residential market review · overseas migration 23,208 24,339 82,113 sep-19 same qtr. year earlier...

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RPM REAL ESTATE GROUP IS VICTORIA’S MOST SUCCESSFUL

RESIDENTIAL DEVELOPMENT SALES, MARKETING AND

ADVISORY AGENCY. WE SPECIALISE IN SALES WITHIN

MASTER-PLANNED COMMUNITIES, MEDIUM AND HIGH-DENSITY

DEVELOPMENTS, GREENFIELD AND INFILL DEVELOPMENT

SITES AND INTERNATIONAL INVESTMENT SALES.

WE ADVISE OUR CLIENTS ON ALL ASPECTS OF THE SALES

PROCESS FROM SITE DUE DILIGENCE, ACQUISITION, PLANNING

AND RISK MITIGATION THROUGH TO PRODUCT MIX, PRICING,

LAUNCH, SALES AND SETTLEMENT. OUR RESEARCH-BACKED

STRATEGIES DELIVER HIGHER REVENUES AND SALES RATES,

AND BETTER RETURNS FOR OUR CLIENTS.

INSIDE

APARTMENTS /TOWNHOUSES

LEAD INDICATORS 6

10

FROM OUR CEO 4

48

INTERNATIONAL56

RESIDENTIAL INVESTMENT60DEVELOPMENT

SITES 12

COMMUNITIES16

INDUSTRY LEADER

INSIGHTS

3Q1 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 UA R T E R 2 0 2 0

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FROM OUR CEO

KEVIN BROWN

CHIEF EXECUTIVE OFFICER

RPM REAL ESTATE GROUP

WELCOME TO RPM REAL ESTATE GROUP’S Q1 2020

RESIDENTIAL MARKET REVIEW. WE ARE PLEASED

TO SHARE THIS COMPREHENSIVE UPDATE

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

social distancing measures were implemented in

response to COVID-19 in March. The housing market

unsurprisingly – and rapidly – reflected growing

caution in consumer behaviour, with an immediate

drop in listings and prices from the moment the state

of emergency was declared.

Before that point, Q1 2020 results were favourable,

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

middle- or inner-city rental expenses.

Gross lot sales reached an 18-month high in

February, with sales across Melbourne and Geelong

for the quarter increasing by 2.1% from the previous

period. The quarter’s sales results were promising

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

house prices until that point 12.5% higher than a

year ago, and unit prices up 9.29%.

However, from mid-March the change was abrupt.

With under-employment and unemployment levels

rising sharply (the latter expected to climb towards

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.

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

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MICHAEL STAEDLER

RESEARCH MANAGER

[email protected]

+61 434 619 280

While we cannot forecast the final toll of the current

circumstances with any certainty, we do anticipate

a broad-reaching slowdown across the property

industry. Purchasers, whether impacted by travel

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.

Developers have an opportunity to respond to the

market, with diversity and agility more important

than ever. While we will undoubtedly face a tough few

months ahead, developers who continue to tailor

product to the wants, needs and price-points of

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

already see innovation and opportunities burgeoning

across numerous industries. We believe it’s still a

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

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.

The data contained within this report was prepared

by RPM’s research team consisting of economists,

property experts and GIS analysts.

Research underpins the core strategic decision-

making capability at RPM, providing in-depth analysis

on current economic and housing conditions,

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.


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ECONOMIC ACTIVITY VIC POPULATIONGROSS DOMESTIC PRODUCT (GDP)

CONSUMER PRICE INDEX (CPI)

STATE FINAL DEMAND (SFD) - VIC

RETAIL TURNOVER - VIC

1.85%

2.19%

2.01%

6.01%

2.42%

1.33%

4.08%

4.89%

12 month change to Dec qtr. 2019

Mar-20

12 month change to Dec qtr. 2019

Mar-20

5 year average

Same month year earlier

5 year average


Source: ABS

Source: RBA

BORROWING RATESCASH RATE VARIABLE RATE

0.25 %Mar-20

Dec-19

Mar-19

Mar-20

Dec-19

Mar-19

Mar-20

Dec-19

Mar-19

Mar-20

Dec-19

Mar-19

DISCOUNTED RATE

3.91% 2.54%

4.15% 3.10%

4.68% 4.05%

3 YEAR FIXED RATE

0.75%

1.50%

4.52%

4.80%

5.37%AUS 25,464,116 VIC 6,629,870TOTAL POPULATION

NATURAL INCREASE

8,593 10,087 35,849Sep-19 Same qtr.

year earlier12 months to Sep-19

14.8%% change - same qtr. last year

12.4%% change - 12 months earlier

OVERSEAS MIGRATION

82,11324,33923,208Sep-19 Same qtr.


% change - same qtr. last year

% change - 12 months earlier

4.6%

3.6%

NET INTERSTATE MIGRATION

11,6292,5992,030Sep-19 Same qtr.



% change - 12 months earlier

21.9%

16.8%

change from Sep-18 to Sep-19


373,733 132,369

2.04%1.49%

NATIONAL TOTAL CHANGE VIC TOTAL CHANGE

VIC share 35%

■ Negative change ■ Positive change

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VIC EMPLOYMENTEMPLOYMENT GROWTH (JOBS CREATED)

CONSUMER SENTIMENT

BUSINESS SENTIMENT

Mar-20

Mar-20

Mar-19

Mar-19

91.9

-23.1

98.8

7.9

Source: Westpac-Melb institute

Source: RBA/NAB

The Westpac-Melbourne Institute Consumer Sentiment 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 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.

Vic contribution to AUSJobs (‘000s) % Change

5.2% 4.9% 4.6%

UNEMPLOYMENT RATE

Mar-20 Dec-19 Same time last yearSource: ABS

Source: ABS

Nov-19 May-19 Nov-18

$1,707 $1,666 $1,625WAGES

FULL TIME

12.8419.14

0.6%

0.8%

25.2%

20.3%

Dec-19 to Mar-20

Last 12 months

7.0672.67

0.2%

2.1%

15.9%

30.8%

Dec-19 to Mar-20

Last 12 months

TOTAL

PART TIME

-5.7955.53

0.5%

4.9% 37.9%

87.5%Dec-19 to Mar-20

Last 12 months

2.5% 5.1%

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MELBOURNE PROPERTY

VIC FINANCE

MEDIAN HOUSE PRICE AUCTIONS HELD CLEARANCE

3,107

2,753

3,318

Mar-20

Dec-19


MEDIAN UNIT PRICE

$641,000

$586,500

Mar-20

Same qtr. year earlier

MEDIAN LAND PRICE

$311,000

$325,500

Mar-20


Source: ABS

Source: REIV

SHARE OF FHB LOANS

34.1% 28.2%Mar-20 Same qtr.

year earlier

$893,000

$861,500 $637,000 $307,000

$794,000

Mar-20

Previous qtr. Previous qtr. Previous qtr.


