After a tumultuous year, property experts concur that the year ahead will see a housing market on the up.
They also predict that demand for lifestyle locations won’t slow down, and it’s unlikely to return to a buyer’s market any time soon.
The competition will be fierce for what stock is listed according to Ben Kingsley, Chairman of Property Investors Council of Australia with investors set to return to carefully selected markets.
“If we are able to keep the virus contained, then 2021 looks very promising for property, especially on the back of record-low interest rates and positive sentiment in the market,” said Ben.
Property markets across the nation are shaping up for a stellar 2021 according to Peter Koulizos, Chairman of Property Investment Professionals of Australia.
“This year (2020) has been extraordinary, but 2021 promises to be a more normal year, especially with a number of COVID-19 vaccines being rolled out.
“In relation to the residential property market, 2021 will be a better year than 2020. According to CoreLogic, major capital city annual property prices in 2020 ranged from -1% in Melbourne to +6% in Adelaide. In 2021, we should see increases in all capital cities at a higher rate than we experienced in 2020.
“Commercial property, especially office property, will take a hit in 2021 and beyond. With more people working from home for at least part of the working week, there won’t be as much need for office space, especially in the CBD.”
“The two most important sectors to keep an eye on for 2021 are CBD apartments and property in lifestyle towns,” said Peter.
“A large proportion of CBD apartments are owned by overseas investors and lived in by international students. Due to COVID-19 restricting the numbers of overseas students, demand for CBD apartments will decrease, as will their price and rents.
“Lifestyle towns within commuting distance from our major capital cities should benefit in 2021 and beyond as a consequence of COVID-19. If you don’t have to go to work every day and you are allowed to work from home, then home doesn’t need to be as close to work as it used to be.”
Fringe and lifestyle residential markets are seeing significant market activity and strong price growth according to Kevin Brogan from Herron Todd White.
“Historically low-interest rates and pent-up transactional energy in residential markets are likely to continue to provide a lift to the market in the early part of 2021.
“Demand for regional and lifestyle markets is likely to remain strong. However, other factors will exert a downward influence as government stimulus measures come to an end.
“In particular, the HomeBuilder grant has brought forward demand for new home construction that is likely to cause a demand vacuum in the second half of the year,” said Kevin.
More affordable property and locations set to shine next year, according to Mike Mortlock, Managing Director of MCG Quantity Surveyors.
“People re-evaluated what’s important to them, which led to an increase in real estate platform searches as people considered this, including a desire to put in place a hybrid working from home and office model.
“This will make the city fringes more attractive as the commute time becomes less important and homeowners will see their money go a bit further.
“Many investors seized the opportunity that the pandemic provided. There certainly was a period where we didn’t know how bad things could get, but once some certainty and stability arrived, there were some very short-term windows of opportunity.
“With the market staying tight through a lack of stock, prices have risen in many places past pre-pandemic levels, which will likely add to the urgency of buyers, and lead vendors to list as they’re no longer worried about selling at the bottom of the market.”
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.
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.”
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.
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.
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’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.
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 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.
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.
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.”
Property Investment Professionals of Australia’s (PIPA) chairman Peter Koulizos said that 2021 will be a better year than 2020, particularly for the residential property market, as capital cities are expected to see a higher rate of value increases.
Further, historically low-interest rates and pent-up transactional energy are also likely to continue to provide a lift to the market in the early part of the new year, according to Kevin Brogan, Herron Todd White’s director of valuation policy and compliance.
“Demand has reacted strongly to renewed market confidence and has been running ahead of supply in many markets, if this continues into 2021, it will continue to exert an upward pressure on established residential property prices,” Mr Brogan added.
“The announcement of large infrastructure projects is setting the scene for longer term post-COVID economic recovery.”
Ultimately, if Australia succeeds in keeping the virus contained, 2021 will be a promising year for property, especially on the back of record low-interest rates and positive sentiment, Property Investors Council of Australia’s (PICA) chairman Ben Kingsley said.
According to him, the economic recovery will set the scene for 2021 as business and consumer confidence return and a vaccine program begins its roll-out across the country.
However, experts warned about the effects of the government stimulus measures coming to an end, which could exert a downward influence on property markets.
In particular, the HomeBuilder grant has increased demand for new home construction, which is likely to cause a “demand vacuum” in the second half of the year, according to Mr Brogan.
Moreover, Mr Kingsley said: “If the economy isn’t running on its own momentum, then removing the final stages of the economic stimulus in March next year might create an unwanted drag on the improving economic story.”
Where to invest
Among the important sectors to watch out for in 2021 are:
1. Affordable housing
According to Mr Koulizos, with COVID-19 restricting the numbers of international students, demand for CBD apartments will decrease, as will their price and rents, making them more accessible to those looking for affordable entry points.
MCG Quantity Surveyors’ managing director Mike Mortlock said that investors and first home owners are likely to target low-price brackets this year.
“First home buyer incentives and a relaxation of loan requirements will make lower priced properties in sought-after areas hot property,” he said.
Markets sub $500,000 will be in hot demand across second-tier city locations, while sub $1 million properties in bigger cities will be under competitive buying, Mr Kingsley noted.
