Australia's national border closure is set to put serious downward pressure on rental values and listings.
Net overseas migration (NOM) has accounted for 51% of Australia's population growth in the last thirty years, and 60% since late 2016.
CoreLogic Head of Research, Tim Lawless, said population growth had been a long standing driver of economic growth for the country, underpinning residential construction activity and rental demand.
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Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
Mr Lawless said the lack of migrants would see a higher volume of rent listing and falling rent values across key inner city precincts.
"This phenomenon is already being observed, particularly across inner Sydney and Melbourne," Mr Lawless said.
"Once foreign student arrivals start to normalise, rental demand in these areas may improve.
"In the meantime, investors who own property in these locations are likely to be facing high vacancy rates, lower rents and reduced ability to service their mortgage."
Mr Lawless said stalled NOM was also likely to see a higher proportion of units settling with a valuation lower than the contract price, again particularly in Sydney and Melbourne.
"ABS (Australian Bureau of Statistics) building activity data showed there were more than 50,000 units under construction across NSW at the end of March, and just over 45,000 across Victoria," he said.
"A large proportion of these are high-rise projects in inner city locations.
"Many of these yet-to-be completed projects will settle while rental vacancies remain high and rents are falling, which may put downwards pressure on property values."
Melbourne and Sydney rent listings already spiking sharply
Last year 84% of all overseas migration flowed into the nation's capitals, with three quarters of those taking up residence in Sydney and Melbourne.
Mr Lawless said the impact of the sharp fall in overseas of arrival was already being felt, with rental listings doubling in some inner city precincts.
"Between mid-March and early-August, the number of homes available for rent in Melbourne’s Southbank rose by 117% to reach 1,230 advertised rental listings," he said.
"Rental ads were up 111% across the Sydney CBD/Haymarket/The Rocks region to reach 776 and Melbourne’s CBD saw a 105% lift in advertised rentals taking the total number of homes available to rent to 2,184."
However, this couldn't all be attributed to declined NOM, with these areas also greatly affected by the rise in unemployment.
Mr Lawless said the rise in listings was already weighing on rental income, most prominently in units.
"Every capital city is showing a larger fall in unit rents relative to house rents through the COVID period to-date, with a more significant difference in Melbourne and Sydney where unit rents are down more than 4% since March."
Local migration to increase in importance
Mr Lawless said the low NOM would see organic drivers of housing demand become more important, particularly through interstate and intrastate migration.
"Internal migration flows are influenced by a range of factors, but local economic and labour market conditions are key draw cards, as well as lifestyle and housing prices," Mr Lawless said.
"There are already signs that major regional centres are benefitting from increased demand as some people look to escape the large cities, taking advantage of remote working opportunities, more affordable housing options and lifestyle considerations."
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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