0.6%

VALUE OF LOANS - OWNER OCCUPIERS VALUE OF LOANS - INVESTORS

$12.00B $4.44B $3.84B$9.63BMar-20 Mar-20Same qtr. year earlier Same qtr. year earlier

25% 15%

NO. OF FHBS FINANCED AVERAGE LOAN SIZE (FHBS)

8,624 $437,871 $384,1056,933Mar-20 Mar-20Same qtr. year earlier Same qtr. year earlier

24% 14%

NO. OF NON-FHBS FINANCED AVERAGE LOAN SIZE (NON-FHBS)

16,658 $493,673 $394,94917,640Mar-20 Mar-20Same qtr. year earlier Same qtr. year earlier

6% 25%

FINANCE FOR NEW DWELLINGS FINANCE FOR ESTABLISHED DWELLINGS

6,212 15,184 15,2685,244Mar-20 Mar-20Same qtr. year earlier Same qtr. year earlier

18% 1%

12.5%

3.7%

9.3%

74%

73%

56%4.5%

1.3%

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MELBOURNE PROPERTY

VIC BUILDING

VACANCY RATE - MELB MEDIAN METRO HOUSE RENT MEDIAN METRO OTHER DWELLING RENTAVERAGE DAYS ON MARKET - METRO MELB

DETACHED HOUSE APPROVALS

HOUSE COMMENCEMENTS

HOUSE COMPLETIONS

TOTAL DWELLING APPROVALS

TOTAL COMMENCEMENTS

TOTAL COMPLETIONS

2.3% 2.2%Mar-20 Mar-20Mar-19 Mar-19

Source: ABS

Source: REIV

Mar-20

Dec-19

Dec-19

Last 12 months

Last 12 months

Last 12 months




Mar-208,705

Dec-199,195

Dec-199,579

15,604

13,316

19,241

14,610

15,496

16,309

58,609

57,446

65,291

Same qtr. year earlier3.1%8,444



OTHER DWELLING APPROVALS

OTHER COMMENCEMENTS

OTHER COMPLETIONS

Mar-206,899

Dec-194,121

Dec-199,662




Last 12 months8.0%23,458



6.8%

14.1%

18.0%

8.2%

19.9%

1.1%




$470 $430

$450 $430Mar-20 Mar-20

Mar-19 Mar-19

0.0%33 42 4.4%

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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

INDUSTRY LEADER INSIGHTS

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

FEATURE STORY:

DANIEL GRADWELLASSOCIATE DIRECTOR PROPERTY AT ANZ

market was still solid in Q1, continuing to improve

upon last year’s encouraging progress, fuelled by

lower interest rates, decreased unemployment and

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.

Banning auctions and inspections created large

headwind, but we are seeing innovative approaches

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

significantly. This will likely put downward pressure

on prices, and the longer migration is impinged, the

greater the impact on the housing sector.

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

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ANN

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Sydney

Change in population

Melbourne

Net overseas migration Natural increase

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20

State of emergency announced

0

50

100

150

200

250

300

350

400

450

500

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

DANIEL GRADWELL

Source: CoreLogic, ANZ Property

Source: ABS, ANZ Research

EMPLOYMENT DATA IS KEY TO WATCH. IT’S A GREAT INDICATOR OF PEOPLE’S EVERYDAY LIVES, AND THE IMPLICATIONS ARE FAR-REACHING.

patterns. It will be important for the Government to

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

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

ago, while of course the hospitality industry in

particular is suffering, dropping by around 50%.

From a broad economic point of view, that sort of data

is really interesting. We may even see preferences

change as industries reopen, and we’ll see spending

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

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.

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

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


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DEVELOPMENTSITES

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

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.

In that month alone we saw a dual cash rate reduction

to a record low of 0.25%, significant changes to fiscal

OVERVIEW

12

CHRISTIAN RANIERIDIRECTOR, TRANSACTIONS & [email protected]+61 416 445 078

and monetary policy, and dramatically reduced

business activity across a large number of industries.

Across the board, transaction levels drastically

reduced as purchasers began facing the unknown

in terms of the immediate and medium-term impacts

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.

When we consider the current situation in relation

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

we garner some insight on how the situation may

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 broader-

reaching flow-on effects. Without the option to

leverage the strength of international markets to

reverse the downswing in the economy and Australian

dollar, it may result in a prolonged downturn.

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.

Fast forward to December 2019, and house prices

were higher than ever. According to Domain figures,

median house prices in Sydney and Melbourne rose

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.

While the impacts of this situation will transcend the

property market, the englobo space is somewhat

insulated by the sheer nature of land development

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.


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The reality is all industries will be impacted by the

current conditions. We’re already seeing listed

groups take a more conservative approach, as

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

making up a huge proportion of private investment

in englobo land development, the secondary debt

market will no doubt be apprehensive. If property

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.

As investors seek to recall these loans, land values

may be reduced as distressed buying puts downward

pressure on overall values – providing favourable

conditions for developers who are well-placed to

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.

Home ownership is the Australian dream. While

dramatic changes to household and business

balance sheets will likely trigger declines in house

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

numerous factors over the coming months.

Given employment is so intrinsically linked to

property ownership, Federal and State Government

stimulus decisions will play an important role in the

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.

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

as a whole, coupled with the anticipated lagging

effect on the property industry, signifies that we

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.

OUTLOOK

R P M R E A L E S TAT E G R O U P14

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


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OVERVIEW

COMMUNITIES

MARCH 2020 WILL FOREVER BE DEFINED BY

THE RAPID CHANGES THAT OCCURRED ALMOST

IMMEDIATELY AFTER THE IMPLEMENTATION OF

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.


LUKE KELLYDIRECTOR, [email protected]+61 400 688 520

MELBOURNE’S MEDIAN LOT PRICE RECORDED A

MODERATE RISE OVER MARCH QUARTER 2020

TO $311,000.

PER SQUARE METRE LOT PRICE INCREASED BY

1.3%. THE MEDIAN LOT SIZE REMAINED

STATIC AT 400SQM.

$311,000

400sqm

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,

despite the abrupt shift in new house demand midway

through March. This was also the highest quarterly

result since September quarter 2018.

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

Geelong growth areas, which contracted by almost

half, and in turn slowed sales activity considerably.