2. Lifestyle towns
Mr Koulizos also highlighted lifestyle towns within commuting distance from major capital cities, which should benefit in 2021 and beyond as a result of COVID-19 and the rise of the work-from-home setup.
Further, Mr Brogan said: “Regional and lifestyle markets have shown some very strong results. Demand has been outstripping supply by some margin and this has resulted in short marketing periods, properties sold prior to auction as well as some very strong auction results.”
The Sunshine Coast and Adelaide Hills are showing particular strength, with the advantages of rural lifestyle and good value attracting buyers.
According to Mr Mortlock, townhouses will remain popular as “downsizers start listing their properties due to the heat in the market.”
For new townhouses, the depreciation incentives will prove to be attractive.
4. Detached housing
ASPIRE Advisor Network’s founder and managing director Richard Crabb said that detached housing across the country has generally shown better growth potential than units.
“I think this will continue to be the preference, as the old adage, ‘your home is your castle’ rings very true when we have had to create a buffer zone around us and our families. A larger available living footprint offers options to create the necessary workspaces also,” he said.
5. South-East Queensland
Long overdue for a boost in value, South-East Queensland could be poised for growth in 2021, experts believe.
According to Streamline Property Buyers’ managing director Melinda Jennison: “First home buyer activity continues to be strong off the back of federal stimulus in the sub $500,000 price point, especially with land sales spiking throughout South East Queensland in recent months.”
Your Property Your Wealth’s director Daniel Walsh said that hot markets are likely to be between the Wynnum/Manly area down to the Redlands region.
Across Queensland, savvy homeowners with financial nous are seeing their properties pay their own way, banking profits that make Airbnb look like small change.
From an architect who turned an old cane farm into a $100,000-plus second income earner to the family in Brisbane that does nothing to get $50,000, homeowners are finding more ways to get money out of their properties than renting a room out.
Architect Gary Hunt of Hunt Design took a 53 hectare cane property called Mayfield Farm on the outskirts of Port Douglas and engineered it to earn over $100,000 a year – that’s more than the average full-time worker.
“It certainly covers the outgoings well and truly,” Mr Hunt said of the earnings coming off the property. “It would certainly be putting the money in the bank. I haven’t done the sums fully, but there is sufficient income from the farm.”
He has a sharecropping agreement with a neighbouring farmer on two-thirds of land that sees him earn 10 per cent of the proceeds of any cane harvested.
Most of the other one-third of the land has been fenced off as paddocks which are rented out as horse agistments to local equestrians.
He also turned his trade to his advantage, converting two old cane cutter cottages on the site, one of which became a professional office with NBN used by a dozen of his Hunt Design team.
The rental earning potential of that office was $80,000 a year, he said, something he was keen to continue with whoever bought his property off him. He has listed the estate at 291 Mowbray River Road for $5.2m with Barbara Wolveridge and Lynn Malone of Queensland Sotheby’s International Realty.
Then there’s a family in Brisbane that has the best phone reception around, thanks to the telecommunications tower they host on their land for $50,000 a year – also without having to lift a finger.
Simon Buchan of Elders Real Estate – Shailer Park had the property at Loganholme listed last year as one where you could “get paid just for living here”. The owners were asking for offers around $1.2m for the 2.05Ha property, according to CoreLogic.
At the time, they had been receiving annual income off the telecommunications tower for over 20 years. Radio frequency records show that the property has three of the biggest telcos using its tower – Optus 3G and 4G-plus, Telstra 3G, 4G and 5G as well as Vodafone 3G and 4G.
It’s rare for telecom towers to be placed within home sites, with the Loganholme acreage property the only residential one out of 10 locations in the suburb that have them, according to records kept by the Australian Mobile Telecommunications Association.
Among other homes looking to make a pretty penny off its landholdings is Rivermead Estate in the Gold Coast hinterland that was an equestrian hub in the 1900s.
Owners Tim Gordon and his wife Karin spent three years reshaping the property at 1 Caballo Road, Guanaba, into a tourism and hospitality hub. Apart from the stunning main house, it has a separate three-bedroom guesthouse, an international-sized polo field, world-class equestrian facility, grazing paddocks and a helipad.
Property Investment Professionals of Australia chairman, Peter Koulizos, said properties that earn big dollars from sharecropping, holiday cabins and telecom towers might be rare, but there were ways for the average homeowner to capitalise in their suburbs – especially those on main roads or close to education facilities.
“A typical one is a residential house conversion to student accommodation, that is quite common. Generally people buy residential for capital gain and commercial for income. Here you have the best of both, because by renting by the rooms you’re also getting income. You can have your cake and eat it too.”
“Another is if you have a house in a commercial zoning, you can get more out of it if it becomes a doctors surgery or consulting rooms. Typically these are along main roads, which is generally where councils will zone for commercial use. They’re not that uncommon.”
He said there was also the possibility of income for advertising signage on properties zoned commercial too.
“We’ve had commercial property and somebody has paid us extra to have their advertising sign up on the roof. That’s a good one, tens of thousands a year depending on how big the sign is and if it’s illuminated or not. Generally you’d want a lot of traffic going past for that to work.”
