Fri 2nd October , 2020

Residential property investors crashed, but recovery is underway


Written by Truong Mai

Senior Analyst

The pandemic has wiped out the accumulated growth of the residential property operation industry in the last few years and sent employment and revenue of the industry back to 2013 levels. Revenue for the industry operators in 2020-2021 is projected to be $AUD 44.3 billion, which is merely the level of revenue the industry in 2013 ($AUD 43.8 billion), IBIS World* data show. 

Figures from IBIS World also shows that revenue of the industry has dropped $AUD 3 billion last year 2019-2020.

Profit margin of the industry has collapsed from 17.4% in 2020 to 13.2% in 2021 (back in 2016 the profit margin of the industry was above 24.1%!).

IBISWorld says that around 2,366 operators (which include apartment, flat, residential house renting or leasing, and residential property strata and body body corporate operation) in the residential property operation industry have ceased operating since 2020. 

That does not sound like good news at all!

However, there is hope.

According to IBISWorld, residential property industry revenue is expected to grow at an annualised 2.7% over the next five years, in line with the overall economy, which is likely to also rebound at a rate of 2.7% (Thomson Reuters Polls).

And that might already be underway!

According to the Australian Bureau of Statistics (ABS), the residential house price index of the 8 capital cities, though decreased from the March quarter to June quarter 2020 by a weighted average of 1.8%, has increased at an average of 6.2% compared to the June quarter 2019.

Source: ABS

Westpac experts also forecasted an increase of 15% in the residential housing price in the next two years after 2021 after a decrease in April and June next year (9News**) 

The rise in house prices, coupled with high unemployment rate (near 7% in the September quarter) and weak investors’ confidence will likely limit the proportion of owner-occupiers to investors in the next few years, and thus creating demand for the rental properties. 

Industry operators also benefit when buyers lack the confidence to buy residential properties. Buyers could also lack the means to acquire property as the RBA is forecasted to increase residential housing loan rate in the next few years when economic conditions improve making mortgage affordability decline.

So, it looks like the nightmare is not over yet, but there could be soon sunshine on residential property operators, maybe sooner than is expected!