This is supported by data from the Australian Bureau

of Statistics (ABS) which showed approximately

26,700 employed Victorians worked fewer hours in

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

level of unsold stock on the market at the end of

March, exceeding the February number by over 400.

This was a reverse of the trend seen in the previous

four months where lot absorption outpaced new lot

supply and excess lots on the market reduced.


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OVERVIEW

% OF TOTAL GROSS LOT SALES

MELBOURNE GROWTH CORRIDORS

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0

50

100

150

200

250

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

NUM

BER

OF

ESTA

TES

GRO

SS L

OT

SALE

S

Active estates New estates

Median lot size

March quarter 2020 March quarter 2019 March quarter 2018

Gross lot sales

Median lot price

380

385

390

395

400

405

410

415

420

425

430

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000


MED

IAN

LOT

PRIC

E ($

)

MED

IAN

LOT

SIZE

(SQ

M)

$325>

$301-

$325

$275-

$300

$251-

$275

<$250

0% 10% 20% 30% 40% 50%

Source: RPM


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% CONTRIBUTION TO TOTAL GROSS LOT SALES

MARCH QUARTER 2020

MARCH QUARTER 2019

WESTERN NORTHERN SOUTH EAST

GREATER GEELONG

March quarter 2020 median lot price $308,000 $299,000 $331,000 $278,900

Change from March quarter 2019 -$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

Change from March quarter 2019 -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

Change from March quarter 2019 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


March quarter 2020 lot releases 1,028 558 635 364


% change from March quarter 2019 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

% change from March quarter 2019 -12% -13% -49% -27%

Casey 20%

Cardinia 4%

Hume 11%

Whittlesea 6%

Sunbury & Macedon 3%

Mitchell 3%

Wyndham 16%

Melton 22%

Moorabool 1%

Greater Geelong 14%

Casey 16%

Cardinia 4%

Hume 12%

Whittlesea 8%

Sunbury & Macedon 2%

Mitchell 3%

Wyndham 17%

Melton 21%

Moorabool 2%

Greater Geelong 16%


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PORT PHILLIP BAY

WYNDHAM

MELTON

MOORABOOL

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,

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.

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

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

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.


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PORT PHILLIP BAY

WYNDHAM

MELTON

MOORABOOL

PETER GRANTDIRECTOR, [email protected]+61 411 494 499

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500

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Median lot price

380

385

390

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WYNDHAM

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

demand outpaced new releases, leading to a quarterly

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

part of this price growth has been derived from a

corresponding 2% increase in the median size of lots

sold during March quarter 2020 to 400sqm.

The improvement in gross lot sales has mostly been

underwhelming across Wyndham, compared to

other growth areas, during the short-lived recovery

cycle for vacant lot demand from the second half

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

by increasingly scarce availability of lots for sale in

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

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.


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WESTERN GROWTH CORRIDOR

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Gross lot sales

Median lot price

320

330

340

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360

370

380

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400

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$0

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$100,000

$150,000

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$250,000

$300,000

$350,000


MED

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PRIC

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MED

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SIZE

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Source: RPM

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

Melbourne growth area.

The high number of active estates in Melton rose by

a further two in March quarter 2020, which ensured

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

offering to capture more segments of demand.

Relatively affordable conventional lot prices in Melton

make them attainable to purchasers. However, its

median lot size of 385sqm was the smallest for a

growth corridor and was also the fourth consecutive

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

in Melton’s median lot price to $298,000 in March

quarter 2020.


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ROD ANDERSONDIRECTOR, [email protected]+61 417 595 859

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Median lot price

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Source: RPM

MOORABOOL

New supply in Moorabool almost doubled from

the previous quarter to 82 lots in March quarter

2020. However, this did not initiate an escalation

in sales activity, with gross sales declining by

7.8% to 47 lots.

It seems new lot releases missed the mark in

capturing purchaser preferences. This is highlighted

by the 533sqm median lot size in March quarter

2020 being significantly larger than the 448sqm

median size of those sold during the same period

last year. Unsurprisingly, lots released in the March

quarter accounted for under a third of sales during

the period.

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

Melbourne growth areas.


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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 CORRIDOR’S PROPORTION

OF TOTAL GROSS LOT SALES DECLINED TO 23%.

NEVERTHELESS, LOT SALES STILL OUTPACED NEW

SUPPLY, AS TOTAL RELEASES INCREASED ONLY

MODERATELY BY 3% TO 558 LOTS.

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.

Despite containing more active estates, new supply

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.

Sunbury and Diggers Rest have been removed from

the Hume region and joined newly added growth

areas within Macedon to form the new Sunbury &

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.


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100

200

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700

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2

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Median lot size

Gross lot sales

Median lot price

370

380

390

400

410

420

430

440

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000


MED

IAN

LOT

PRIC

E ($

)

MED

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LOT

SIZE

(SQ

M)

Source: RPM

HUME

Hume’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

period in almost three years that the median lot

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

Moreover, this fall was not in response to purchaser

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

to Hume’s continued relative high incidence of titled

lots amongst its gross sales, given titled lots are

generally priced at a slight discount to new release

stock. This was evidenced with Hume containing the

highest number of titled lot sales, which accounted for

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

in March quarter 2020, which was marginally below

December quarter 2019.


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Gross lot sales

Median lot price

0

100

200

300

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$100,000

$150,000

$200,000

$250,000

$300,000

$350,000


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PRIC

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MED

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SIZE

(SQ

M)

Source: RPM

MITCHELL

Mitchell recorded the largest quarterly decrease in

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

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.

Almost half of gross sales in March quarter 2020 were

titled lots, which placed further downward pressure

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

discounted compared with similar sized newly

released lots.


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Median lot size

Gross lot sales

Median lot price

320

330

340

350

360

370

380

390

400

410

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000


MED

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LOT

PRIC

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)

MED

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SIZE

(SQ

M)

Source: RPM

WHITTLESEA

Gross sales in Whittlesea experienced one of the

largest quarterly falls, declining by 17.6% to 187 lots

over the March quarter 2020. This follows a relatively

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.

While the 6% quarterly growth in the median lot

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

weakness in purchaser demand, it was underpinned

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

14%. Subsequently, per square metre lot prices

declined by 7%, resulting in the greatest reduction

amongst all growth areas, and reflective of the

current subdued demand levels.


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Gross lot sales

Median lot price

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100

200

300

400

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$250,000

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$400,000


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SIZE

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Source: RPM

SUNBURY & MACEDON

Sunbury and Diggers Rest have been removed from

the Hume region and joined newly added growth

areas within Macedon to form the new Sunbury &

Macedon region.

