Property prices are set for rebound in 2021

Property prices are set for rebound in 2021

Maggie May and Josh Kelly are first-time buyers making the most of low interest rates and government incentives to purchase a two-bedroom off-the-plan apartment in inner Melbourne.The artist and musician couple, who have a two-year-old son, Remy, will save about $35,000 through incentives for first-home buyers, including the First Home Loan Deposit Scheme, HomeBuilder grant and stamp duty concessions for properties valued below $750,000.

“We thought we’d be renting forever but the combination of government grants and record low interest rates made it possible,” says Maggie, who with Josh runs a local gift shop and creative space called Think Thornbury.

First home buyers are a key driver of a national property market that hopes to leave the worst of 2020 behind but continues to brace for volatility amid economic uncertainty and lingering concerns about COVID-19.

“The outlook is widely divergent across cities, within cities and across units versus houses,” says AMP chief economist Shane Oliver.

Prospects are as varied for first buyers, warns CoreLogic, which monitors property markets, with current high levels of demand likely to decline in the second half of this year as government schemes are gradually wound back.

Overall, though, low interest rates, economic growth, pent-up demand and government stimulus are expected to buoy buyer demand and push up prices in key markets, some of which have been in the doldrums for years.

This has to be balanced with concerns about new coronavirus outbreaks, falling immigration, rising unemployment and government assistance being scaled back.

“But key impediments for an improving property market have been removed,” says Andrew Wilson, chief economist for Archistar Property, a property intelligence platform. “There has been a strong pick-up in demand, confidence has risen and the economy has bounced back.”

Sydney

Predictions for this year range from AMP’s 2 per cent to ANZ’s 8.8 per cent, with CBA warning new COVID-19 outbreaks will “put a lid” on prices and turnover.

Sydney completed 2020 up 2.7 per cent after a strong final quarter, despite a 2.9 per cent fall between April and September.

Driving growth for Sydney – and other capitals – will be pent-up demand, economic growth and the relaxation of responsible lending rules, says Peter Koulizos, chairman of Property Investment Professionals of Australia.

Falling immigration is likely to continue pressure on vacancy rates, particularly in the inner CBD.

Top-end Vaucluse and other Sydney suburbs such as Connells Point and Kingsgrove have all recently posted record prices.

Archistar’s Wilson says demand from owner occupiers in the mid-range $1 million to $5 million market will remain strong.

Falling immigration is likely to continue pressure on vacancy rates, particularly in the inner CBD. Sydney CBD vacancy rates peaked at 16.2 per cent last May but fell to 9.5 per cent in November, according to SQM Research.

Rich Harvey, a Sydney buyers’ agent, says large numbers of “cashed-up returning expats” will partly fill the gap left by overseas buyers.

Agents also say properties in lifestyle areas within a two-hour commute of the central business district will remain popular.

Melbourne

Growth estimates for the year range from Westpac’s 2 per cent to ANZ’s 8.7 per cent.

Melbourne property prices slipped 1.3 per cent during 2020, falling 5.6 per cent from a March high to an October low.

Falling immigration and overseas student numbers have hit inner Melbourne with vacancy rates around 9 per cent and rents down about 7 per cent.

Eliza Owen, head of research at CoreLogic, says the pandemic has “acutely affected” the inner-city Melbourne market. There are estimated to be 20,000 vacant apartments in both Melbourne and Sydney.

Sales have not kept pace with an “unusually high increase” in new listings across Melbourne, particularly compared to other capital cities, according to CoreLogic analysis.

For example, there were more than 8000 new listings during November compared with about 4300 sales. “The disproportionate volume of stocks to sales may slow the rate of recovery across Melbourne in 2021,” says Owen.

Archistar’s Wilson disagrees, saying the market was “roaring along” at the end of 2020 and there is “still a lot of pent up demand”.

Demand in autumn will be strong,” Wilson says.

Agents for top-end properties in Melbourne’s leafy inner suburbs say there has been a shortage of stock and demand remains strong.

