Residential commentary: 2018 end of year wrap and 2019 outlook

01 January 2019

According to Sarah Harding, Partner, Head of Residential, Australia

“The Sydney and Melbourne residential mainstream markets are well into market correction mode following three years of significant capital growth. This cooling of the market has been encouraged by tighter lending conditions for investors and foreign purchasers. In the second half of 2018, the better performing major Australian residential markets have been Brisbane and Perth as we’ve seen resource activity pick up.

“Despite residential price growth cooling across the mainstream markets along the Australian East Coast, the prime residential market has continued to attract the wealthy population with demand for prime and super prime property outweighing the limited supply being bought to market in both the established and new supply markets. 

“Although tighter lending is now underway, market drivers remain strong including population growth and the volume of infrastructure being built in our major cities whilst unemployment and rental vacancy remains low. With this in mind, despite challenging markets in 2019, we must make note that substantially less projects are reaching construction and by the end of 2019, it’s likely we will be flagging an undersupplied pipeline for future years.
 
“In 2019, we expect the prime and mainstream markets to perform at a different speed, in each major capital city. Should the US dollar continue to strengthen, this will place Australia in good position to encourage foreign investment back into residential property, especially when competing countries may soon be on a level playing field with similar transfer duty surcharges being introduced as we’ve seen in recent years.” 
 
According to Richard Klein, Partner, Head of Residential Project Marketing, NSW
 
“We have seen lower absorption rates as sentiment in the market has been noticeably less buoyant than 12 months ago. Negative press on the state of the market has not helped and is not a true representation of what we have seen ‘on the ground’. For the best properties, in the most desirable locations, the market remains robust. 
 
“Over the next twelve months we believe market activity will be driven by the accessibility of finance. Bank lending will need to be more fluid to allow for transaction levels to return to more healthy levels. Structurally the market has not changed though – there is a lack of supply in sought after areas, the economy is in good shape and people still want to live in Sydney.”
 
According to Chris Litfin, Director, Head of Residential Project Marketing, QLD
 
“The last 12 months saw a new wave of developers move to the Gold Coast with a focus on smaller developments focussed on owner-occupiers and downsizers. Development opportunities arose on the southern beaches, particularly Palm Beach, which had been starved of product over the last decade. For the most part, sales in new developments have been steady as the value proposition has been very good compared to other cities in Australia. As a result, many projects reached presale targets with these new developments now under construction.
 
“The demand from downsizers and owner-occupiers should continue to rise but the growing selection of property coming to the market may see longer decision times and rates of sale become slower as a result. Developers who ‘get it right’ will be stand out performers in the upcoming year.”
 
 According to Daniel Cashen, Director, Project Marketing, VIC
 
“In the last 12 months fewer residential projects have come into the Melbourne market for sale as the credit squeeze has tightened up buyer interest. Investors have retreated with owner-occupiers and first home buyers the most active.
 
“The prestige end of the market has continued to sell at a slower rate although some high prices are still being achieved on a rate per square metre. 
 
“In the next 12 months we expect there to be fewer projects launched than we’ve seen in recent years and developers will need to reset their expectations while the market corrects itself. The focus will be on the prestige end of the market which is not necessarily affected by finance.”
 
According to Neil Kay, Partner, Head of Residential, WA
 
“The first six months of 2018 saw renewed activity in Perth, in both the residential sales and leasing market. This was triggered by an overall improvement in confidence in the WA economy, increased activity in the resources sector and dropping unemployment. 
 
“The residential rental market data, in particular, is showing quite a dramatic drop in rental properties available as vacancy rates have reduced from a high of 7.6% in 2017 to currently stand at 3.9% in November 2018. At Knight Frank the majority of our rent roll is located in the inner city and the vacancy rate is much lower, fluctuating between 1.2-2.5% throughout the year. 
 
“There have been relatively few new developments launched during 2018, however, those that have, such as Sabina Applecross by Finbar, achieved enough sales within four months of launch to get construction under way and completion is due early 2020.
 
“There has been a noticeable move by developers to look at small to medium sized developments in suburbs where there are limited opportunities for apartment developments. These are proving popular amongst the downsizing market and carry less risk for the developer with fewer number of pre-sales needed to get the development under construction.
 
“Over the next 12 months a lot will depend upon how the recovery in the resources sector continues to build in WA. The initial positive effects are certainly being felt in the rental market and prime residential market and I fully expect this activity to continue into the market as a whole.”
 
For further information, please contact:
Rebecca Sands, Director, PR & Communications, Australia
 
Tammy Clinch, PR Executive, Australia
 
Ends
 
Notes to Editors
 
Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank has more than 18,000 people operating from 523 offices across 60 markets. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the Company, please visit knightfrank.com.