New supply contracted by 14% in March quarter 2020

from the previous quarter down to 141 lot releases. It

remained higher than the 107 gross lot sales, which

experienced a corresponding fall of 3.6%. Notably,

the median lot size of 392sqm in Sunbury & Macedon

was the smallest amongst the Northern growth

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

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


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


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CASEY

CARDINIAPORT PHILLIP BAY

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

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.


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CASEY

CARDINIAPORT PHILLIP BAY


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Median lot price

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380

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420

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$0

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SIZE

(SQ

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Source: RPM

CASEY

Casey added two estates in March quarter 2020,

however, the completion or inactivity of other estates

led to the overall number of active estates reducing

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.

Furthermore, with titled lots constituting a

diminishing share of lot sales in the March quarter,

new lot supply was increasingly important in

stimulating sales activity. Gross sales ended at 663

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

was still the second highest amongst all growth areas.

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

lot size also remaining static at 392sqm, it is resulting

in more attractive price points for lot sizes.


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SOUTH EAST GROWTH CORRIDOR LUKE KELLYDIRECTOR, [email protected]+61 400 688 520

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Source: RPM

CARDINIA

New releases in Cardinia recorded the largest

quarterly decline of 45% in the March quarter,

reducing to just 74 lots. This occurred despite an

additional active estate lifting the total to a three year

high of 13.

The reduction in sales activity to 143 gross lot

sales was significantly less at 9%, with the widening

divergence between lot releases and lot absorption

maintaining Cardinia’s status at the most expensive

vacant lot market across the greenfield markets of

Melbourne and Geelong.

While the median lot price in Cardinia was steady

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.


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GREATER GEELONG

PORT PHILLIP BAY

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

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.

Overhang stock also offset any upward pressure

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.


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GREATER GEELONG

PORT PHILLIP BAY


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Median lot size

Gross lot sales

Median lot price

370

380

390

400

410

420

430

440

450

460

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000


MED

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SIZE

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Source: RPM

ARMSTRONG CREEK

In Armstrong Creek, both new supply and sales

activity escalated by around 25% in March quarter

2020 from the previous quarter, lifting to 201 lot

releases and 224 gross lot sales. This was assisted

by active estates rising by two to a total of 11.

As a result of supply closely matching demand, the

median lot price for Armstrong Creek remained

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

the median lot size also static at 400sqm.


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Gross lot sales

Median lot price

400

420

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460

480

500

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540

$0

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$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000



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GREATER GEELONG GROWTH CORRIDOR

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Gross lot sales

Median lot price

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100

200

300

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$100,000

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$200,000

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PRIC

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SIZE

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Source: RPM

LARA

The 27.8% quarterly jump in sales activity translated

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.

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

resulted in Lara maintaining its status as the most

affordable growth area in Geelong. This was below

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

As a result, per square metre lot prices increased.


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Gross lot sales

Median lot price

0

100

200

300

400

500

600

700

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000


MED

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PRIC

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MED

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LOT

SIZE

(SQ

M)

Source: RPM

TORQUAY

Sales activity improved to 25 lots in Torquay over

March quarter 2020, outpacing the total new releases

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

Vacant lot demand shifted to smaller, more affordable

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

$415,000 and the median lot size shrinking by 7.8%

to 448sqm.


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OUTLOOK While the projected depth of the contraction in the

economy will not be unprecedented, the speed of

the contraction will be, with the Reserve Bank of

Australia forecasting a 10% fall in national gross

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

Much of this decline is expected during June quarter

2020, where social distancing measures to mitigate

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

and subsequent impacts to the economy will be

most severe.

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

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

the rental market and expected rent declines in 2020,

purchasing a new dwelling in growth areas is currently

more advantageous as the long settlement means

they will avoid having to compete for tenants in a

weaker rental market given the temporary

cessation of migration and tourism.

The current situation is creating a buyer’s market.

With the increase of titled stock available providing

significantly shorter settlements, potential buyers

who were previously priced out of the market may

be in a favourable position to enter the market in the

short to medium term. And with more smaller stock

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

the continuation of rebates and incentives, first home

buyers who retain employment security during this

period have an opportunity to secure an affordable

foot on the property ladder.

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. While we are seeing demand shift to smaller lots and

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

amenities, location and fit-out. There is opportunity

for developers to meet the market, with affordable

packages and remaining open to negotiation.

While predicting the full impact of the COVID-19

pandemic on the residential market is impossible

given the lack of precedent for this economic

situation on a global scale, we believe a number

of factors will shape the outcome of 2020. Gross

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

respectively. The result for April aligns with the lowest

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

and if Melbourne and Geelong growth areas were

to average this in upcoming months, it would slash

the annualised sales rate by a third. However, results

hinge on multiple variables including the impact of

the JobSeeker and JobKeeper initiatives, breadth of

job losses and income reductions, reintroduction 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.


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WHAT DOES A 400SQM LOT COST?March quarter 2020

Officer $349,000 Pakenham $310,000

Geelong $340,000

Lara $252,900

Berwick $428,000

Clyde $344,500

Clyde North $315,000

Officer South $342,000

Cranbourne $330,000

Craigieburn $370,000

Greenvale $410,000

Kalkallo $280,000

Donnybrook $298,000

Wollert $339,450

Doreen $307,500

Beveridge $239,000

Wallan $230,000

Sunbury $265,000

Diggers Rest $297,000

Bacchus Marsh $215,000

Strathulloh $269,000Weir Views $259,000

Mt Atkinson $333,000

Mambourin $295,000

Manor Lakes $288,000

Mount Cottrell $336,900

Tarneit $322,950 Truganina $367,000

Werribee $280,000

Wyndham Vale $294,000

Rockbank $317,000

Thornhill Park $309,000 Deanside $346,000

Taylors Lakes $438,000

Bonnie Brook $347,000Kurunjang $250,000 Fraser Rise $337,000

Mickleham $272,000

Junction Village $368,000

Cranbourne East $329,500

Cranbourne South $369,000

Armstrong Creek $277,000

Torquay $380,000

Bellarine $252,000

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COMMUNITIES BUYER SURVEY DATA

The share of owner occupiers purchasing in the

land market remained elevated in the March quarter

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

above the long-term level of around 65%. This figure

highlights the proliferation of first and subsequent

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

absence of overseas and local investors in the

Melbourne land market.

