Although the year 2020 was pretty poor in many respects, property markets across Australia weren’t actually hit anywhere near as hard as was originally feared when the COVID-19 pandemic first raised its ugly head. So, what do those in the know predict for 2021?
Head of Home Loans at Members Equity Bank (ME) Andrew Bartolo believes, like many experts in the field, that property prices will continue to rise across several of Australia’s markets. “A resilient housing market that’s weathered the economic pressures of COVID-19 together with lower interest rates will give homebuyers and investors’ confidence,” he foresees. “While there are still many challenges (including unemployment, job insecurity and lower immigration) we’re seeing some positive signs: improved consumer confidence, stronger auction clearance rates, more transactions, and falling loan deferrals.”
Andrew’s also reporting positive vibes from homeowners themselves. According to an ME survey of 1,500 households conducted earlier this month, 46 per cent of owner-occupiers expect the value of their dwelling to increase next year rather than decline (5 per cent) – quite a jump considering six months previously, only 22 per cent expected price rises and 25 per cent expected a decline.
“From a property market perspective, the Q2 2020 COVID-19 lifestyle restrictions were akin to pressing the pause button on real estate for a few months,” says Propertyology Head of Research Simon Pressley. He thinks, however, that it only delayed what will turn out to be the “biggest property boom this country has seen for more than 15 years”.
“On the supply side,” Simon explains, “the most influential fundamental right now is the widespread under-supply of dwellings (for sale and for rent). Housing demand is underpinned by banks having a stronger appetite to support the real estate aspirations of responsible lenders and cheap credit. A germ doesn’t change those key fundamentals.”
Simon believes that of the eight capital cities across Australia, five have every possibility of double-digit price growth. “We think that detached houses in Perth, Canberra and Hobart will be the best performed capital markets in 2021, while Adelaide won’t be far behind them.
“Melbourne and, to a lesser extent Sydney, continue to be Australia’s two most vulnerable property markets,” he adds. “Their economies have the biggest exposure to overseas tourists and students, plus COVID has caused the biggest percentage of job loss in these two congested cities. Internal migration patterns out of these cities and the nation’s highest vacancy rates aren’t great ingredients.”
Investigations by Riskwise Property Research revealed projections that Sydney and Melbourne will deliver 8-12 per cent capital growth in 2021, while Pete Wargent, COO of BuyersBuyers.com.au, says we’ll see property transactions increase by about a quarter in 2021: “2020 has been one of the most unusual years on record for real estate markets in Australia,” he says. “We came into the year with relatively low unemployment and confidence running at a solid clip, but as the first quarter of the calendar year progressed it became increasingly clear that significant disruption could be on the cards. We then had multiple buyers putting their searches on hold until the situation became clearer. But now it’s notable that they’re feeling confident enough to buy again.”
Riskwise’s Residential Property Risks & Opportunities Report does, however, predict that some sectors will continue to represent a high risk, in particular inner-city apartment markets, which are oversupplied and experiencing falling rents as Australians look to avoid the higher-density locations.
“It’s now cheaper to buy than to rent for many younger prospective market entrants,” says Doron Peleg, CEO of RiskWise Property Research. “Investors will be back in the new year as an unusual opportunity to positively gear investments presents itself.”
Andrew agrees: “More investors will re-emerge in 2021 in search of income and capital growth,” he predicts. “Record low interest rates will drive momentum across the market.” He also foresees more demand for “urban village living”. “With the daily commute no longer a deciding factor in the home-buying process, regional areas within a commutable distance to CBDs are being added to homebuyers’ wish lists. Many are succumbing to the appeal of a slower pace of living, a closeness with nature, connection with neighbours and a feeling of belonging.”
Continuing low interest rates are, of course, a boon to house prices, as highlighted in Riskwise’s report. Indeed, research conducted by the Reserve Bank of Australia found that for every one percentage point reduction to the cash rate, property values could increase 8 per cent over 2021/2022.
Despite ongoing COVID-19 outbreak issues in its Northern Beaches, Sydney’s Lord Mayor Clover Moore is optimistic for 2021 after unveiling the Central Sydney Planning Strategy recently, explaining “it will help us lay the foundations for the city’s recovery from the devastating economic and social impacts of the coronavirus and maintain Sydney’s status as an attractive place for business investment”.
“We’ll protect, enhance and expand Central Sydney’s heritage, public places and open spaces for all to use and enjoy,” she says. “If we want Sydney to maintain its status as an economic powerhouse of innovation and collaboration, it’s vital we safeguard economic floor space while allowing residential development to continue in the city centre.”
“Record-low mortgage rates will likely be a significant tailwind for property values, and may place upward pressure on prices through 2021,” CoreLogic’s Head of Research Australia Eliza Owen says. “Combined with a recovery in economic, some earlier factors considered a major risk to housing markets have been reduced, including the end of mortgage repayment deferrals.”
Eliza, too, predicts increased property investment activity across smaller capital cities such as Perth. “Institutional interventions will continue to shape the profile of property buyers,” she says, “particularly as HomeBuilder is extended at a reduced rate into Q1 2021, and regulators monitor prudential lending standards. At June 2020, the housing debt to income ratio was 141.2, with housing debt accounting for most of Australian household debt. This poses an ongoing risk to the Australian economy, especially where heavily indebted households may be more likely to save rather than spend during periods of uncertainty or economic hardship.
“As a result, policy makers and regulators may watch for signs of rising household debt, or a decline in prudential lending standards that could lead to higher household debt. Higher LVR lending or higher loan to income ratios could be a trigger for macro-prudential intervention in 2021.”