As interest rates continue to rise, some real estate experts predict an increase in apartment sales in Australia due to the large difference between the average price of houses and units.
The Reserve Bank last week raised the cash rate target by 50 basis points to 1.35 percent.
It also raised the interest rate on foreign exchange settlement balances by 50 basis points to 1.25 percent.
James Kirkland, sales director for national real estate agency Upside Realty, said NCA NewsWire’s buyer borrowing power was dwindling and was noticeable throughout the real estate market.
Kirkland said he hoped the lifestyle apartments, which offered green spaces and amenities, would be especially seen as a viable alternative for those who could no longer afford a house.
“Since March 2020, the unit values of the capital have increased by 9.8%, compared to 24.7% of houses, making them a more affordable option for people,” he said. to say.
Camera IconLifestyle apartments, which offer green spaces and amenities, can be a viable alternative for those who can’t afford a house. NCA NewsWire / Nikki Short Credit: News Corp Australia
“The average price gap between houses and apartments has been widening for some time and with the latest increase in interest rates, there will be buyers who will have to revalue their budgets.
“When we look at what they can get for their money, we expect to see a lot of apartments being reconsidered because, in some cases, they can get better value for money.”
Kirkland said family and suburban apartments were in high demand.
“Complexes that offer amenities like swimming pools, gyms, movie theaters and that have lots of green space, open spaces and common areas will be the most popular among shoppers,” he said.
“It may mean for some people that in order to stay in their favorite suburb, they will only have to consider an apartment now instead of a house.”
Kirkland said the average price of housing in the combined capitals of Australia was $ 937,101, while the equivalent average unit price was $ 643,795.
“But in many capital cities there is a much bigger gap, like in Sydney, where it will cost you almost twice as much to buy a house compared to a unit,” he said.
“House prices have grown six times faster than unit prices over the past two years.”
Camera icon Family-friendly suburban apartments are in high demand. NCA NewsWire / Kelly Barnes Credit: News Corp Australia
Kirkland said the high cost of construction would also be a factor for potential buyers.
“When faced with a home that needs work versus an apartment with everything already taken care of, some buyers may not be prepared to run the risk of over-expanding for a renovation,” he said.
But it’s a different story in the west, where the real estate market has been in stark contrast to the east coast during the pandemic.
Western Australian Real Estate Institute President Damian Collins told NCA NewsWire that there was no doubt that as prices rose and people “felt the pressure,” they should choose where to live.
“That’s why we’ve seen over the last five or ten years that apartments account for more than half of all new construction in Sydney because property is very expensive,” he said.
“I think Perth is in the early stages of much more demand for apartments, but we are still very affordable at the moment for homes. Our average price is the lowest of any major capital.”
Camera Icon It’s a different story in WA where the real estate market has been in stark contrast to the East Coast. NCA NewsWire / David Swift Credit: News Corp Australia
Collins said for people in WA apartments it was more of a lifestyle choice than an affordability issue.
“Overall, in Perth, the apartment market has been driven by lifestyle reducers and young people who want this lockout and abandon lifestyle,” he said.
“As interest rates rise, we could see a small change in this, but I don’t think the cost of living and affordability will have a big impact on the apartment market, at least in the short term, because overall we continue to be very, very affordable. “
Collins said that while rising interest rates could “dampen” the market, most people would cope.
“Any rise in interest rates will have a certain level of damping in the market; it’s just simple math, ”he said.
“It will affect what people can afford to buy, it will affect what people spend elsewhere outside of their home loan.
“But what history has shown is that the home mortgage in particular is one of the last things people cut back: they will cut lifestyle, they will cut vacations, they will cut restaurants, they will cut other things in life. . ”
Camera icon Collins said that while rising interest rates could “dampen” the market, most people would cope. Ian Currie. Credit: News Corp Australia
According to the big banks, a lot of people go ahead with their repayments, so they have a shock absorber.
Collins said even if interest rates rose to five percent, it shouldn’t be too much of a burden for most people, but he doubts it would reach that high.
“I don’t think rates will go up as high as some of the markets predict just because it will have a serious impact, especially now in the larger cities of Sydney and Melbourne, where their relative mortgage levels are much higher., Especially compared with their income, ”he said.
“Certainly, in the WA context, yes, some people will suffer badly. That will always happen. I think the vast majority of people will be able to cope.”
M Collins noted that WA was experiencing a housing shortage and a low rental vacancy rate.
“We don’t have enough houses to sell, the economy is very, very strong, demand is still there, population growth is now back from international migration, albeit slowly,” he said.
“I’m still confident we’ll see modest price growth this year, but also next year.”