First home buyer prevalence has fallen marginally in

the greenfield space since last year, yet interestingly,

the share of subsequent home buyers increased

somewhat. This highlights that those buyers regained

confidence to sell into the established market, and

upgrade into the growth corridor. Favourable to

buyers in the March quarter 2020 were historically

low borrowing costs which in many cases allowed

first home buyers, particularly those renting in the

middle and inner suburbs, to purchase in a growth

corridor without having their new mortgage exceed

their previous rental expense. RPM’s survey data

underlines this, showing an increase of 11% in renter

buyers in the land market compared with this quarter

last year.

Trends showed an uplift in older demographics

entering the greenfield market, so we see not only

the increasing presence of subsequent buyers,

but also the age of first home buyers continues to

increase. With an older population of purchasers

across the board, it’s unsurprising the data reveals

an elevation in household income. In the March

quarter 2020, 51% of purchasers reported a

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

year earlier. Further still, these households reported

the primary income earner as being employed as a

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

two quarters.

Until mid-March the market was largely unaffected by

the ramifications of COVID-19, operating in relative

isolation to the rest of the globe.

45% OF BUYERS WERE PREVIOUSLY RENTING,

A SIGNIFICANT LIFT FROM 34% IN MARCH

QUARTER 2019.

HOUSEHOLDS OF THREE OR MORE OCCUPIERS

INCREASED TO 46%, IMPACTING TYPE AND

SIZE OF BUILDS.

45% 46%

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However, the pronounced change came quickly. It

occurred alongside increasing shutdown measures

and subsequent impacts to the workforce, including

widespread stand-downs and redundancies.

In general, we anticipate a slowdown in overall

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

about selling their existing home in a depressed

market with unknown demand levels.

Nevertheless, we do not believe activity in the

property market will come to a complete standstill.

While there are many industries that have been

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

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

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.

OVER HALF OF ALL PURCHASERS REPORTED A

HOUSEHOLD INCOME ABOVE $100,000.

REALESTATE.COM DROPPED FROM 22%

TO 11% AS THE PRIMARY ADVERTISEMENT

SOURCE FOR BUYERS.

51% 11%

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77%76%


MARCH QUARTER 2020MARCH QUARTER 2019

Other Other5% 2%4th Home 4th Home0% 3%3rd Home 3rd Home6% 7%2nd Home 2nd Home1st Home 1st Home

20% 24%69% 64%

Owner Occupier

Owner OccupierInvestor Investor

OWNER OCCUPIER VS. INVESTOR

OWNER OCCUPIER TYPE

Other Other2% 1%Group Group2% 1%

With parents With parents27% 22%Renting Renting

Owner occupier Owner occupier34% 45%34% 31%

LIVING CIRCUMSTANCE

24% 23%

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R P M R E A L E S TAT E G R O U P44

Source: RPM

Five or more Five or more2% 6%Four Four12% 21%

Three Three21% 19%Two TwoOne One

45% 37%21% 17%


HOUSEHOLD INCOME

$120k> 29%$101-$120k 22%$80-$100k 18%

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

<$40k

22%8%

$120k> 13%$101-$120k 16%$80-$100k 24%

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

<$40k

35%12%1% 1%

COMBINED AGE

60> 60>3% 4%50-59 50-5911% 8%35-49 35-4922% 32%

52% 44%11% 11%

25-34 25-3418-24 18-24

HOUSEHOLD NUMBEROF PERSONS

Source: RPM

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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 UA R T E R 2 0 2 0 45



Other - Student, Part time Other - Student, Part time4% 3%Not employed Not employed1% 0%

Technicians & Trades workers Technicians & Trades workers12% 16%Sales Sales6% 7%

Professionals Professionals23% 45%Managers & Administrators Managers & Administrators9% 8%

Machinery operators & drivers Machinery operators & drivers9% 2%Labourer & related workers Labourer & related workers16% 2%

Community & Personal service Community & Personal service7% 7%Clerical & Administrative Clerical & Administrative13 % 11%

Other Other4% 9%Builder Referral Builder Referral16% 15%Family or Friend Family or Friend21% 24%

Signage Signage26% 28%Google Google10% 9%

22% 11%1% 3%

Realestate.com Realestate.com

Project Website Project Website

ADVERTISEMENT SOURCE

PRIMARY INCOMEEARNER

Source: RPM


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OVERVIEW

APARTMENTS & TOWNHOUSES

WITH THE PROPERTY MARKET PEAKING IN EARLY

2018 BEFORE EXPERIENCING A SUSTAINED

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).

Enclave at Riverhills, Wollert Developer: Dahua Group

Builder: TownLiving by Metricon48 R P M R E A L E S TAT E G R O U P

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The banning of open houses and public auctions

resulted in volumes halving through March, with more

pronounced demand issues surfacing in April. This,

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 – 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

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

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

is a bottleneck of apartment permits sitting in the

pipeline waiting for the market to turn. Unfortunately,

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

be attempting to settle in a falling market which will

create valuation issues for buyers. This may also

result in developers dealing with increased levels

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.

These include lifts, aluminum, window frames and

tiles. The extended shutdown of Chinese factories

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

developers with building contractors facing upwards

of a month’s delay.

This interruption in the development phase is

anticipated to push the completion dates of projects

out by up to six months across larger projects, and

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.


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The apartment and townhouse market has been

undergoing a profound and structural shift driven by

an expanding and ageing population. Additionally,

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 high-

density 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

driver has largely been removed. This suggests that

we may be facing a short-term supply surplus which

will further exacerbate price reductions. This will

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 BUDGET-CONSCIOUS BUYERS IN THE OUTER-MIDDLE TO OUTER RING

OF MELBOURNE. SIMILARLY, TOWNHOUSES IN THE BLUE-CHIP 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 won’t cover high land costs).


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

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.


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OTHER DWELLING APPROVALS

24%6%6% 25%19%

TOW

NH

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E AP

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VALS

Year to Year to Year to Year to Year toMar-16 Mar-17 Mar-18 Mar-19 Mar-20

15,00014,00013,00012,00011,00010,000

9,0008,0007,0006,0005,0004,0003,0002,0001,000

-

16%10%9% 20%13%

APAR

TMEN

T AP

PRO

VALS

Year to Year to Year to Year to Year toMar-16 Mar-17 Mar-18 Mar-19 Mar-20

24,000

22,000

20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

-1%37%3% 4% 2%

Source: ABS

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

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

2018/19. It is worth noting when the recent annual

result of 10,237 townhouse approvals is compared

to the yearly average across the past 15 years, it

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

approvals highlights the increasing popularity of

townhouse developments in greenfield areas, and is

offsetting the easing number of approvals taking place

in the built-up middle ring of Melbourne.

