Market update – Property Predictions for 2021 (Ep. 84)

In this week’s episode, Dave, Cate and Pete take you through:

1. Why the market will rise in 2021. The trio explain the key factors at play that will continue to drive property prices up throughout the year. 
2.  The risks to our economy and property prices. They outline possible events and market forces that could dampen the economy and property prices, however we believe the factors stimulating the economy and property prices will outweigh any bumps in the road. 
3.  A detour into rental markets. Although vacancy rates have increased for Sydney and Melbourne, there are particular properties that are outperforming, with rentals being snapped up quickly and above the asking price. The Property Professor explains why.
4. Predictions for regional activity. Regions have been the top performers for 2020, but will this growth continue in 2021? The Property Buyer makes predictions on what we can expect to see in regional markets.
5. Capital cities – who will come out on top? The trio agree that all capital cities will see value increases over 2021, but have differing opinions on which capital city will be leading the pack at the end of the year. They explain the drivers putting upward pressure on prices for each capital city.
6.  Building industry set to take off. With the government throwing money towards the construction of new homes through the HomeBuilder and first-time buyer incentives, we expect that tradies and builders will be flat chat and turning away work in 2021. The desire of many Australian families to add a room or extend their home will further exacerbate this trade shortage issue. This will be a key driver for our economic recovery.
7.  The outlook for apartments. Apartments and office spaces have been the hardest hit investments during the global pandemic, particularly high density apartments in the Melbourne and Sydney CBD. We predict that penthouses and 3-bedroom apartments will recover quickly and exhibit growth, while bedsits and 1-bedroom apartments will continue to languish.
8. Investors to return with a vengeance. 2021 is primed with conditions ripe for investors to make a comeback. Debt affordability is the best since 2001, we have the greatest level of savings on record, interest rates are at all-time lows and anticipated relaxation of lending rules to occur in March, all creating the perfect storm of investors to launch back into action.
9. Abolition of stamp duty. The Property Planner makes a long-term prediction, that if the transition away from stamp duty goes well for NSW in 2021, other states will follow suit. 
10. Runaway prices and APRA intervention. With investors predicted to return to the market in droves, housing affordabilty will become an issue in the media towards the middle of the year, the government will chime in and APRA will intervene with measures to cool down the market towards late 2021 or 2022.  
11. And of course, our “gold nuggets”!

Resources:

• Why short-term investing has long-term consequences 
• What determines your Property Strategy (Ep. 6) 
• Starting without a plan and an end goal – #3 of the top 7 Critical Mistakes (Ep.33) 
• How age and stage of life can impact your property plan and selection (Ep. 13) 
• Why price point should determine location and strategy (Ep.21) 
• How many properties do you need to retire wealthy? (Ep.27) 
• The lifestyle vs Investment conundrum (Ep. 5) 
• Where is the money going? 
• What are we spending our money on NOW? 
• The Importance of Setting Lifestyle Goals 
• How would you invest $1M?  
• Top 3 mistakes investors make  
• Land to asset ratio  
• Why the land-to-asset ratio of a property can determine its future price growth  
• Unpacking land to asset ratio (Ep.16) 
• How data can help property investors identify gentrification before it happens  
• Melbourne suburbs set to transform in the next few years  
• Interpreting data to uncover an outstanding property and location– and how to sort the gold from the lies, damn lies and statistics! (Ep. 8) 
• How to succeed with Property and Create your Ideal Lifestyle  
• Mortgage Strategy 101 – YouTube video series 

