By Julian

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.

Part 2