John McGrath - International border reopening will impact the home advantage for inner city buyers
Local buyers have little time left to take advantage of the one market segment that hasn’t had phenomenal price growth over the past two years before international competition fully resumes.
As discussed in our McGrath Report 2022, the inner city apartment markets of Sydney and Melbourne, and to a lesser extent Brisbane, were hit hard by the pandemic.
The main reason for this was the international border closure, which dramatically reduced buyer demand for inner city apartments overnight. The silver lining was that this gave local buyers a home advantage and first opportunity to leverage falling apartment values in the prized inner city market.
CBD apartment prices over 2020 were soft, with zero growth in Melbourne CBD, 0.9% growth in Sydney CBD, and a fall of -5.1% in Brisbane CBD, according to CoreLogic data.
Things changed in 2021, with the latest suburb-level data available revealing apartment price growth of 7.3% in Sydney CBD, 1.3% in Melbourne CBD, and 9.8% in Brisbane CBD over the 12 months to November 30, 2021. This growth rate was lower than the citywide growth rate (which incorporates both CBD and suburban apartments). Citywide apartment values grew by 15.2% in Sydney, 9% in Melbourne and 11.4% in Brisbane over the same time period.
Although inner city apartments tend to be more expensive than suburban apartments, they’re a better ‘value buy’ at the moment because price growth over the past two years has been slower. But watch what happens when international buyers come back full force – and it’s already starting.
Last week, the international border reopened for all double-vaxxed overseas tourists. This followed December’s reopening for expats, new immigrants and international students. In short, every type of overseas property buyer is allowed back into Australia to inspect properties and invest.
As a result, I think we will see an increase in investment in residential property and that will include inner city apartments, particularly in Sydney and Melbourne as they are the most world-renowned.
In terms of local buyers, a new CoreLogic report shows the price gap between apartments and houses is at an all-time record high (28% on average nationally). This means apartments will not only continue to be the main stock of choice for local first home buyers, but also investors on a budget.
Over the past two years, the appeal of buying a CBD apartment has probably lessened because with so many people working from home, our CBDs lost a bit of their buzz. But that’s about to change.
For starters, the rules are changing so that businesses no longer have to mandate staff to work from home. Businesses can ask their staff to return to their corporate CBD offices for the benefits of collaboration and culture – so the CBD is on its way back. Will it be the same as before? Probably not. New McCrindle research suggests a hybrid model of working some days at home and some in the office is likely to become the norm.
But guess what…there’s another silver lining. Lost business buzz will be replaced by something even better – lifestyle buzz.
In a new report titled Australia Towards 2031, McCrindle predicts that central business districts (CBDs) will evolve into central lifestyle districts (CLDs). Their research shows that CBDS will likely become less about work and more about recreation and entertainment. Specifically, they will become hubs for the arts and culture, big events, destination retail, and social connection.
This will make CBDs/CLDs an even more exciting place to live, which in turn will facilitate a greater residential population in our CBDs than ever before, according to the research.
So, if a CBD apartment appeals to you for either owner occupation or investment, I recommend you start the process now. Australia has always been an attractive real estate market for overseas investors, and after being locked out for two years, I think they’ll be back in force very soon.