In a world of uncertainly brought upon us by a global pandemic, Australia’s property market continues to stand strong in comparison to other markets around the world.
The Atlas team spoke with Nerida Conisbee, Chief Economist at REA Group to get further insight into the global and national drivers that will have the most impact on the property market in 2021.
How is the Sydney market performing?
The market is turbocharged at the moment, and the main driver of this is incredibly low-interest rates, as well as very high savings rates. The RBA has set the cash rate at 0.1%, and banks are following this and reducing their interest rates. In fact, you can get a home loan with an interest rate of under 2%, which is remarkably low.
There is also plenty of competition between banks, as they compete for customers. With new responsible lending laws being relaxed with the start of the pandemic, banks are also far more willing and likely to approve home loans. Some are even offering cash back as a promotion, which is very rare for home loan customers.
Another trend to expect in the market is an increase in suburbs considered to be in the luxury market. Through 2020, the number of suburbs that hit a median sale price of $3 million doubled. This number is expected to double yet again in 2021. Upgraders are particularly active at all price points however the top end of the market has been a star performer over the past 12 months.
In 2021 we are also likely to see rental markets improving. Although the rental market was weak during the peak of the pandemic, it continues to improve, particularly for house rentals. Nevertheless, it does remain weak in some locations, but it isn’t deterring investors who are increasing their buying activity in the market.
As we see the COVID-19 vaccine become readily available across the globe, we are likely to see foreign students return and higher levels of immigration which will even further stimulate the market.
What segments are driving market growth?
The return of investors will be a key part of market demand of 2021. In January 2021, housing finance commitments made by investors was at 29%, which is an increase from the last quarter of 2020. This is expected to rise back to the decade average of roughly a third over the next year or more. The market is strong and is experiencing high levels of activity, which often attracts investors.
Paradoxically, this strength is deterring first home buyers from the market, which were the most active segment throughout last year. This is typical behaviour of first home buyers though, as they prefer a slower, predictable marketplace unlike investors.
An interesting point is that returning expats are likely to be stimulating blue chip areas. Although data is hard to find on expats, we are seeing increased searches on realestate.com.au from overseas, particularly countries like the US, Hong Kong, Singapore and the UK. These are countries with large Australian expat communities, so it is likely these people are searching to return home.
Anecdotal evidence from real estate agents also suggests that expats are extremely interested in buying into premium and lifestyle markets in Australia.
We might also begin to see economic migrants moving to Sydney, but perhaps once the vaccine is more widely spread.
What do you anticipate happening when the government ceases all pandemic-driven stimuli?
Although last September was expected to be a fiscal cliff, what we saw was a gradual reduction in Government assistance. The government has been very cautious with how and when they withdrew stimulus and there is no reason to believe they will act differently this time. Australia is in a strong position economically, with job vacancies now at pre-covid levels.
Overall, it is unlikely we will see trouble in the marketplace due to lack of subsidies, but some segments will be more impacted than others. Renters will likely be impacted most, particularly younger ones, as they are often employed in industries that are still recovering such as tourism and hospitality.
I predict that if there is a huge impact to this demographic, the government will release a more targeted round of payments or stimulus to help those impacted.
Despite this, there is unlikely to be an impact on the property prices which continue to be buoyed by very low interest rates and high household savings rates.
Is growth in the regional property market impacting the Sydney market?
For decades, the state government has been trying to encourage people to move out from Sydney and to other regional capitals. Ironically, these strategies weren’t always that successful, but the pandemic helped homeowners to realign their home goals and place space at the top of their priorities.
People who do not have to work in an office anymore or those in mining, agriculture and entertainment are finding plenty of jobs in regional centres, particularly the North Coast. The property market here has seen a 36% increase in price over the last 12 months, which is outstanding.
Although it is always favourable to get congestion out of the cities, I predict that many workers will be called back into the office soon, likely on a flexible basis. This will likely lead to lower levels of demand in more far flung regional areas but is good news for places like Wollongong and the Central Coast.
The desirability of inner-city living will surely return soon as well, with cafes, nightclubs and other arts centres beginning to open to their full capacity again soon. We will probably see a rush back to metro suburbs around this time.
What is your advice to buyers and sellers?
Simply put, it’s a seller’s market at the moment. What we are seeing in terms of pricing and time on market is incredible across the board, and particularly in housing. Auction activity is high and clearance rates average above 75% every week across the city. Buyers also appear to be willing to pay premiums to secure properties, which works well in sellers’ favour.
For buyers, conditions are more challenging, primarily because listings aren’t matching buyer demand. More positively, interest rates are low and it is easier to get a home loan.
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