Last year was one of unprecedented price growth in the residential market, followed by eight successive interest rate hikes and a moderation of the runaway housing boom. We asked industry players where they saw the opportunities and challenges in 2023.
Lang Walker
Executive Chairman
Walker Corp
“Much of the commentary has focused on rising interest rates having an impact on new developments as well as seeing delays in the availability of materials and higher costs in production.
“But we expect demand to continue for our developments right across the property spectrum, with affordable greenfield residential and well-located mixed-use commercial/residential precincts commanding a premium.
“In all states, we are seeing continued demand for high-quality office space as more and more companies call their staff back in to collaborate face to face, and with employees looking for that point of difference.
“We are seeing blue-chip Australian companies seek modern, premium workspaces and we expect that trend to continue as companies shift away from old restrictive floor plate designs into wide open spaces.”
Eliza Owen
Head of Research
Corelogic
“As we move into 2023, there continues to be a mix of headwinds and tailwinds for housing market performance.
“With expectations that the bulk of the rate tightening cycle occurred in 2022, housing value declines could find a floor in the new year. However, the extent of the floor in values could be further weighed down by mortgage serviceability risks, particularly for those rolling out of record-low fixed mortgage rates through the second half of year.
“But unemployment levels remain at historic lows, which plays a role in serviceability, helping to keep a lid on mortgage arrears. On top of that, strong rental markets and improving affordability from the point of falling values, may entice investors and first home buyers into the market, underpinning a recovery in buyer activity in the second half of 2023, when the cash rate stabilises.”
Marco Gattini
Managing Director
Goldfields
“Market conditions have softened during the past eight months, driven by the well-documented increases to interest rates and ongoing economic uncertainty. Lower migration numbers caused by border closures has also tempered demand.
“However, we are beginning to see green shoots with enquiry levels increasing, which we expect to result in a rebound by the second quarter of 2023 as monetary policy and inflationary conditions begin to stabilise.
“We anticipate this return of consumer confidence will be echoed by a lift in sales driven by investor demand, to meet what is becoming a housing supply crisis.”
Andrew Malouf
Director
Spyre Group
“The residential sector in 2023 will be greatly tested with the current state of interest rate increases, construction costs, labour shortages and the governments velocity to fast track infrastructure projects for the Olympic Games.
“I do see however that the high end residential space will continue to prosper as a majority of the buyer demographic in that space is unaffected by interest rate rises. Construction prices are also stalling a number of projects and so I believe the demand for that type of product will continue to remain strong due to low availability.
“I think it is important that the government truly understands the current construction issues in the private sector and that some relief is provided. Not only do we have to worry about the current labour shortages and material costs but fast tracking the infrastructure projects for the Olympic Games will put a big demand on the current labour workforce.
“It is anticipated that a significant percentage of the labour force will be required to deliver these projects and that will have a big effect on the private sector.”
Nicola Powell
Head of Research and Economics
Domain
“Domain analysis of Australia’s combined capital cities’ house price cycles reveals that in the past 30 years, the duration and steepness of an upswing tend to be longer and greater than a downturn.
“While property prices will continue to soften in 2023, it is unlikely they will erase all the growth seen during the pandemic boom. This tells us we need to view property as a long-term investment; if we do, timing becomes less important.
“It’s the time spent in the market that counts. A multi-speed market will become more apparent in 2023 with some areas falling faster while others are more resilient.”
Brook Monahan
Founder and Managing Director
Mosaic Property Group
“We believe the current retraction in the market will largely be short-lived, although meaningful from a historical perspective. The market is realigning to the increase in interest rates and the swiftness of these increases, which has been driving the adjustments in borrowing capacity and the overall percentage of take-home income needing to be directed towards the cost of housing.
“Importantly though, it is not materially impacting the underlying demand for housing in highly sought-after locations where the cost of living pressures are not being felt as acutely as elsewhere. Overall, the fundamentals are still strong.
“And with the government at all levels declaring a housing crisis, we’ve reached a critical tipping point with severe undersupply now clearly in focus. The most acute undersupply is being experienced in south-east Queensland. We’ve seen this play out through zero vacancy rates throughout the region. And with forecasts of a supply shortage of around 16,000 apartments over the next four years alone, this situation will only worsen.
“As inflation comes under control, interest rates reach their peak early next year, and with the likelihood of rate cuts before the end of 2023, the current retraction being experienced in the market will be halted at some point over the following six months which will lead again to healthy growth in prices.”
Matthew Belford
Joint Managing Director
ID Land
“First home buyer activity has certainly slowed down across our portfolio, but some buyers remain active and with interest rates and construction costs still presenting short-term challenges for buyers, we are expecting at least the first half of 2023 to be slower than previous years.
“We are keeping our eyes on potential acquisition sites across both Victoria and Queensland, so that we can be ready to deliver when buyers are once again active and confident.”
Brett Robinson
Chief Executive
Traders in Purple
“Interest rate rises will continue to put a dampener on the real estate market in 2023 but it’s not all gloom for developers like Traders in Purple that operate in diverse locations across a range of residential segments.
“Traders In Purple has a $4-billion national pipeline of projects. Our luxury residential projects on Queensland’s Redcliffe Peninsular continue to sell strongly to the Brisbane and interstate downsizer and hybrid investor market who are less sensitive to interest rate rises.
“The need for social and affordable housing is only likely to continue as affordability bites and Traders In Purple is well-positioned to grow its portfolio of projects in partnership with state governments, community organisations and housing providers. We made a conscious decision many years ago to direct more of our resources to projects that deliver a social good, forgoing profit for community benefit.
