ARE SECURE IN THEIR EMPLOYMENT, IT IS A FAVOURABLE TIME TO BUY. LENDING RATES ARE AT HISTORICAL LOWS, AND INVESTORS IN THE GREENFIELD MARKET WON’T BE REQUIRING A TENANT FOR AROUND A YEAR AS THEY SETTLE THE LAND AND UNDERTAKE CONSTRUCTION. THIS UNDOUBTEDLY DIFFERS FOR AN INVESTOR PURCHASING AN EXISTING DWELLING. Through these tumultuous times, it is important to remember that looking historically, property has

been a significantly safer form of investment than more volatile options such as the share market.

Additionally, Australia’s response to COVID-19 has been swift and broad, and has seen the country

fare significantly better than most other countries affected. Subsequently, in a year’s time, with

COVID-19 behind us, we expect the market to recover and Victoria to remain an appealing destination.

66

R P M R E A L E S TAT E G R O U P

RESIDENTIAL INVESTMENT BUYER SURVEY DATA

building quality and demand levels of more centrally

Interestingly, no buyers indicated their intent to

Although there was growing uncertainty in the market

March quarter 2020 with the onset of the COVID-19

household incomes above $100,000 increased. This

of 2019, investors represented just 23% of sales in the pandemic, down from 37% in December quarter 2019.

While this share was in line with the corresponding

quarter in 2019 which was impacted by the tail-end of a slowdown, it is likely to remain around this level for

towards the end of the quarter, purchasers with

highlights the growing prevalence of investor-buyers, from the more volatile share market and uncertainty in located apartments.

spend above $400,000 on the build, compared

The March quarter data revealed a considerable

quarter 2019. This is likely the result of investors

home. While at first this appears to indicate a smaller

forcing investors to re-evaluate the composition

share of house builds larger than 21sq. This may

price indicating more diversity in investor type.

of these buyers. This trend continued through to

of potential tenant diversity, and not wanting to

The landscape has changed for investors over

purchasers this quarter up from just 8% last year.

double-storey residences.

same. One of these is the source of advertising the

DESPITE THE GROWING TREND TOWARDS LARGER SINGLE-STOREY BUILDS, THE ANTICIPATED OVERALL BUILD SPEND IS LESS.

line with previous surveys, over half of all investors

at least another six months. We anticipate potential

investors will weigh up their personal circumstances

and employment security against it being a favourable time to buy.

While the 2018/19 market downturn reduced the

proliferation of Indian and Chinese born investors,

the strong December quarter 2019 showed a re-entry 2020, with Indian investors accounting for 31% of all To a lesser degree, Chinese investors have held

ground, but will more than likely remain subdued in the coming months due to the continued capital controls

the Chinese Government has in place on its residents.

with 19% falling into this price bracket in March

upswing of investors intending to build a single-storey

spending slightly more in the land component,

dwelling, RPM survey findings showed an increasing

of their budgets, and a slightly lower total package

demonstrate investors becoming more considerate

exclude older households who may discount

R E QS 1I DME AN RT KI A E LT IONVVEERSVTI M EW ENT

with traditional mum and dad investors moving away

DURING THE MARCH QUARTER 2020, 72% OF INVESTORS INTENDED TO SPEND LESS THAN $250,000 ON CONSTRUCTION, UP FROM 46% A YEAR EARLIER.

Following increasing buyer appetite throughout much

the past 12 months, but some things remain the

investor first noticed; during the March quarter, in

indicated word of mouth (friend, family, builder) as the primary advertising source.