Mr Koulizos said the downside, especially for student accommodation, was that it could be a lot more work.
“It can be very lucrative but it is a lot more work. The beauty is that if things get too hard, you can rent it out as a normal home, and the same for the house on the main road converted to consulting rooms.”
Either way, he said, the property owner needed to look out for tax implications.
“Income is income. Whether as normal residential or student accommodation or extra money through a sign, it’s going to be taxed. The first thing to do is speak to an accountant to see whose name it should be in, personal or company or however, and also speak to a QPIA qualified property investment adviser who has some fundamental understanding of property and how it works.”
Can SA house prices really rise 10 per cent in 2021 after coming through COVID unscathed?
While Darryl Kerrigan from classic Aussie film The Castle might say “tell him he’s dreaming”, the numbers tell us a different story.
There’s a growing group of forecasters predicting big things for real estate values in the year ahead.
Virus shmirus, they say, believing that home prices will be boosted by record low interest rates, rebounding consumer confidence, easier credit, huge government stimulus and targeted home buying and building incentives.
The vibe is positive.
Forecasts by SQM Research have Adelaide home values rising by up to 10 per cent in 2021 – the third-strongest performer in the nation.
Meanwhile, Property Investment Professionals Australia says median house prices in Adelaide and every other capital city have been higher five years after all of the four previous recessions since 1980.
South Australian property owners have been told for years that our home prices rise slowly and steadily, ignoring the booms and busts of the bigger capital cities.
It’s meant we don’t share in the excitement of rapid property price growth, but we also avoid the pain when prices head south by 10 per cent or more.
I’ve believed the steady-as-she-goes theory for a long time, but last week decided to dig a hole (dad) in the official numbers.
The results were surprising.
Since 2000 there have been five separate calendar years where Adelaide house prices climbed more than 10 per cent. That’s averaging one such rise every four years, and we haven’t had any since 2007, so we’re more than due.
Real Estate Institute of Australia data shows our biggest annual gains in the past two decades were:
• In 2003 Adelaide house prices surged 33 per cent.
• They jumped 21 per cent in both 2002 and 2007.
• There was a nice 15 per cent gain in 2001.
• In 2004 prices rose 12 per cent.
Of course, past performance is ancient history in the financial world, and nobody can predict the future.
But it shows that a 10 per cent-plus property price gain is not impossible. Other capitals such as Hobart, Sydney and Melbourne have done it in recent years, and forecasters reckon Perth could be heading that way too after a poor period lately.
Predictions of slight growth or flat forecasts for 2021, which we saw just two months ago, are being replaced by more bullish sentiment.
Factors behind this change of mind include a growing confidence that the Reserve Bank will leave us with ultra-low interest rates for a long time, a surge in housing finance approvals that suggests a supply squeeze looms in 2021, and Australia’s brilliant handling of the pandemic compared with most other nations.
COVID-affected borrowers are coming off home loan repayment deferrals faster than expected, while fears that the end of JobKeeper in March will cause forced sales were replaced by a realisation that the hardest-hit workers have been younger renters rather than older owner-occupiers.
Australia’s 2.2 million real estate investors are benefiting from record low interest rates but one big expense won’t go away – maintenance.
Many landlords fail to budget for replacing stuff, putting them at risk of losing their tenants or worse when a home starts looking tired.
But there are strategies to prevent problems, and it can start with a simple written plan.
Purple Cow Real Estate says investors should budget for all contingencies and future anticipated expenses.
It says these include repainting about every five years, replacing hot water systems within seven years, new carpets after eight years, new blinds and curtains every nine years, and replacing appliances such as dishwashers and clothes dryers every decade.
Investors who buy brand new properties shouldn’t have major maintenance costs for the first 10 years, particularly if they have a long-term tenant living there, according to Purple Cow client relationship manager Dana Hartley.
“But multiple tenancies put more wear and tear on a property,” she says.
If investors don’t maintain and upgrade where required, a property “ages very quickly”, Hartley says.
She says some people become accidental investors, perhaps through an inheritance, and are not suited to it.
“Some landlords can’t afford to be landlords and they shouldn’t be landlords because they don’t want to spend any money,” Hartley says.
“What you put out is what you get back.”
Property Investment Professionals of Australia chairman Peter Koulizos says some of the most expensive big-ticket expenses are structural.
“Character-style homes make great investments but can also be quite costly if you are looking at underpinning or salt damp,” he says.
“Generally modern homes don’t have that.”
Koulizos says property investors should have a sinking fund that gives them access to money for future maintenance issues.
“The most efficient way to do it is to have it in an offset account,” he says.
Whether it’s big maintenance or repair expenses or lots of little ones, the costs can add up.
“We just fixed up an investment property, a three-bedroom house, with a paint job, floor coverings and gardening and it was $16,500,” Koulizos says.
He says landlords don’t need to “go nuts” with fresh paint and carpets too often.
“If it’s an older home, people expect older carpet,” he says.
“It depends on what the market wants and how much the rent is. If it’s threadbare, yes, but if the carpet is a bit old, it’s a bit old.”