February 1, 2024

NAB Quarterly Australian Residential Property Survey Q4 2023

In Q4 the NAB Residential Property Index continued its recent upward trajectory

The NAB Residential Property Index continued on an upward trajectory in the December quarter as dwelling values grew in most capital cities and regional areas and rental growth remained elevated. The market share of foreign buyers in new housing markets climbed to a 6½ year high and has now risen almost five-fold since the COVID lows in mid-2021. Construction costs and higher rates still considered the main barriers to starting new housing projects in Australia.

NAB’s outlook for property prices is unchanged. We continue to expect a 5% rise over 2024 and a slightly smaller gain in 2025. The demand/supply imbalance is likely to remain a key support in the short term, while expected rate cuts in late 2024 will provide additional support in 2025. More broadly, the economy has remained healthy despite a slowing in growth and with the unemployment rate remaining relatively low, we see a soft landing and the RBA cutting rates by around 125bps over 2025.

Survey highlights

  • The NAB Residential Property Index continued its recent upward trajectory as dwelling values grew in all capital cities and regional areas over the 3-months to December (except in Melbourne), and rental growth remained elevated across much of the country. Overall, the Index rose to +46 in Q4, from +40 in Q3 and +5 at the same time last year. The Index is now at its highest level since Q1 2022 and trending well above average (+18).
  • Headline gains however masked diverse conditions across states. The state index slipped deeper into negative territory in TAS (-63) and the ACT (-42), and also softened in the NT (+25), VIC (+29) and SA (+41). Conditions were however stronger in NSW (+44), QLD (+54) and WA (+96) where it was also highest in the country supported by out-performing capital and rent growth.
  • Confidence levels lifted in Q4, with expectations for a housing market recovery also a little higher in the next few years. NAB’s one-year confidence measure rose to +55 and the 2-year measure to +56, putting housing market confidence at their highest levels in 2 years and well above long-term survey averages. Property professionals in WA are the most confident about the future, and TAS least so.
  • Despite CoreLogic data showing a slowdown in quarterly dwelling price growth to 1.5 % in Q4 (2.1% in Q3), average survey forecasts for national prices were revised up to 1.8% in the next 12 months and 2.6% in 2 years’ time. Expectations for stronger growth in the next year reflected upward revisions to the outlook in WA (6.0%), QLD (2.7%) and NSW (1.3%). Housing prices are expected to grow in most other parts of the country though more slowly in the NT (1.5%), SA (1.4%) and VIC (0.2%), with property professionals predicting bigger falls in both the ACT (-2.7%) and TAS (-2.0%) in the next year. Property professionals also expect prices in WA to out-perform by a large margin in 2 years’ time (5.1%).
  • With the Q4 NAB survey still showing an overwhelming number of property professionals characterising rental markets in their local areas as undersupplied, average survey forecasts for rent growth in the next 12 months and 2 years’ time rose to 3.9% in Q4. The average survey forecast for rents in the next 12 months is positive (and higher) in most states, led by WA (5.8%), NT (3.9%) NSW (3.9%), VIC (3.8%) and QLD (3.5%). Growth in 2 years’ time is expected to be highest in the NT (5.6%), VIC (4.7%), WA (4.4%) and NSW (4.1%), and lowest in TAS (0.9%).
  • The overall market share of all First Home Buyers (FHBs) in new property markets increased to 31.8% in Q4 from a near 8-year low 30.3% in Q3 but continued to track below average. The share of sales to owner occupiers (net of FHBs) slipped to 38.5% in Q4, but remained above average. The market share of total sales to domestic investors rose to 17.7% but is still well below levels seen in Q1 2022 prior the commencement of the current interest rate cycle in May 2022, and well down on the average (21.6%).
  • Though national construction cost indices slowed in Q3, they continued to grow. Consequently, most survey participants (75%) still saw construction costs as a barrier to starting new residential projects in Q4 – though somewhat higher in QLD (89%) and VIC (83%). With policy rates also rising in November, a higher number identified rising interest rates as a barrier (59%), with this reaching 72% in VIC. Nearly 1 in 2 (46%) overall identified delays in obtaining planning permits, but 2 in 3 (67%) in QLD and NSW.
  • In established housing markets, owner-occupiers (net of FHBs) continued to account for the lion’s share of sales – though their overall share fell to a below average 43.8% in Q4. The share of FHBs however rose to an above average 34.2%, boosted by FHBs buying for owner occupation. The share of local investors in the market fell to 16.8%, with local investors underpinning around 1 in 5 sales in QLD and NSW, compared to just over 1 in 10 in VIC.
  • Rising interest are still the biggest constraint for buyers of existing property – and it weighed a little more heavily on buyers as policy rates increased in November. Access to credit was the next biggest constraint for buyers, but viewed as more problematic in SA and NSW. Price levels were a “significant” constraint in all states – but more so in QLD, NSW and VIC. Lack of stock weighed more heavily on buyers in WA where it was a “very significant” constraint for buyers, but only “somewhat significant” for buyers in VIC.
  • The market share of foreign buyers in new housing markets in Q4 rose for the fifth straight quarter to a 6½ year high 11.0% – and printed above average (9.1%). This reflected an increase in market share in NSW (15.0%) and WA (14.2%). In VIC, it fell to 10.0% with property professionals having now reported below average levels of market share since Q2 2020. The market share of foreign buyers in QLD was unchanged at a below average 6.3%.
  • The overall result suggests there has been a near five-fold rise in foreign buyer market share in new Australian home markets since hitting a low of just over 2% during the COVID-pandemic in mid-2021. Recovery has occurred against record migration and reports of China’s post-pandemic reopening sparking a surge of foreign interest in Australian housing, with international agents reporting a rise in enquiries of over 400% (source: AFR).

NAB’s view

Our outlook for property prices is broadly unchanged. We expect dwelling prices across the capital cities to grow by around 5% this year and 4% next year. The common factors supporting prices across the states are likely to persist in the near term, while an eventual easing in interest rates will add additional support further out as the labour market softens somewhat.
More broadly, the economy remains healthy, though growth slowed sharply in H2 2023. We continue to see a relatively soft landing for the economy with inflation moderating without the RBA having to drive a more significant downturn, and while unemployment is expected to rise to around 4.5% it will remain close to a level consistent with “full-employment”. That will allow the RBA to begin normalising rates in late 2024, cutting the cash rate by around 125bps over 2025.