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2021: Once In A Generation Property Boom

2021: Once In A Generation Property Boom
December 31, 2020 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

When official property data for the 2021 calendar year is released, I won’t be the slightest bit surprised if forty (40) or more Australian locations rack up more than 20 percent capital growth and 5 capital cities have double-digit growth within this 12-month block.

2021 has the best set of national real estate conditions since the turn of this century.

In mid-2020, contrary to what a cast of thousands were saying about ‘fiscal cliffs’ and the biggest property market crash in one hundred years, a once in a generation property boom was actually beginning, exactly as we forecast would happen when all of the crazy stuff started in March 2020.

All things being equal, Australia has just commenced an era of accelerated rates of home ownership and wealth creation, in a very similar way to the 5-years ending 2005.

 

Predictions For 2021

The history books will show that an Australian property boom commenced in Q3 2019 and, with the exception of ‘pause’ being pressed for Q2 2020, it continued for a few years.

As originally forecast by Propertyology, buyer activity strengthened during Q3 2020 as soon as people were permitted out of their Covid-cocoons. In various parts of Australia, real estate conditions during the back half of 2020 was akin to seagulls fighting over a chip.

In 2021, a location that does not produce double-digit growth will probably be the odd one out.

Numerous locations are likely to go above 20 percent growth in the calendar year. To find them, property investors will need to remove the blinkers and consider non-capital city locations. Those first to the party will enjoy the best time.

My three key caveats for 2021 predictions are that a) an individual location experiences nothing more severe than a 1-month Stage 3 lockdown during 2021, b) that residents are permitted to cross state borders, and c) that it doesn’t become any harder for responsible borrowers to acquire credit.

  • > 10 percent rent growth: predominantly in non-capital city locations (lots of them)
  • > 20 percent house price growth: more than 40x regional locations
  • > 15 percent house price growth: Perth, Canberra, Adelaide and Hobart
  • 10 to 15 percent house price growth: Brisbane
  • 5 to 10 percent house price growth: Darwin and Sydney
  • < 5 percent house price growth: Melbourne (a solid Q1 2021, then softening)
  • Problematic: Apartment values in every major city (exc Hobart)
  • Vulnerable: Melbourne and Sydney have several challenges [refer here]

The biggest real estate story of 2021 will be sharply rising rents and extreme difficulties finding a property to rent. While conditions are soft in Sydney and Melbourne, the biggest ever rental boom in living memory is already unfolding across the rest of Australia.

I reckon that, by the middle of 2021, the tabloid headlines will have gone full circle in a 12-month period. From “market crash” during mid-2020 to “rental and ownership affordability crisis” by mid-2021. The same people who breathed fear into the Australian public about a huge market downturn will soon be complaining about things growing too fast. Watch this space!

Whilst rising tides generally lift all ships, I am very concerned about what impact the 113-day hard lockdown might have on Melbourne’s property market. Propertyology detailed our concerns in a letter to all of clients in November.

I think it is highly likely that Melbourne apartment values will remain under water for some years. More broadly for Melbourne’s property market, there are four key metrics which Propertyology is monitoring most and we’ll have a clearer picture around Easter time.

Having produced no growth for seven years, Perth has potential to be Australia’s best performed capital city property market over the next couple of years, and 20 percent growth in 2021 is not out of the question. That said, Propertyology has made a conscious decision to avoid this market because of risks associated with its distinct lack of economic diversity and unhealthy reliance on China for circa 50 percent of the state’s income.

I am also predicting that, as 2021 becomes 2022, Australian real estate’s biggest test will be faced by people in high places. Their challenge will be to learn from past poor decisions and avoid yet another policy over reaction. A series of ill-considered restrictions targeted at mum-and-dad property investors between 2014 and 2018 (credit policies and tax policies, refer graphic below) created the current extreme national shortage of rental supply.

 

17-Drivers Of Property Market Growth

Whilst COVID-19 has created much change in everyone’s lives, most of that change relates to lifestyle, not property market fundamentals.

Those who continually waffle on about the freeze on overseas migration having such a detrimental affect on Australian real estate clearly know very little about how property markets function.

Related article: True meaning of housing demand

The inevitable response to COVID-19 by governments and financial regulators has further improved what were already solid property market fundamentals in large parts of Australia prior to the onset of the health pandemic.

 

SUPPLY

  1. RESALE STOCK: The supply of dwellings listed for sale in November 2020 was 18 percent lower than 2-years earlier.
  2. RENTAL STOCK: The total volume of vacant rental dwellings across Australia (exc Melbourne and Sydney) fell sharply over the 2-years ending November 2020, from 41,553 to 19,772. As reported by Propertyology in March 2020, July 2020 and December 2020, Australia has a dire shortage of dwellings available for rent. Very low activity by mum-and-dad investors over recent years means insufficient properties added to the rental pool.
  3. NEW STOCK: New dwelling commencements over the 2 financial years ending June 2020 were 18.5 percent lower than the previous 2-years, yet the national population has already increased by 3 percent over the last 2-years.