Apartment activity on a quarterly basis is more

challenging to analyse due to the movement that

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

2019 was the lowest outcome since 2009, but the

following quarter recorded a high not seen since March

quarter 2018.

Notwithstanding this volatility, the result in the March

quarter 2020 was up a substantial 8.9% from the

corresponding period and down only a modest 1.1%

from the previous year. This outcome provided a

glimmer of hope that developers were slowly coming

back into the high-rise apartment market as supply

and demand fundamentals moved back into alignment.

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.


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KEY MEDIUM DENSITY BUILDING DATA

APPROVALS TOTAL TOWNHOUSES 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 OTHER DWELLINGS COMPLETIONS OTHER DWELLINGS

December quarter 2019 4,121 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 9.0%

TOTAL APARTMENT & UNIT PRICES MEDIAN PRICE CHANGE FROM PREV. QTR. CHANGE FROM PREV. YR.

March quarter 2020 $641,000

December quarter 2019 $637,000

March quarter 2019 $586,500

0.6% 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 53

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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 UA R T E R 2 0 2 0

OUTLOOK

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

price growth reaching double digits underpinned by

buyer urgency and fear of missing out. The focus was

potential affordability concerns and the inability of

first home buyers to enter the market through what

was likely to be the next mini housing-price boom

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.

However, if the pandemic continues beyond six

months, or a second wave occurs and restrictions

must be reinstated, consumer sentiment will be

rocked once more, and activity will plummet. At this

point in time the protection that is currently in place,

including JobKeeper and bank payment holidays,

may cease and we could see an increase in forced

sales resulting in a sharp fall in values. This outcome

is in line with commentators who anticipate prices to

fall between 20% and 30%.

Conversely, the more positive outlook indicates a fall

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

buffered by support put in place by the Government

and financial institutions.

Melbourne will likely see a more prolonged downturn

in the apartment and unit market simply due to the

vast majority being rentals, and a significant number

located within the middle and inner rings, occupied

by overseas students or migrants on short-term visas,

who have largely all returned home.

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.


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LUKE KELLYDIRECTOR, PROJECT [email protected]+61 400 688 520

With the country closed through to the start of 2021,

this specific market sector will feel the fallout of

COVID-19 long after the broader market goes back

to a level of normality.

Most of the driving demand fundamentals for

property in Melbourne remain uncertain in the near

term. While the borrowing environment is at a record

low, we will not have strong employment growth or

robust migration, and will in fact have a sharp spike

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

instant positive surge to both business and

consumer confidence. This could, if unemployment

reduces significantly in 2021, result in the nation

returning to economic activity sooner than many

expect, and this will have a positive influence on

property prices.

In addition, once travel restrictions are removed it

is widely considered that Australia, and particularly

Victoria, will be held in high regard following our

response to COVID-19. Prior to the pandemic,

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

transparent market with scale, along with clarity of

rules and regulations.

This is in addition to other factors including quality

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

institutions all acting as magnets to overseas

migrants.

While there will be a price correction in 2020 which

will make detached housing more affordable to first

home buyers and other budget-conscious buyer

groups, a continued shift in demand to less expensive

townhouses in the middle and outer ring will also be

highly sought after.


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OVERSEAS DEMAND FOR RESIDENTIAL PROPERTY

IN VICTORIA REMAINED RELATIVELY LOW IN

MARCH QUARTER 2020. FOREIGN BUYERS

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.

OVERVIEW

INTERNATIONAL



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%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

% O

F FO

REI

GN

PU

RC

HA

SER

S B

Y D

WEL

LIN

G T

YPE

JINYIN ZHANGDIRECTOR, RPM [email protected]+61 451 898 886

Source: NAB Quarterly Residential Property Survey

Consequently, the number of residential real estate

approvals by Foreign Investment Review Board (FIRB)

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

approvals in 2015/16.

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.


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AUSTRALIAN ECONOMIC OUTLOOK

The rapid deterioration in Australia’s economic

outlook, directly attributed to restrictive social

distancing measures implemented in late March

to mitigate the spread of COVID-19, is particularly

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

2020 alone, eliminating all gains to economic

activity in the previous three quarters, and resulting

in the Australian economy declining by a forecast

0.3% over financial year 2020. It should be noted

that these forecasts take into consideration the

combined massive $320 billion stimulus measures

from the Federal Government and Reserve Bank

of Australia, which equates to approximately

16.4% of GDP.

Early employment indicators released from the

Australian Bureau of Statistics in conjunction with

the Australian Tax Office show that between March

14 and April 18, total employee jobs declined by

7.5% and total employee wages decreased by 8.2%.

Weakening employment conditions were further

highlighted by the additional 81,500 people who

worked fewer hours in March compared to February.

This has led to the unemployment projection more

than doubling in just one month to 11.7% by June

2020, which would have been worse without the

JobKeeper initiative which has kept an estimated

five million people in employment.

Australia’s handling of the COVID–19 pandemic has

been more effective compared to most countries

when considering number of cases and deaths.

This has allowed the country to begin winding back

some of the social distancing measures from May,

in effort to kick-start the economy from hibernation

and get people back into work. However, the roll

back of these measures will be gradual, with some

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,


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

AUSTRALIAN ECONOMY MARCH 2020 FORECAST APRIL 2020 FORECAST

ECONOMIC INDICATORS (% CHANGE) 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

with overseas migration into Australia the largest

segment. However, the ban on overseas migration

to Australia will reduce this inflow from tens of

thousands per quarter to zero in June quarter 2020,

and remain extremely low through 2020–21. The

Federal Government projects Australia’s net inflow

from overseas migration in financial year 2021 will

decrease by 85% from the corresponding figure two

years prior. A substantial decline in dwelling demand

will follow, impacting the entire residential property

industry, particularly the new house sector which has

the largest multiplier benefits on the economy.

While growth in quarterly GDP is projected to return

in the second half of 2020, in line with fewer restrictions

and industries gradually returning to normal activity,

annual GDP at June 2021 is still forecast to be 2.5%

lower than June 2020.


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OVERVIEW

RESIDENTIAL INVESTMENT

THE TAIL-END OF 2019 AND THE START OF THE

NEW DECADE MARKED WHAT MANY HAD HOPED

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,

Enclave at Riverhills, WollertDeveloper: Dahua Group

Builder: TownLiving by Metricon60 R P M R E A L E S TAT E G R O U P

although unit prices increased by a mere 0.63%

compared to the previous quarter. Nevertheless,

comparing house and unit prices to the same period

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%.

The market rebound was supported by overall good

sentiment through much of the March quarter and

saw a robust demand for rental accommodation.

