What will drive the property market in 2021? We’ve listed 16 major influences, across three separate posts, to help you read the market like an expert.
To say the market was unpredictable in 2020 would be a gross understatement. Despite the tumultuous year we just had, confidence in property is returning and we look to be entering a year of what we believe will be substantial positive growth across certain markets.
2020 was staggeringly difficult to read and 2021 will be full of anomalies. There will be regions and styles of property that will outperform their usual trajectory and others that will pull up surprisingly short.
With all these choices, the only question is: Where will you invest?
1. CHEAP DEBT = LOWER HOLDING COSTS
The RBA’s and the Federal Government’s intentions are now clear. Interest rates are going to stay lower for longer and the housing market is now regarded as a primary driver of the economy. Federal Government and a number of State Governments have made it very clear that the housing market is now a cornerstone of the economy and they see investment in housing as one of the paths to recovery.
History has shows us that interest rates and the ease of obtaining debt is one of the biggest drivers of the property market. Right now, it’s cheaper to own than rent and with a more dispersed community seeing value in the inner, middle, outer and regional areas, there is evenly spread competition. Finding the gaps and timing where you buy will be critical because of this one.
2. AFFORDABILITY AND LIFESTYLE: REGIONAL CENTRES WITHIN 90 MINUTES OF SYDNEY AND MELBOURNE
COVID-19 was a powerful accelerator that drove demand for regional properties to a greater extent than housing unaffordability has in the past. With densely populated cities becoming more expensive and harder to navigate for work and play, and lockdowns removing the quality of life we all crave, a growing percentage of buyers saw 2020 as the year to reflect and redirect themselves to outer regions with a better price point and lifestyle (and fewer restrictions).
We’ve already seen this is Queensland where only 48 per cent of the population lives in the capital city of Brisbane with the rest dispersed to major hubs like the Sunshine Coast, the Gold Coast, Toowoomba, Ipswich and many more. (Melbourne is currently 76 per cent and Sydney at 65 per cent)
Proximity to the capital cities will still dictate the areas in high demand and remains important for sea and tree changers, as will the central location within the town itself. Towns must have adequate transport and ease of access to main arterials; and walkability and education are important for families as is healthcare services for down sizers – important factors to keep in mind when assessing the property itself.
These regions are also sought after by investors who are keen to establish a ‘foot hold’ in one of the holiday regions, such as Daylesford, Mornington or the Bellarine Peninsula. Fewer overseas holidays, low interest rates and less commuting all allow for more cash in the bank for families and a greater focus on what matters most. Many families also want to secure an ‘escape property’ for themselves, a destination they can flee to should lockdowns or pandemics strike again.
3. OUR SMALLER CITIES TAKE FLIGHT
With less interest in moving to the big smoke from our smaller cities, natural born residents will consider staying put and working in their home cities while uncertainty is around. The big question is: How compelling will this be in the long term?
The big cities of Melbourne and Sydney house our large institutions, Banks, Insurers, Super Funds and the head offices of most major corporates outside of mining and resources. They will eventually draw talent across from interstate and overseas, and although moving home to somewhere like Adelaide or Brisbane might be possible if you are already employed, landing a job from interstate and never setting foot in the office is still quite difficult, if not impossible over the long term. In summary, the smaller cities of Perth and Adelaide will be strong next year as residents stay put or head home. But in the long run, Melbourne and Sydney will prevail and deliver superior return on investment owing to the quantity of (higher paying) jobs on offer and this remains a fundamental driver of the property market.
4. INNER CITY RENEWAL
As the great Bob Dylan said ‘the times they are a changin’ and our cities are going through a massive transition, with no one really knowing what they will look and feel like in the years ahead. One thing’s for sure, we don’t need as many apartments.
Apartments are not one property style on their own. There are low rise, high rise, buildings with concierge and recreation facilities, grand Art Deco buildings with no lift and many many more versions of this lifestyle driven property. Generally speaking, the bigger buildings will suffer with high vacancy and dropping values, although high demand locations that are historically tightly held and have low supply such as East Melbourne and Spring Street in the CBD are always sought after and should hold.
But is this the best place to invest in 2021? NO!
Houses will always outperform in the inner-city regions due to the basic fundamental of diminishing supply! It’s a simple supply and demand equation. There is minimal land in the inner city whereas there is often a steady flow of town houses and apartments. If anything, houses are being knocked over and replaced by higher density dwellings.
But it’s not all bad news for inner city living. Expats returning home from metropolitan hubs like New York, London, Hong Kong or LA, accustomed to a cosmopolitan lifestyle, will see Australian capital cities as less congested and more liveable than where they have come from – more on this below. The influx of established wealth will make up for any city escapers who are selling down or moving to the regions.
