The property market in 2023
The insights as summarised in this article were provided by Julian Kezelman (Taronga Ventures), Rebecca Cope (Ashurst) and Angus Moore (PropTrack) through The Proptech Panel: what lies ahead?
Big trends in 2023
In 2021, property prices in Australia went up very quickly, which was the third fastest increase in 140 years. This happened because interest rates were low and the market was hot. The beginning of 2022 was still strong, but then interest rates started to go up, which caused the market to cool down. Prices went down by 4.3% across the country, and even more in Sydney and Melbourne. This trend is expected to continue into 2023, with prices continuing to decline. This is because interest rates went up a lot last year and will likely go up more this year.
Supply chain, labour market and increased cost
The construction sector is facing significant challenges with delays in completing projects despite increased construction activity due to low-interest rates and the HomeBuilder initiative. Factors such as sickness, supply chain disruptions, and other issues have caused delays, resulting in a 20% increase in the cost of building a detached house. Despite potential improvements in the near future, such as temporary improvements in material supply and weather, finding skilled workers remains difficult due to low job availability. The government's efforts to address unemployment may take time, and construction companies are expected to face ongoing difficulties in building homes quickly and cost-effectively.
Retail space and the commercial space
This area is still affected by the changes caused by COVID and the way people live. Retail stores in suburban areas and large format retail are doing well, while CBD retail is not. There's still a big demand for industrial buildings, especially warehouses, and it's tough to get hold of them. This is because of the trend towards e-commerce and delivery, which COVID accelerated. These assets will be strong in a high-interest-rate environment. And, with funding costs becoming particularly challenging for many investors, we can see continued demand for very stable assets like child care and health. Those performed well through the pandemic and continue to be in high demand.
Interest rates and homeowners’ hip pocket
In Australia, most new mortgage loans are variable, but during the pandemic, almost half of new mortgages were fixed because they were cheaper. This means that a lot of people haven't seen their mortgage costs increase yet, which might delay the impact of changes to the economy by the Reserve Bank of Australia. However, in 2023, many people will be rolling off their fixed rates and looking to refinance, which could be a challenge. For some, property prices have fallen, so they might struggle to meet the original loan-to-value ratio (LVR) and have to pay more for lenders mortgage insurance (LMI). For others, it might be hard to meet the serviceability requirements for new loans because borrowing capacity has decreased. Alternative lenders might be an option for these borrowers, but it might be risky. There will be lots of opportunities and risks in the refinancing space, and we're already seeing an increase in external refinancing.
Funding for proptech in 2023
Getting the necessary funding to sustain proptech companies is currently a major challenge. While it was relatively easy to secure funding just six to twelve months ago, it has become more difficult now. Building a strong and sustainable business should be the goal to support real estate owners in the long run.
If you have a proptech solution you'd like to scale, learn more about Stone & Chalk's support for proptech startups and scaleups.