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

67

RESIDENTIAL INVESTMENT BUYER SURVEY DATA

MARCH QUARTER 2020

MARCH QUARTER 2019

R E QS 1I DME AN RT KI A E LT IONVVEERSVTI M EE WN T

OWNER OCCUPIER VS. INVESTOR

Investor

Investor

$120k>

39%

$80-$100k

14%

China

India

$101-$120k

$60-$80k $40-$60k <$40k

$351-$400k

0%

$301-$350k $251-$300k

$201-$250k $151-$200k

<$150k

38%

$80-$100k

15%

$60-$80k

8%

$40-$60k <$40k

3% 2%

$351-$400k

2%

3%

$301-$350k

38%

$201-$250k

0%

17%

0%

$401-$450k

8%

25%

>$450k

11%

32%

Owner Occupier

$120k>

India

19% 0%

77%

Australia

China

$101-$120k

11%

23%

2% 3% 4% 31% 54%

Malaysia

Philippines

17%

>$450k

$401-$450k

NEW HOME CONSTRUCTION BUDGET

Owner Occupier

Australia

Bangladesh

HOUSEHOLD INCOME

76%

3% 3% 4% 8% 74%

New Zealand

COUNTRY OF PERSON 1&2 TOP 5

24%

$251-$300k $151-$200k

<$150k

0% 3%

23% 54% 18% 0%

Source: RPM

68

R P M R E A L E S TAT E G R O U P

MARCH QUARTER 2020

MARCH QUARTER 2019

Undecided

Double storey

NUMBER OF STOREYS CONSIDERED

Single storey

INTENDED SIZE OF HOME INCLUDING GARAGE

21-25sqs

16-20sqs <15sqs

Other Builder Referral

3%

Single storey

>30sqs

3%

26-30sqs

67%

16-20sqs

11%

Other

19% 8%

26%

21-25sqs

<15sqs

Builder Referral

Family or Friend

Realestate.com

13% 18%

Google

>$600k

15%

Signage Google

Project Website

$551-$600k

$501-$550k

$451-$500k

HOME & LAND BUDGET

53%

18%

Family or Friend

ADVERTISEMENT SOURCE

45%

Undecided

Double storey

$401-$450k $351-$400k

$301-$350k <$300k

11%

3%

3% 5%

18%

Signage

82%

0% 5%

32% 54% 9%

18%

28% 23% 18% 5% 5%

>$600k

2%

Project Website

$551-$600k

$501-$550k

$451-$500k

$401-$450k

0%

$301-$350k

0%

11%

Realestate.com

33% 26%

7%

R E QS 1I DME AN RT KI A E LT IONVVEERSVTI M EW ENT

>30sqs

26-30sqs

3%

3%

11% 11%

30% 37%

$351-$400k

5%

<$300k

3%

2%

RPM surveys every buyer on its clientsâ&#x20AC;&#x2122; estates in the greenfield market. In March quarter 2020, 23% of all buyers indicated they were investors. The data illustrates demographic and purchase intent changes amongst this cohort based on surveys from the March quarter 2020 compared to the same quarter in 2019.

Q1 R E S I D E N T I A L M A R K E T R E V I E W | M A R C H Q U A R T E R 2 0 2 0

69

ERIC DICK

KEVIN BROWN

eric@rpmrealestate.com.au

kevin@rpmrealestate.com.au

EXECUTIVE CHAIRMAN +61 418 349 267

+61 418 397 577

LUKE KELLY

PETER GRANT

luke@rpmrealestate.com.au

peterg@rpmrealestate.com.au

DIRECTOR

+61 400 688 520

DIRECTOR, COMMUNITIES +61 411 494 499

ROD ANDERSON

JINYIN ZHANG

rod@rpmrealestate.com.au

jinyin@rpmrealestate.com.au

DIRECTOR, COMMUNITIES +61 417 595 859

DIRECTOR, RPM INTERNATIONAL +61 451 898 886

CHRISTIAN RANIERI

MICHAEL STAEDLER

christian@rpmrealestate.com.au

m.staedler@rpmrealestate.com.au

DIRECTOR, TRANSACTIONS & ADVISORY +61 416 445 078

LYNN NIE

DIVISION MANAGER, PROPERTY MANAGEMENT lynn@rpmrealestate.com.au +61 488 210 951

70

CHIEF EXECUTIVE OFFICER

R P M R E A L E S TAT E G R O U P

RESEARCH MANAGER +61 434 619 280

+61 3 9862 9555

Level 5, 52 York Street

South Melbourne VIC 3205 rpmrealestate.com.au