The cities will bounce back and continue to be our central place of business, leisure and events. The beautiful established parks and gardens, along with world class food, sporting events and festivals, will draw people back. Furthermore, being ‘central’ provides better access to the best schools, arterials, major shopping hubs and will mean these 3-10km radius from the CBD regions are always highly sought after.
5. RESPONSIBLE LENDING CHANGES
The central bank governor has voiced his support for the proposal to scrap responsible lending laws “in the spirit of reducing unnecessary regulatory burden.”
Governor of the Reserve Bank of Australia (RBA), Dr Philip Lowe, said that it is appropriate to review the responsible lending laws, adding the federal government’s proposal to change responsible lending obligations “is the right direction to be heading in.”
The Australian Government first announced consumer credit reforms in September 2020 with the aim of improving the flow of credit by reducing the time it takes consumers and businesses to access credit. This meant consumers can “continue to spend and businesses can invest and create jobs.”
The government aims to shift the laws from a “lender beware” model to a “borrower responsibility” model, and in turn, strip the Australian Securities and Investments Commission (ASIC) of its enforcement powers.
Why does this matter? This allows for quicker processing of mortgage applications and greater borrowing capacity for some, essentially making it easier for borrowers to use debt to expand, invest, renovate, upsize and buy lifestyle assets.
6. RISING MARKET CONFIDENCE
Buyer and seller confidence is solid, due to the property market showing such resilience during 2020 and the importance of ‘the home’ being realised.
From what we can see, the general population is showing signs of a ‘property market can’t fail’ attitude. Plus, not being able to travel overseas and the lack of interest (and ability in some cases) to travel interstate means we expect everyone will spend more time at home educating, working, playing and entertaining. Most of us need a bigger house. We want our own space AND we want a beach house! These statements are being backed up with acquisitions and low interest rates are also making this possible.
7. EXPATS CASHED UP AND COMING HOME
Last month, the federal government said 398,000 Australians had returned since mid-March 2020.
A staggering one in five of Australia’s highly skilled expat community has come home in 2020, according to preliminary findings of a survey by Advance, a platform that connects Australians around the world.
Of those, 19 per cent are looking for a new job, 18 per cent are working remotely for their offshore employer, 15 per cent are building their own business and 10 per cent have transferred to the Australian office of their current employer. Nearly a third have found a new job locally.
Thirty per cent of returned expats are here to stay, 21 per cent intend to leave as soon as the international border opens, while 33 per cent would like to move back offshore at a later date, the survey found. The remainder are unsure where they would like to live.
“Children and ageing parents change the equation of living overseas. Expats have always thought they were 24 hours away by plane. Now they know they are not,” says Yasmin Allen, chairman of Advance and a director of Cochlear, ASX and Santos.
These buyers are going to be driving property markets in capital city premium markets and will also drive the lifestyle regions with acquisitions of holiday homes.
8. FIRST HOME BUYERS HUNGRY FOR A HOME
The grants and exemptions on offer differ from state to state, but in general, there are grants for buying new or established, with the new (or building) options always yielding better results, as the state governments look to drive one of our most important sectors; construction.
These grants bring more buyers into the market sooner that they would have otherwise had capacity to do. Plus, they may be willing to pay more for property on account of the spending boost – great news for vendors.
First Home Loan Deposit Scheme
One of the more talked-about government measures, the First Home Loan Deposit Scheme (FHLDS), allows eligible first home buyers across Australia to buy a property with a minimum deposit of 5 per cent without being charged lenders mortgage insurance (LMI).
Usually, a 20 per cent deposit is required if you want to sidestep LMI costs, which can, in some cases, cost up to tens of thousands of dollars. Under the FHLDS, the federal government guarantees the difference.
The scheme does have property price thresholds, so it’s important to check if the price bracket you’re aiming for falls below the cap.
The 2020 federal budget added an additional 10,000 places to the scheme and updated the price thresholds, which better reflect property values in capital cities.
9. STAMP DUTY CONCESSIONS OR REDUCTIONS INCREASING THE BUYER POOL
Changes for Victoria
In welcome news for both home buyers and developers alike, the most publicised duty measure in the Budget is a reduction in duty for purchases of residential property with a dutiable value of up to $1 million.
The applicable discount is 50 per cent for new residential properties and 25 per cent for existing residential properties, for contracts of purchase entered into between 25 November 2020 and 30 June 2021.
Changes for NSW
If implemented, the proposed changes could give buyers the freedom to choose between paying stamp duty upfront or paying a much smaller annual property tax, when buying a home.
