Market in Depth

Australia's housing market is surging

Lalaine C. Delmendo | September 12, 2021

Australia's housing market is surging, thanks to record-low interest rates.

House prices in the country's eight major cities soared 13.4% during the year to Q2 2021 (9.2% inflation-adjusted), to an average of AU$ 727,427 (US$537,983), according to CoreLogic Australia, up from the previous year's 8.7% y-o-y increase and the highest growth recorded since Q2 2010. It was the seventh consecutive quarter of y-o-y house price growth.

Quarter-on-quarter, house prices in the eight major Australian cities rose by 4.8% (4.1% inflation-adjusted) in Q2 2021.

Darwin saw the biggest annual growth, with the median dwelling price rising by 21% (16.7% inflation-adjusted) during the year to Q2 2021, followed by Hobart (19.6%), Canberra (18.1%) and Sydney (15%). Strong house price increases were also registered in Adelaide (13.9%), Brisbane (13.2%), Perth (9.8%) and Melbourne (7.7%).

The median price of residential dwellings in Australia was AU$645,454 (US$477,358) in Q2 2021, up 16.4% (12.1% inflation-adjusted) from a year earlier, according to CoreLogic.

“This is the highest annual rate of growth seen across the Australian residential property market since April 2004, when the early 2000's housing boom was winding down after a period of exceptional growth. However, there are some markets where performance is starting to ease more notably,” said CoreLogic Head of Research for Australia, Eliza Owen.

New South Wales, especially Sydney, has the most expensive housing in the country, with the mean house price currently at AU$ 1,011,100 (US$746,788), according the Australian Bureau of Statistics (ABS). It was almost 30% above the national mean price and the first time that prices in any territory has breached the AU$ 1 million mark.

In contrast, the Northern Territory has the cheapest housing in Australia, at a mean price of AU$480,400 (US$354,819).

Demand is rising strongly again. During the year to June 2021, sales transactions reached about 582,900 units – the highest annual sales volume since February 2004, according to CoreLogic. All greater capital cities, except Hobart, saw strong growth in annual sales volume over the same period.

“Strong demand for housing was supported by record low interest rates, government initiatives, and rising consumer confidence,” said Michelle Marquardt of Australian Bureau of Statistics.

Residential construction activity continues to rise. Dwelling approvals surged by almost 37% to 98,789 units in the first five months of 2021 compared to a year ago, following an annual increase of 5.6% in 2020, according to ABS.

House prices in Australia surged 52.3% (35.6% inflation-adjusted) from 2011 to 2017. To cool the market and address risks caused by high household debt, the government tightened lending restrictions and imposed higher taxes on housing purchases by foreigners. These measures resulted in a 9% (-11.2% inflation-adjusted) decline in house prices from Q4 2017 to Q2 2019.

Australia annual house prices
The economy grew by 1.1% in Q1 2021 from a year earlier, an improvement from y-o-y declines of 1% in Q4 2020, 3.7% in Q3 and 6.2% in Q2, reflecting the continued easing of coronavirus-related restrictions and the recovery in the labour market, according to the ABS.

Recently, the International Monetary Fund (IMF) revised upwards its 2021 economic growth forecast for Australia to 5.3%, its second upgrade from its initial projection of 3.5%. The economy contracted by 2.4% last year due to the pandemic.


Analysis of Australia Residential Property Market »

Rental Yields

Rental returns on apartments in Sydney are low, at 2.8% to 3.7%

Our Sydney apartment survey is based on the number of bedrooms, because so few advertisements cite square metre measurements.

As we would expect, there are huge difference in the cost of apartments in Sydney depending on area, from relatively inexpensive Vaucluse, to high-priced darling Point and Potts Point. What doesn´t differ much are the now low gross rental yields available on Sydney properties (the rental yield is the per cent return on the purchase cost of a property). This will not make landlords happy.

It is rare in Sydney to be able to earn more than 4.5%, and most apartments return less. Bear in mind that usually costs of various kinds will absorb at least 2% of those returns, so that net returns will be a lot lower than the gross figures.