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 slight increase in vacancy rates can be directly

attributed to job losses or underemployment in

sectors most heavily hit by COVID-19 impacts,

such as retail and hospitality industries, along with

overseas students, leaving many unable to live

independently and consequently leaving their rental

property.

While we expect the vacancy rate to increase above

the 3% equilibrium industry benchmark in the June

quarter, Government initiatives at both Federal and

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.

WHILE THE OCCASIONAL DWELLING TYPE HAS SEEN RENT INCREASING IN THE MARCH QUARTER, MANY HAVE SEEN NO MOVEMENT OR EVEN A DROP. Rental increases in smaller dwellings, such as inner

and middle ring two and three bedroom houses

and one bedroom units, have seen their growth

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.

LYNN NIE

DIVISION MANAGER, PROPERTY MANAGEMENT

[email protected]

+61 488 210 951


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OVERVIEW

MEDIAN RENTS

HOUSE:

BEDROOMS MAR-19 DEC-19 MAR-20 CHANGE FROM PREVIOUS QUARTER

CHANGE FROM PREVIOUS YEAR

2 YEAR AVERAGE ANNUAL GAIN

Inner 2 $560 $580 $560 -$20 -3% $0 0% 0.9%3 $743 $680 $720 $40 6% -$23 -3% 5.0%4 $800 $900 $925 $25 3% $125 16% 1.7%

Middle 2 $380 $400 $400 $0 0% $20 5% 4.0%3 $440 $460 $460 $0 0% $20 5% 3.4%4 $580 $630 $585 -$45 -7% $5 1% 3.1%

Outer 2 $341 $350 $360 $10 3% $20 6% 1.3%3 $380 $380 $390 $10 3% $10 3% 1.3%4 $430 $430 $430 $0 0% $0 0% 0.0%

Geelong 2 $320 $325 $330 $5 2% $10 3% 4.9%3 $360 $380 $385 $5 1% $25 7% 4.9%4 $423 $440 $440 $0 0% $18 4% 3.6%

Conversely, larger houses of three and four

bedrooms in the inner ring recorded the healthiest

gains, with rents increasing 6% and 3% respectively

relative to the previous quarter. The only other

houses that recorded notable rent increases above

3% were two and three bedroom houses in the outer

ring. On an annual basis, these homes have seen

notable growth at 6% and 3% respectively. However,

inner ring four bedroom houses have seen the

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

despite a modest 3% growth quarter on quarter.

Units and apartments have generally fared worse

than houses across all product types in all areas.

Inner-ring Melbourne one and two bedroom units

dropped by 1% from the previous quarter, and have

recorded no growth from a year ago.

While inner-ring three bedroom units and apartments

saw 10% growth from both the previous quarter and

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

seen growth beneath 3%, or even negative change.

This is most notable in outer Melbourne, where one

bedroom units and apartments have fallen by 7%, two

bedroom dwellings have only increased slightly by

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

Interestingly, the largest dwelling types in the inner

ring (three bedroom units and apartments, and four

bedroom houses) have seen the highest upwards

increase year on year, with the dwelling types increasing

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

larger dwellings tend to be premium offerings, and we

find consistently that upmarket dwellings generally

fluctuate to a lesser degree.

From a regional perspective, Geelong has seen very

weak performance in the March quarter 2020 after

strong performance the previous quarter. From 2017

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.


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MELBOURNE’S VACANCY RATE INCREASED

MARGINALLY, BUT ANTICIPATED COVID-19

IMPACTS ARE LIKELY TO DRIVE THIS RISE HIGHER.

INNER RING THREE BEDROOM HOUSES AND UNITS

RECORDED THE HIGHEST RENTAL INCREASES

FROM LAST QUARTER, UP 6% AND

10% RESPECTIVELY.

10%2.3%

UNITS & APARTMENTS:

BEDROOMS MAR-19 DEC-19 MAR-20 CHANGE FROM PREVIOUS QUARTER

CHANGE FROM PREVIOUS YEAR

2 YEAR AVERAGE ANNUAL GAIN

Inner 1 $380 $385 $380 -$5 -1% $0 0% 1.3%2 $495 $500 $495 -$5 -1% $0 0% 0.5%3 $670 $670 $735 $65 10% $65 10% 2.5%

Middle 1 $320 $350 $350 $0 0% $30 9% 3.0%2 $403 $400 $413 $13 3% $11 3% 2.3%3 $503 $540 $535 -$5 -1% $33 6% 3.4%

Outer 1 $300 $290 $270 -$20 -7% -$30 -10% 2.9%2 $350 $350 $360 $10 3% $10 3% 2.9%3 $400 $420 $415 -$5 -1% $15 4% 2.5%

Geelong 1 $220 $228 $230 $3 1% $10 5% 2.2%2 $310 $330 $330 $0 0% $20 6% 4.9%3 $398 $400 $400 $0 0% $3 1% 4.0%

While this underlying factor is still present, during

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

apartments have seen even more diminutive levels of

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,

with renters who moved into Geelong for employment

potentially now having decided whether to stay

permanently or move into their newly built home.

LYNN NIE


[email protected]

+61 488 210 951


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OVERVIEW

VACANCY RATES & YIELDS

Vacancy rates in the March quarter reflect a minimal

uplift, although trends still follow the previous

quarter overall. Across the board, all areas remained

below the accepted norm of 3%, excepting the

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

including Mornington Peninsula (remaining at 3.4%).

These consistently low vacancy rates reinforced

the consensus that the market is not oversupplied,

and likewise current dwelling approval rates have

remained low compared to 2017/18 boom levels.

However, vacancy rates in the coming quarters

will be interesting to witness following fallout from

COVID-19.

Rental yields have been, and continue to be, below

long-term levels due to the significant capital gains

seen in both detached houses and other dwellings

over the past five years. Nevertheless, in the current

market a rental yield above 2.5% is far more appealing

than other types of investment due to the incredibly

low interest rate environment and significant

uncertainty of the world’s stock markets.

Over the March quarter 2020, there were segments

within the market offering far more attractive yields.

While a rental yield of sub 2.5% would be considered

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.

