Apartment values rose across the country for the first time in 11 months, up 0.6% in March, while the national unit vacancy rate fell to a new record low of 0.8%.
According to CoreLogic, the value uptick was driven by excess demand from the tight rental market, strong overseas migration, and a tonal shift and pause in rate hikes from the Reserve Bank of Australia.
This is welcome news for the property market, which has been struggling due to the COVID-19 pandemic and economic uncertainties.
“It’s looking increasingly like we have moved through a trough in unit values, however a number of headwinds are still apparent, including further rate rises, an expectation for weaker economic activity through the year and the potential for a lift in advertised stock levels,” said Kaytlin Ezzy, Economist at CoreLogic.
“However, as we move through a possible inflection point, it can be useful to compare the current unit downswing to both previous periods of value decline and to the cumulative value drops seen in the house market.”
The rise in unit values was geographically broad-based, with six of the eight capitals recording a monthly rise in unit values.
After recording a mild 0.1% increase in unit values through February, Sydney recorded the strongest monthly growth in unit values across the capitals, up 1.0%, followed by a 0.4% lift in Melbourne.
Brisbane, Adelaide, and Perth unit values all saw a 0.2% rise in March, while Canberra recorded a mild 0.1% increase.
Hobart (-0.4%) and Darwin (-0.6%) were the only capitals to record a monthly decline in unit values, with the pace of decline holding steady with the previous month.
Despite the rise in unit values, there are still challenges ahead for the property market.
Many fixed-rate loans are only now starting to expire, and three of Australia’s four major banks still expect the cash rate to rise a further 25 basis points in the coming months.
Additionally, while listing levels are currently holding low, we could see listing levels rise, which would add downward pressure on values if not met with an equivalent rise in demand.
National unit rents rose at twice the pace of house rents, up by 1.6% over the month and 3.9% over the first quarter, driven by the strong return of overseas migrants and international students.
The combined capitals recorded its strongest quarterly increase in unit rents on record, rising 4.4% over the three months to March, equivalent to a $23 per week increase in the average rental value ($550).
This has seen capital city unit vacancy rates fall to a new record low of 0.8% in March, while houses recorded a similar record low vacancy rate of 1.1%.
The total number of advertised capital city rental listings over the four weeks to April 2nd was -38.1% below the previous five-year average, equivalent to a shortfall of roughly 42,000 rental listings.
Of this shortfall, approximately 65% are in the unit sector, with total capital city unit rental listings down -43.2% or 27,332 from the average level typically seen this time of year.
This has caused concern among tenants who are already struggling to find affordable rental accommodation.
National gross rental yields for units expanded a further four basis points in March to 4.56%.
Despite the rise, it’s likely net yields have continued to decrease, with increases in the cost of debt outpacing the rise in rental income.
Looking ahead, the outlook for Australian unit values is starting to look more positive, with this month potentially signalling a change in the direction of values.
However, there are still some challenges ahead, and it remains to be seen whether this rise in values is the start of a slow recovery phase or just a temporary blip.