Removing the upfront cost of stamp duty could remove tens of thousands of dollars from the home purchase process and make it easier for first home buyers, families looking to upgrade and others looking to change their property to save what is needed to purchase their next home.
There is no change for those who have already paid stamp duty on their existing property. The annual property tax only applies to new buyers who choose this option.
No major changes for Queensland
The Queensland Stamp Duty Rebate/ Concession, is up to $8,750 for those buying an established or newly built home priced at $550,000 or under. The Concession also works if you’re buying a block of vacant land for under $400,000 where you can get a Rebate of up to $7,175.
These changes allow buyers that would have been 1-2 years away from hitting the market to transact sooner. And for some they will have a greater buying power and increased budget. All positives for driving property values.
10. MORE ‘KNOCK DOWN & REBUILD’ STRATEGIES IN THE MIDDLE RING SUBURBS
According to McCrindle Research, 78 per cent of people surveyed believe working from home is here to stay with most expecting this to be 2-3 days a week. But how many of us actually have the space to do this? Especially with more than one ‘work-from-homer’ in the house. Renovations can be expensive and unpredictable, whereas the growing trend of knocking down an old 50’s-70’s weatherboard or brick home on 400-800sqm and replacing it with new build can not only solve the WFH problem, but also result in a very profitable project.
11. MORTGAGE FREEZES – WARMING BACK UP
Around 250,000 mortgage holders will have their repayments on hold and will need to start making repayments or sell. This may result in a slight increase in listings depending on how they can manage making repayments again and whether they have tenants in their investment properties. With interest rates at all-time lows, the cost to hold couldn’t be much better, but only time will tell how influential this will be.
12. POPULATION / MIGRATION / BUILDING APPROVALS
In 2019, some 240,000 people migrated to Australia. That equated to new demand for about 92,000 dwellings. However, total population growth is now expected to rise just 0.2 per cent for FY21 and 0.4 percent for FY22, the lowest since World War II.
While this is occurring, building completions remain high, even while construction slows. For 2020 we expect about 170,000 dwelling completions. That covers new demand from some 442,000 people. The problem is Australia’s population will only expand in 2020 by some 90,000 people, meaning vacancy rates will very likely rise in 2021.
The rolling out of the vaccine and immigration coming back will be key influences on how significant this one is.
(SQM Research)
13. RENTAL MORATORIUMS EXPIRING MARCH 2021
Landlords have been unable to evict tenants, increase rents and in some cases, have been forced to discount rents for financially impacted tenants. One off payments from governments to landlords for tenants experiencing hardship have also taken place in Victoria but they have often fallen short of the lost rent.
Why is this a problem?
It’s very hard to sell a tenanted property. The property rarely presents well and access for open homes can be difficult to coordinate. Plus, with a lease in place, it’s often only suitable for investors who are generally price conscious and looking for ‘bargains’.
Expect an increase in listings, albeit of more ‘average’ quality properties, more so than blue chip homes and higher demand middle ring suburbs.
14. OWNER OCCUPIERS SEEKING THE IDEAL FAMILY HOME
The data show us owner occupiers are driving the market and the importance of the family home has never been more evident. Working from home means many need to upgrade, renovate, or consider moving further out to find space. And of course, investors are the first to retreat when the media storm says the market will crash. Now that this has passed and sentiment is good, we expect investors to come back strong and give the property market a push in a positive direction.
15. PHASING OUT OF JOB KEEPER/SEEKER
According to the RBA, JobKeeper saved 700,000 jobs during 2020. They payments reduced in September and will do so again in January 2021. This tapering of support has created a soft landing and with economic recovery expected to be strong, will hopefully have a minimal impact on property.
Of course, some tenants will struggle to make rental payments and vacancies may rise in areas of high part-time employment (think inner city), however, we don’t expect a rise in listings from this.
16. ECONOMIC PREDICTIONS STRONGER THAN EXPECTED
The engineered recession ended up being relatively short lived. Even the Commonwealth Bank of Australia economists upgraded their economic outlook, noting “there are genuine reasons to believe the domestic economic recovery is going to be strong over the next two years”.
“An unprecedented level of fiscal and monetary policy stimulus coupled with an expected drawdown in accumulated savings and the further easing of COVID‑related restrictions will support economic growth and job creation,” CBA economist Gareth Aird said.
The bank tips the economy to shrink 3.3 per cent in 2020, followed by a rebound in GDP of 4.2 per cent in 2021 and 3.8 per cent in 2022. This says a lot coming from one of the more pessimistic banks during the pandemic throughout 2020.
Time and time again, property in Australia has proven to be a resilient asset class in which to invest. As always, if you are considering a purchase, make sure it’s an informed one.
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