Small apartments earn significantly higher rental returns than big apartments. This is particularly true in the more expensive districts, and if you are looking for yields the table will tell you that the exception to our generally low return figures are 1 bedroom apartments in Camberwell, which apparently can earn gross rental yields of 8.7%.

Surprising, but worth investigating.

Round trip transaction costs can be high for foreigners buying residential property in Russia. See our Australia transaction cost analysis and our Australia property transaction costs compared to other countries.

Read Rental Yields »

Taxes and Costs

Taxes are high in Australia

Rental income: Rental taxable income earned by nonresidents are taxed at progressive rates, range from 32.50% to 45%.

An owner may also be required to pay a land tax annually, depending on his property classification for tax purposes and property location.

Capital Gains: Individuals are subject to a 50% reduction of the taxable gain if the asset is held for at least 12 months. Capital gains follow the individual income tax rates, at rates from 32.50% to 45% for nonresidents.

Inheritance: There are no direct taxes on inheritance.

Residents: Residents are taxed at a progressive rate on their annual income, from 0% to 45%, and are required to pay a 1.5% Medicare levy.

Read Taxes and Costs »

Buying Guide

Buying costs are moderate in Australia

Roundtrip transactions costs are 3.76% to 21.15% of the property value. Stamp duty on property transfers ranges from 1.5% to 6.75%, and is paid by the buyer. It takes about five days to complete the five procedures needed to register a property.

Read Buying Guide »

Landlord and Tenant

Tenancy laws are neutral in Australia

Australia properties apartmentsAustralia ’s landlord and tenant laws are generally neutral. Both parties’ rights are well-protected by each states’ Residential Tenancy Act.

Rents: Rents can be freely negotiated, but increases are subject to review by a Tribunal provided the tenant makes an application. The rent cannot be increased before the end of the first year of tenancy in any state.

Tenant Eviction: A landlord can terminate a tenancy by giving notice in the approved form, or by using the tribunal. The legal system is highly efficient: it takes an average of 44 days to evict a tenant.

Read Landlord and Tenant »

ECONOMIC GROWTH

Improving economy; high trade surplus

On an annual basis, Australia’s economy grew by 1.1% in Q1 2021, an improvement from y-o-y declines of 1% in Q4 2020, 3.7% in Q3 and 6.2% in Q2, reflecting the continued easing of coronavirus-related restrictions and the recovery in the labour market, according to the ABS.

Recently, the International Monetary Fund (IMF) revised upwards its 2021 economic growth forecast for Australia to 5.3%, its second upgrade from its initial projection of 3.5%. The economy contracted by 2.4% last year due to the pandemic.

Australia gdp inflation
The Australian dollar (AUD) appreciated rapidly in the past 15 months, gaining 21.7% against the US dollar to reach an average exchange rate of AUD 1 = USD 0.7518 in June 2021 from AUD 1 = USD 0.6175 in March 2020 during the onset of the pandemic. Previously the Australian dollar had been falling, depreciating by almost 22% against the US dollar from January 2018 to March 2020.

The recent strength of the Australian dollar is partly attributed to upbeat trade balance figures. Australia registered a trade surplus of AU$9.7 billion (US$7.1 billion) in May 2021, up by 20.5% from a year earlier, according to figures from the ABS. Total exports rose 6% to AU$ 42.23 billion (US$31 billion) while imports increased 3% to AU$ 32.55 billion (US$23.9 billion), as both domestic and foreign demand strengthened following an easing of coronavirus-related restrictions.

The seasonally-adjusted unemployment rate fell to 4.9% in Q2 2021, down from 5.3% in Q1 2021 and the lowest level recorded sine Q4 2010, according to ABS. The number of unemployed people fell to 679,000 in Q2 2021, about 325,000 people below the peak of 1 million unemployed in July 2020.

Australia exchange rate
Participation rate remains high at 66.2% in June 2021 – close to its historic high of 66.3% in March 2021.

Consumer prices are rising rapidly. In Q2 2021, the nationwide inflation rate jumped to 3.8%, sharply up from 1.1% in the previous quarter and -0.3% a year earlier. In fact, it was the highest reading since Q3 2008.
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