From 2016 to 2019 inclusive, both Sydney and Melbourne each had in excess of 100,000 new residents arrive each of those years.  This population growth has now been largely curtailed due to our international border being closed to immigrants.  This is likely to remain so for the remainder of 2021 and indeed into 2022 with the federal budget forecasting that population growth will dip into the negative territory for the first time since WWII in 2022.

So what will be the impact on property prices as a result of this much reduced population influx which in part, drives demand?  After all, if supply in any market outstrips demand, prices fall.

The National Housing Finance and Investment Corporation recently revealed that a study undertaken by them predicted that demand for housing in Australia could fall by up to 230,000 dwellings over the next three years as a direct result of less overseas migration.

The Australian property market is made up of sub-markets each of which operate separately and perform uniquely. Therefore it’s reasonable to assume that a drop in overseas migration will potentially affect each market differently.

For example, migrants are more likely to buy property in new suburban estates or rent in higher density suburbs.  So as a result, these areas may underperform compared to historical averages.

In more mature and expensive property markets, these areas are less likely to attract migrants and are therefore less likely to be affected.

Property research and advisory firm Binnari Property has recently undertaken an analysis into the impacts the drop in overseas migration has had on property markets in Sydney, Melbourne and Brisbane.  Their research has found that transient, highly dense suburbs have fared worse than owner-occupier, lower density suburbs.

As the Binnari research found “Transient suburbs usually attract higher levels of apartment supply. This is typically driven by council zoning which favour population density. These suburbs are also usually close to universities and are therefore appealing to international students and migrants.”

In high density suburbs where residents tend to be more transient, the drop in demand for housing from international students and overseas migrants hasn’t been offset by local demand.  This is the opposite to predominately owner-occupier areas where low supply and record low interest rates have meant that sales activity has remained strong.

So does the fall in occupancy rates along with property prices in these high density areas give rise to alarm in the broader property market into the future?

We don’t believe so and here’s two reasons why:

Firstly, as we said at the outset, the Australian property market made up of many unique individual markets each having their own features and influences.  So whilst we may hear generalisations about property market rises and falls, if you delve down into individual regions and indeed suburbs, you will discover a variety of features impacting these markets at any one time.

Secondly, the migration situation is temporary simply because Australia will no doubt increase our overseas migration cap when normal service resumes.

It’s also important to remember that the decline in overseas migration isn’t due to a general decline in interest in migrating to Australia. The issue is tied directly to the border closures as a result of the pandemic. That means we will see a sudden uptick once Australia reopens its borders to the world. Indeed, given our success in managing COVID-19, it is easy to imagine how Australia will become one of the most in demand places in the world to migrate to.

So how does a property investor navigate the changing environment and the unique sub-markets?

The focus for an investor shouldn’t stray far from the key fundamentals of property investing.  And that is, buyers should source locations where supply levels are currently low, but just as importantly the potential for new supply into the future is also restricted.  Ideally this should be locations with a high proportion of owner occupiers to ensure the property is less susceptible to the risk of vacancy or oversupply.