VACANCY RATE:

MELBOURNE MAR-19 DEC-19 MAR-20 2 YEAR AVERAGE

Inner total 2.0 1.9 2.0 1.9Inner (0-4km) 1.4 1.7 2.0 1.6Inner (4-10km) 2.1 2.1 2.0 2.0Middle (10-20km) 3.6 3.3 3.5 3.1Outer total 1.6 1.9 1.8 1.7Outer (20+km exc. Mornington Peninsula) 1.5 1.8 1.8 1.6Outer (Mornington Peninsula) 2.3 3.4 3.4 2.6Melbourne total 2.2 2.2 2.3 2.1

Geelong 1.6 2.2 2.2 1.8

YIELDS:

HOUSES MAR-19 DEC-19 MAR-20

Inner 2.83% 2.34% 2.52%Middle 2.51% 2.32% 2.33%Outer 3.08% 2.92% 2.92%Metro 2.82% 2.66% 2.61%Regional 4.21% 4.20% 4.22%

UNITS MAR-19 DEC-19 MAR-20

Inner 4.44% 4.10% 4.05%Middle 3.26% 2.93% 2.96%Outer 3.66% 3.35% 3.40%Metro 3.99% 3.67% 3.61%Regional 4.67% 4.66% 5.07%

Source: REIV, RPMSource: REIV


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OUTLOOK In the coming months we expect there will be

significant deterioration in the residential investment

and rental market due to the impacts of COVID-19

and its containment measures. To date, the rental

market has seen the most immediate disturbance

within the broader property sector, with companies

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.

Over the balance of 2020, Victoria’s reliance on

overseas students will come to the fore. From

February, all flights from China to Australia were

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

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

have remained.

Following the closure of Australia’s borders, tourism-

dependent regional communities have seen any

hope of recovery from the bushfires dashed as

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.

However, State and Federal Governments have

introduced measures to protect tenants from being

evicted. Further still, the Federal Government

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.

However, with vacancy rates at acute levels (although

likely to change in subsequent quarters), and what

seems to be a movement from the middle to the outer

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

one and two bedroom units in the CBD and fringe

suburbs. Vacancy rates have now moved just above

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

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.

LYNN NIE


[email protected]

+61 488 210 951


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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.

OUTLOOK


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RESIDENTIAL INVESTMENT BUYER SURVEY DATA

Following increasing buyer appetite throughout much

of 2019, investors represented just 23% of sales in the

March quarter 2020 with the onset of the COVID-19

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

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

of these buyers. This trend continued through to

2020, with Indian investors accounting for 31% of all

purchasers this quarter up from just 8% last year.

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.

Although there was growing uncertainty in the market

towards the end of the quarter, purchasers with

household incomes above $100,000 increased. This

highlights the growing prevalence of investor-buyers,

with traditional mum and dad investors moving away

from the more volatile share market and uncertainty in

building quality and demand levels of more centrally

located apartments.

The March quarter data revealed a considerable

upswing of investors intending to build a single-storey

home. While at first this appears to indicate a smaller

dwelling, RPM survey findings showed an increasing

share of house builds larger than 21sq. This may

demonstrate investors becoming more considerate

of potential tenant diversity, and not wanting to

exclude older households who may discount

double-storey residences.

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

DURING THE MARCH QUARTER 2020, 72% OF INVESTORS INTENDED TO SPEND LESS THAN $250,000 ON CONSTRUCTION, UP FROM 46% A YEAR EARLIER. Interestingly, no buyers indicated their intent to

spend above $400,000 on the build, compared

with 19% falling into this price bracket in March

quarter 2019. This is likely the result of investors

spending slightly more in the land component,

forcing investors to re-evaluate the composition

of their budgets, and a slightly lower total package

price indicating more diversity in investor type.

The landscape has changed for investors over

the past 12 months, but some things remain the

same. One of these is the source of advertising the

investor first noticed; during the March quarter, in

line with previous surveys, over half of all investors

indicated word of mouth (friend, family, builder) as

the primary advertising source.


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RESIDENTIAL INVESTMENT BUYER SURVEY DATA


NEW HOME CONSTRUCTION

BUDGET

>$450k 8%$401-$450k 11%$351-$400k 0%$301-$350k$251-$300k

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

<$150k

3%32%

8%38%

0%

Source: RPM

New Zealand 3%3%4%8%74%

Bangladesh China

IndiaAustraliaCOUNTRY OF PERSON

1&2 TOP 5

OWNER OCCUPIER VS. INVESTOR

Owner OccupierInvestor 24% 76% Owner

OccupierInvestor 23% 77%

HOUSEHOLD INCOME

0%0%2%3%23%

18%54%

0%

>$450k$401-$450k$351-$400k$301-$350k$251-$300k

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

<$150k

2%3%4%31%54%

MalaysiaPhilippines

ChinaIndia

Australia

$120k> 39%$101-$120k 17%$80-$100k 14%

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

<$40k

19%11%0%

38%25%15%

$120k>$101-$120k$80-$100k

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

<$40k

17%3%2%


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Other 18%Builder Referral 28%Family or Friend 23%

Signage 18%Google 5%

5%3%

Realestate.comProject Website

Other 11%Builder Referral 26%Family or Friend 18%

Signage 11%Google 13%

18%3%

Realestate.comProject Website

ADVERTISEMENT SOURCE

RPM surveys every buyer on its clients’ 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.


HOME & LANDBUDGET

>$600k 15%$551-$600k

$401-$450k

3%$501-$550k

$351-$400k

5%$451-$500k

$301-$350k<$300k

18%33%

0%26%

0%

2%11%11%30%37%

2%5%

3%

>$600k$551-$600k

$401-$450k

$501-$550k

$351-$400k

$451-$500k

$301-$350k<$300k

>30sqs 3%26-30sqs 3%21-25sqs 19%16-20sqs

<15sqs67%8%

Undecided3%Double storey45%Single storey53%

Undecided7%Double storey11%Single storey82%

NUMBER OF STOREYSCONSIDERED

0%5%32%54%9%

>30sqs26-30sqs21-25sqs16-20sqs

<15sqs

INTENDED SIZE OF HOME

INCLUDING GARAGE


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LUKE [email protected]+61 400 688 520

ERIC DICKEXECUTIVE [email protected]+61 418 349 267

KEVIN BROWNCHIEF EXECUTIVE [email protected]+61 418 397 577


JINYIN ZHANGDIRECTOR, RPM [email protected]+61 451 898 886

CHRISTIAN RANIERIDIRECTOR, TRANSACTIONS & [email protected]+61 416 445 078

MICHAEL STAEDLERRESEARCH [email protected]+61 434 619 280


LYNN NIE

DIVISION MANAGER, PROPERTY [email protected]+61 488 210 951


+61 3 9862 9555Level 5, 52 York Street

South Melbourne VIC 3205

rpmrealestate.com.au

residential market review · overseas migration 23,208 24,339 82,113 sep-19 same qtr. year earlier...

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