“With the first home buyer and upgrader markets impacted by high interest rates we expect to see a rationalisation of commercial land values. This spells opportunity for acquisition and also future partnerships where the landowner can see an avenue to increase their returns through joint venture
development.”
Ivy Chen
Sales and Marketing Director
OSK Property
“Over the course of 2022, the reopening of borders saw the return of international students which brought more foot traffic to Melbourne’s CBD and Southbank. We expect to see this upward trend continue in 2023.
“The border reopening has also stimulated renewed international investment. In 2023, expect to see investors from Vietnam, India and Indonesia having a big impact on the residential market.
“In terms of what buyers are after, they’re demanding more of their apartment homes than ever before. Wellness offerings in particular are now a must-have rather than an option.”
Rory Costelloe
Executive Director
Villawood Properties
“The coming 12 months are shaping up as something more than just the problematic issues the industry already faces with interest rates, inflation, sales, costs and an overall slump in market confidence. These problems are significant, of course, but the Reserve Bank blunt tool of raising interest rates to fight inflation is savage and long-term.
“In the meantime, rising loan repayments, rents and across-the-board living costs pose a real social problem. Some people are already desperate and there’s worse to come. The biggest risk, approaching peak debt in the coming year, is recession and a market collapse. This will see tens of thousands of lots across Australia that might not settle if they don’t meet
valuations. In turn, thousands of families will forfeit deposits, with obvious consequences for everyone.
“Regrettably, there is a self-fulfilling aspect to all this. Ongoing coverage of the RBA’s intention to continue with further rate rises, of building companies collapsing, and speculation of imminent economic free-fall guarantees problems. Sales will be minimal, Australians will face serious social problems and crime will rise. The Reserve Bank might be saving the economy but who is it saving it for, if rising interest rates and rising prices drive us into recession?”
Spring Yang
Managing Director
Young Group
“With the annual permanent migration cap being lifted to 195,000 and the border now open, Australia’s population is expected to increase by 1 million over the next two to three years.
“On the other hand, the recent insolvency among many well-known builders is tightening the supply.
“We will face supply issues in the near future.”
Nemesia Kennett
Executive Head of Development
Nightingale Housing
“Nightingale Housing is preparing for a busy 2023, with a string of opportunities currently in the pipeline. We are fortunate to enjoy ongoing support from the Nightingale community, our joint venture partners, community housing providers, partners and our industry peers.
“This support has helped to buffer us from the market headwinds in regards to demand. Nightingale Housing also identifies sustained market demand for homes that are delivered with a key focus on environmental sustainability, robust quality and connected communities.
“Pressure on delivery has been our biggest challenge of 2022. In 2023, we expect these pressures on delivery to remain, however we are hopeful that this will ease towards the tail end of 2023.”
Davina Rooney
Chief Executive
Green Building Council of Australia
“As 2022 draws to a close, we look back on it as a year of transition, of opportunities for the future and one when industry and government stepped up the pace to meet our shared climate goals.
“It was a year that we saw an important shift in the residential sector with the National Construction Code 2022 approved while we also partnered in this space to bring Green Star Homes to life. We saw jurisdictional leadership with the ACT creating a pathway to electrification by launching Powering Canberra, while the NSW government released the Sustainable Building State Environmental Planning Policy with a focus on net zero, electrification and embodied carbon.
“A new year also presents new opportunities. I hope that in 2023 our industry will broaden our scope to tackle upfront carbon and circular economy thinking while collectively expanding our net zero ambitions with buildings and places that are all-electric, fossil fuel free and powered by renewables. The shift to a healthier, resilient, decarbonised built environment won’t be linear, but we have the guidance and technology to show us how to get there.”
Antonio Mercuri
Principal
GV Property
“The Lifestyle Design movement has been a key piece to the drive of interstate developers moving to the Gold Coast which has been backed by the buyers of the apartments being developed along the Gold Coast coastal corridor.
“This movement has anchored an exciting future for the Gold Coast which has a pipeline of developments currently under construction and soon to be homes to thousands of new residents to this coastal city.
“Demand was very strong from Broadbeach south down to Coolangatta that continued during 2022 following the trends of 2021 and we expect this to continue into 2023 with depth in the market continuing to grow and supply of projects being held back by hurdles driven by council or construction delays.”
Adam Agosta
Managing Director
Bamfa Properties
“The delayed effect of interest rate rises is likely to take hold on household spending after Christmas.
“In Geelong and other areas of regional Victoria, sales bought forward via government stimulus through Covid coincided with an increase in building prices and interest rate rises. This has meant a hollowing out of demand which we do not expect to rebound before the latter half of 2023.
“However, long-term fundamentals based on immigration and working-from-home flexibility remain sound for regional markets.
“Councils’ lack of forward planning in regional markets has meant that prices have held up as supply remains constricted and well below equilibrium for land markets to function effectively, so we don’t expect any great price adjustments before demand rebounds later in the year.”
Paul Jones
Managing Director
Jones Real Estate
“Despite headwinds in the construction sector and rising interest rates, we believe the residential development market will see a flurry of activity in the new year with developers in the build-to-sell and build-to-rent spaces looking to take advantage of a housing shortage and increased immigration.
“Prime tenanted investments, brand new and newly constructed properties in capital markets, leased to national tenants should remain highly sought after, despite rising borrowing costs. Secondary asset capital values and yields may soften in the first half of 2023.
“As inflation settles, interest rates start to stabilise and with the prospect of rate cuts, we anticipate a very active second half of 2023.”