 

DEMAND

  1. For the first time in umpteen years, all of our financial stakeholders (federal government, RBA, APRA and the banks) are on the same page in prioritising economic growth, which includes supporting the aspirations of Australian households. This is a gazillion times more influential on property markets than foregoing 1 percent national population growth from international border controls.
  2. Almost all purchases of real estate are conditional upon the buyer first obtaining finance. From May 2015 through to June 2019, consistent tightening of credit policy by APRA meant that fewer deserving borrowers could access credit. Some relaxation of those restrictions occurred in H2 2019, contributing to national home loan application values in October 2020 being the highest since March 2017. Federal politicians are due to vote on further common-sense adjustments to credit policy in March 2021, meaning that the aspirations of an increasing number of buyers with responsible borrowing habits will be (quite rightly) supported by banks.
  3. The cost of credit is at a record low and Australian banks have strong liquidity to support borrowers. Home loan interest rates now start with a ‘2’.
  4. Throughout H2 2020, buyer enquiry volumes on property search portal realestate.com escalated to all-time record highs.
  5. The 2020 calendar year ended with Australia’s highest volume of loans to first home buyers (FHB) in a decade. The federal government First Home Deposit Scheme and various state government incentives help break down entry barriers for FHBs, many of whom have increased savings from not being able to go on overseas holidays.
  1. As illustrated above, existing owner-occupiers have recently been Australia’s dominant buyer demographic. Supported by five (5) RBA rate cuts in 19 months, much of the activity is from upgraders taking advantage of improved household budgets.
  2. Working-from-home (WFH) became a permanent new way of life for 100,000s of households during 2020. As these households progressively establish new living habits, it is highly probable that we will see accelerated buyer activity from homeowners who are eager to satisfy their new living requirements.
  3. With a reputation for the world’s most successful management of COVID-19, many people want to live in Australia as evidenced by the tens of thousands of expats who returned. This will continue to place added pressure on Australian asset values and rents.
  4. For several years, evidence confirms a trend of an increasing number of Australians relocating away from expensive and congested cities. COVID-19 has triggered a significant ramp up of this trend. A range of employment data analysed by Propertyology confirms that a number of rock-solid regional cities today have superior economies than most (if not all) capital cities. For some people moving town, that does not matter because they literally take their job with them (WFH). There is a legitimate increased aspiration to enjoy regional lifestyles which will create a transference of housing demand away from ‘the big’ and towards the ‘relaxation and space’.
  1. In response to COVID-19, some state government economic strategies include relaxation on stamp duty and other property-related taxes.
  2. Australia’s 13 million workforce will share in $12.5 billion of personal tax cuts over the next 12-months.
  3. An additional $14 billion investment in infrastructure over the next 4-years by the federal government, plus all-time record high infrastructure investment by each state government.
  4. Things are in motion for several industry sectors to significantly expand their workforce in the near term. Property markets will benefit from job creation in locations with economic profiles that include advanced manufacturing, health, agriculture, public administration, tourism, renewable energy, and defence.
  5. As often happens, property investors usually follow the herd and arrive last to the party. If enquiry volumes at Propertyology are anything to go by, more mum-and-dad investors are starting to realise that conditions for investing in one’s future haven’t been better than right now. It does not get any better than attractive rental yields (circa 5 percent) which more than cover interest expenses (sub 3 percent) plus intense upward pressure on (both) asset values and rents.

 

Here’s how to get in touch with Propertyology

 

Top Five (5) Tips For Property Investors

For a big chunk of Australians, never before in their lifetime will there have been a better set of conditions for investing in one’s future than right now.

But, while it is one thing to recognise the opportunity, it is a completely different skill to execute and optimise full potential. Accordingly, here’s some general parameters which we encourage every investor to respect:

  1. Totally avoid apartments, new and established (lest not forget this important evidence).
  2. Contain one’s own confirmation bias and ignore the opinions of a cast of thousands whom haven’t earnt a reputation as a property market thought-leader.
  3. Be smart when selecting locations. That begins by (properly) reviewing the fundamentals of each of Australia’s 183 individual towns. The best performed property markets are almost always in locations that very few investors give the time of day.
  4. The individual town that one invests in will always play a much bigger role in financial performance than the individual property. If you find yourself obsessing over train stations, shopping centres and the bricks and mortar of property, you’re overlooking a lot of this really important stuff.
  5. Best of all, consider the enormous value to you in partnering with a professional team with a tried and tested formula for location selection, asset selection, and a sustainable investment strategy.

Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

 

We walk-the-walk. Here’s a recent example of our work for a client.

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