Last year, the combined property sales in Melbourne and Greater Geelong amounted to approximately 7300. with expectations for this year’s total sales to hover around 7000, indicating a further dip from the previous year. The peak of lot sales in metropolitan Melbourne was observed in 2021 at 33,700, largely attributed to the stimulus generated by the $15,000 HomeBuilder pandemic bonus.
Factors contributing to the subdued market include rising interest rates and cost-of-living pressures nationwide, alongside Victorians selling off second homes or investment properties to evade newly imposed state taxes and levies aimed at addressing the state’s substantial COVID-19 debt burden. This trend has led to the sale of such properties at below replacement value, thereby dampening demand for new homes in Melbourne, as buyers opt for existing homes instead.
Tenants also find themselves ensnared in a challenging predicament as they strive to secure housing amidst a confluence of unfavorable factors.
An amalgamation of escalating rental costs, diminishing property listings, and a burgeoning population has led to what experts deem the most arduous market conditions in decades.
Yet, it’s not solely tenants feeling the pinch of skyrocketing rents, which surged by 11.5 percent last year according to PropTrack research.
Owner-occupiers and property investors also harbor concerns, as sustained rent growth hints at broader economic implications tied to interest rates and inflation dynamics.
The latest data from the Consumer Price Index indicates a 7.4 percent increase in rents over the past twelve months, placing it behind only tobacco and insurance/financial services in terms of the fastest rising prices.
Evidenced by bustling queues at rental inspections, demand for rental properties has reached unprecedented levels. However, unless this upward trajectory in rents begins to taper off soon, prospects for the Reserve Bank to swiftly lower its official cash rate, thereby alleviating mortgage pressures for both owner-occupiers and investors, remain bleak.
While some may argue that investors stand to benefit from these sharp rent hikes, the broader consensus leans towards a preference for sooner rather than later interest rate reductions. However, such reductions are unlikely as long as rents continue their steep ascent.
Despite a 10 percent increase in capital city rents in 2022 followed by another 11.5 percent surge last year, the cumulative rise of 23 percent over two years pales in comparison to the 62 percent surge in loan repayments since March 2022, catalyzed by 13 RBA interest rate hikes.
Admittedly, there are landlords who have implemented rent hikes far exceeding the average, while others have displayed restraint, particularly towards longstanding and reliable tenants whom they wish to support financially.
Even owner-occupiers, although relatively better off than tenants amidst rising rents and property prices, eagerly anticipate reductions in mortgage interest rates.
The decrease in new properties being developed and the rising challenge of new home buyers entering the housing market, the demand for property may see lows across the economy for the foreseeable future, decreasing the value of property.