Market in Depth

Australia Residential Real Estate Market Analysis 2022

Lalaine C. Delmendo | September 27, 2022

Australian house prices continue to rise, albeit at a much slower pace, amidst weakening demand mainly due to rising interest rates.

Nationwide house prices rose by 10.77% (5.2% in real terms) during the year to August 2022, to an average of AU$ 738,321 (US$495,836), according to CoreLogic Australia, down from the previous year's 20.11% y-o-y increase and the lowest growth recorded since February 2021.

The slowdown is more evident in the country's eight major cities, with the median dwelling price rising by 7.63% y-o-y (2.2% in real terms) to AU$ 808,287 (US$542,824) – the first month of single-digit growth in 16 months.

“The annual trend in housing values is rapidly levelling out,” said CoreLogic.

“Despite the recent weakness, housing values across most regions remain well above pre-COVID levels. Home values in all capital cities and rest-of-state regions, bar Melbourne, remain 15% or above the levels recorded in March 2020, implying most home owners have a significant equity buffer before their home is likely to be worth less than what they paid,” CoreLogic noted.

Adelaide saw the biggest annual growth, with its median dwelling price rising by 21.8% during the year to August 2022, followed by Brisbane (17.5%), Canberra (7.8%), Darwin (6.3%), Hobart (5.8%), and Perth (4.9%). In contrast, Sydney and Melbourne saw their dwelling prices fall by 2.5% and 2.1%, respectively.

Sydney has the most expensive housing in the country, with a median price of AU$ 1,066,493 (US$716,007) in August 2022, followed by Canberra with a median price of AU$ 909,748 (US$610,773).

In contrast, Darwin and Perth have the cheapest housing in Australia, with median prices of AU$ 512,531 (US$344,096) and AU$ 561,781 (US$377,160), respectively.

Both demand and supply are falling. In the three months to August 2022, national sales activity dropped 14.8% as compared to the same period last year, with Sydney, Canberra, and Melbourne registering sales declines of 35.4%, 18.9% and 16.5%, respectively, according to CoreLogic. This was in sharp contrast to 2021's total dwelling sales which reached 653,000 units – about 40% above the decade's average and the highest annual sales on record.

“…we are expecting to see less buying activity as higher interest rates and low sentiment continue to weigh on demand,” said CoreLogic. “Should this scenario play out, the net result will be an accumulation of advertised supply that could further weigh down values.”

Dwelling approvals plunged 22% y-o-y to 108,495 units in the first seven months of 2022, in contrast to annual increases of 22.6% in 2021 and 6% in 2020, according to the Australian Bureau of Statistics (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
When the impact of these market-cooling measures started to wane, the housing market regained its momentum in 2020, with house prices rising by 4.3% (3.5% inflation-adjusted), despite the pandemic. During 2021, house price growth accelerated by a huge 27.5% (23.2% inflation-adjusted).

Australia's economy grew by 4.7% in 2021, fully offsetting the 2.2% contraction recorded in 2020 during the onset of the Covid-19 pandemic. The economy is expected to grow by another 3.25% this year, buoyed by continued growth in household consumption and a recovery in services exports, according to the Reserve Bank of Australia (RBA).


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

Economic growth to slow; inflation soaring

On an annual basis, Australia’s economy grew by 3.6% in Q2 2022, following y-o-y expansions of 3.3% in Q1 2022, 4.4% in Q4 2021 and 3.9% in Q3 2021, buoyed by strong domestic consumption and exports, according to the ABS. After contracting by a modest 2.2% in 2020, the economy bounced back strongly with a 4.7% growth in 2021.

However due to rising inflation and heightened global economic uncertainty, the International Monetary Fund (IMF) has recently downgraded its 2022 economic growth forecast for Australia to 3.8%, from its earlier estimate of a 4.2% growth.

Australia gdp inflation
Australia’s trade surplus narrowed sharply to a five-month low of AU$ 8.73 billion (US$5.86 billion) in July 2o22 from the record AU$ 17.13 billion (US$11.5 billion) in the previous month, amidst falling exports, according to figures from the ABS.

The Australian dollar (AUD) has depreciated in the past 20 months, losing about 10% of its value against the US dollar to reach an average exchange rate of AUD 1 = USD 0.6902 in August 2022 from AUD 1 = USD 0.7645 in January 2021. The Australian dollar gained almost 15% against the US dollar in 2020 during the onset of the pandemic, partially offsetting its more than 20% depreciation from January 2018 to March 2020.

The recent weakness of the Australian dollar is partly attributed to concerns about how the ongoing pandemic and the Ukraine crisis will influence China’s economic growth and thus, its demand for Australian commodities, such as iron ore. Also, the US Federal Reserve is aggressively raising interest rates, making the US dollar relatively more attractive than the Australian dollar.

The lower the AUD falls, the more upward pressure it will put on the already surging inflation.

In Q2 2022, the nationwide inflation climbed to 6.1%, up from 5.1% in the previous quarter and the highest level since Q2 2001, amidst surging food and fuel prices, according to the ABS.

Australia exchange rate
Yet, the labor market remains fundamentally strong. The seasonally-adjusted unemployment rate stood at 3.5% in August 2022, down from 4.5% in the previous year and 6.8% two years ago. In fact, it was the second lowest level on record. The number of unemployed people fell to 487,700 in August 2022, a decline of 132,500 from a year earlier.

Labor force participation rate remains high at 66.6% in August 2022 – close to its historic high of 66.8% in June 2022.