Brisbane

ANZ expects Brisbane prices to jump by 9.5 per cent and AMP is tipping 10 per cent.

Brisbane property prices rose 3.6 per cent last year, with small increases in rents for apartments and houses.

Brisbane is playing “catch-up” after years of underperformance compared to Sydney and Melbourne, according to AMP’s Oliver.

Prices are expected to top their September 2017 record by March, reflecting lower debt and less exposure to immigration, his analysis shows.

Melinda Jennison, managing director of Brisbane-based buyers’ agent Steamline Property Buyers, says demand is being driven by interstate owner-occupiers and investors attracted by lower prices and a “safe haven destination”.

Jennison says while vacancy rates for housing in many Brisbane suburbs have fallen to record lows, they have spiked for high-density inner-city dwellings and are expected to remain “excessively high” in those areas.

Justin Nickerson, director of Apollo Auctions, says the “sweet spot” includes suburbs three to five kilometres from the central business district with good schooling and lifestyle options.

Agents say demand for luxury lifestyle seaside property within two hours’ commuting distance of Brisbane remains strong, with prices rising up to 10 times the national average of 2 per cent.

Perth

Perth’s property market, which has spent five years in the doldrums after the mining crash, posted a 2 per cent gain in 2020 and is showing signs of recovery. Analysts are tipping price gains of close to 10 per cent.

Rental returns on houses and apartments rose more than 10 per cent and 9 per cent respectively, according to SQM Research.

Increased jobs and population growth is fuelling a residential building boom while rising iron ore prices should underwrite improved economic growth and residential market prices, say analysts.

Perth’s property prices are nearly 14 per cent below their 2014 peaks, so a recovery is starting off a low base.

Darwin

The northern capital’s property prices jumped 9 per cent in 2020 and more than 5 per cent since last September. Rental prices rose by more than 21 per cent for houses and about 4 per cent for apartments.

But, like Perth, this is starting from a low base, with prices having fallen nearly 26 per cent in the six years since the last mining boom.

Terry Roth, a director at Herron Todd White, a national property consultancy, says the improving mining outlook and generous buyer incentives from local and federal governments are driving improved sentiment.

“Improvement has not been spread evenly,” adds Roth. “There is still an oversupply of residential units in the central business district, and inner suburbs have not improved to the same extent.”

Roth has concerns about the revival’s sustainability if employment does not improve.

Adelaide

Adelaide prices jumped 5.9 per cent in 2020, with rents for houses and apartments rising 5 per cent and 0.3 per cent respectively. Analysts expect prices overall to rise by about 5 per cent to 7 per cent over the next 12 months.

Local factors driving employment and growth are major capital projects including the $9 billion tunnel linking the northern and southern suburbs, a $2.4 billion hospital, casino upgrades and $40 billion naval projects.

Strong demand for top-end and lifestyle properties, such as in the Adelaide Hills, were among the positive surprises.

They include a mansion in Palmer Place, North Adelaide, under contract for an Adelaide record of $10 million. Nick Smerdon, a Herron Todd White property valuer, says a lack of stock, increased buyer confidence and record low interest rates are driving demand.

“But with market fundamentals remaining on shaky ground, there seems uncertainty as to how long the strength in the market can hold,” he adds.

Canberra

Forecasts for the next 12 months are in the 5 per cent to 10 per cent range. The city’s prospects are boosted by a growth in public sector employment and a housing shortage, say AMP’s Oliver and Archistar’s Wilson.

Sandra Howells, property valuer for Herron Todd White, warns of price volatility in the apartment sector, particularly as newly completed units compete against existing stock in suburbs such as Belconnen and Gungahlin.

Hobart

Demand remains strong in Hobart, particularly for properties up to $600,000, says Herron Todd White property valuer Stephen Ning Liu.

Sales have slowed for top-end properties in excess of $1.5 million, but are expected to increase as sentiment continues to improve, he says.

AMP’s Oliver adds: “Hobart and Canberra dwelling prices are playing catch-up after underperforming Melbourne and Sydney through much of the last decade.”