Show notes 

• Why the market will rise in 2021 
• Availability of finance – relaxation of lending rules in March. 
• Interest rates are really low, for investors it’s hard to be negatively geared. This will entice investors back into the market. 
• Consumer confidence – will continue on for this year and into next year. 
• Debt serviceability is at the best it’s been for 19 years since 2001 – You can borrow more money as a proportion of your income than you could since 2001. 
• Interest repayments as a share of total household incomes, are the lowest they’ve been since March 2002. 
• Greatest level of savings on record – Covid has actually had a positive impact in this respect, especially people who were spending lots on dining out and entertainment. For people who’s borrowing capacity is contingent on savings (first time buyers), they would be in a better position. 
• Reduction in assessment rates, which has improved borrowing capacity. 
• The share market recovery – if you purchased shares at the bottom of the market, you could be 40% up on your money. If you did that, you would have done really well.  
• Property was the highest returning asset class of 2020 – 7% accumulated return on capital growth and yield. 
• Billions of stimulus money pushes up asset prices. 
• Risks to property prices and the economy. 
• JobKeeper ending – could be some fall out from this, BUT the driving forces will be stronger than this. Small business loans for companies whose revenue has dropped by 20% – working the same way as HECS – either no interest or interest at the same level that the government borrows at, and doesn’t have to be repaid until income hits a certain level. 
• Vaccines not proving to be effective – early stages and it seems to be doing ok.  
• Major second and third waves with large scale lockdowns, state borders closing. 
• Other major economies and countries not able to bring the Virus under control, despite effective vaccines creating a large lag on the world economy. 
• International borders staying closed/low net migration. 
• China, any connection to iron ore prices and what they might do to exports.  
• Major US economic disruption. 
• Rental market de-tour. 
• People are offering more than asking price for rents. 
• No one wants to rent small apartments because if another lockdown happens, you don’t want to be stuck in a shoe box. So, more people are looking for larger rentals. Additionally there have been more owner occupiers purchasing, which means the pool of rental properties is shrinking, causing higher demand. 
• Predictions for regional activity. 
• Regions will still perform BUT top quartile properties will slow down. As we get a grip on Covid and the appeal of capital city comes back, we’ll see the price growth of the high value properties slow down. 
• On the other hand, the bottom quartile of properties will speed up as investors return to the market.  
• The year of returning investors – returns and low interest rates, people love a bottom quartile property in a regional market when looking for strong cash flow returns. Not necessarily the best strategy. But where you can get good cash flow and good capital return as well, we will see lots of people go for this. 
• Vacancy rates are really tight in the regions. 
• Building industry. 
• Homebuilder phased out end of March. 
• End of first home buyers especially for new homes – if they were going to buy next year, they’ve already done so this year because of the free money. So that leaves the gate open for investors.  
• Developers and builders will be flat out. Some of the volume builders stopped taking new orders. If you’re looking for a tradie or a builder in 2021, you’ll be hard pressed to find one and you can expect to pay more as well.  
• The economy will be helped by this, building industry will be flat out and this is a key driver of the economy.  
• Shift to larger size apartments, more two-bedroom apartments, less one-bedroom apartments. 
• In the last census, the property type that was growing at the highest pace was townhouses and I think we’ll see this continue. 
• Penthouses and three-bedroom apartments to recover quickly and exhibit growth because they’re rare. Everyone has added one bedroom to their brief – you need to add anywhere between $100,000 to $350,000 for an extra bedroom. If the number of bedrooms is rare, you’ll be paying at the upper end and maybe have to move out or get something rougher or older.  
• Bedsits and one-bedroom apartments will really languish this year, and in response to this, we’ll see some outrageous offers from developers to get their apartments sold. Less foreign buyers entering the market.  
• Capital cities – who will come out on top? 
• Every capital city will see increases in 2021 higher than what they had in 2020. 
• Melbourne – Predicted by most banks and forecasters that it will be the poorest performing capital city in 2021 – I think it will finish in the top 3.  
• Perth with the price of iron ore, likely to be number 1, provided that it holds. Not saying it will be sustainable with heavy reliance on mining. It’s been a long time down in the doldrums, number of listing is way down and rents have already gone up significantly. Not dependent on international migration, students or tourism, unlike some other capital cities which are greatly impacted by the lack of international forces. If someone wants to steer clear of Covid, Perth is a pretty good bet.  
• Cate thinks Melbourne will be #1 for capital growth, because of the extended lockdowns and everyone going on ice during 2020. 
• Hobart, pretty compelling place for working remotely and people are excited by the lifestyle they can have in Hobart.  
• Brisbane and QLD regions – northern migration – certainly a lot of Victorians have had one eye on Queensland for the last year.  
• Removal of stamp duty.  
• If NSW is successful in removing stamp duty, it will probably end up happening across all territories.  
• Might take 2-7 years, but it will happen. 
• Investors entering the market. 
• Investors will return with a vengeance to the property market and first-time buyers as a % of buyers will continue to fall throughout the year. 
• Runaway prices. 
• Investors will come into the market and prices will take off.  
• Noise will begin on runaway property prices and it will become very loud in the second half of the year. The government will start to chime in, and APRA will intervene in late 2021 or 2022. 
• In the middle of the year, affordability will become an issue in the media, the jungle drums will keep beating for that and APRA will end up stepping in.  

Cate Bakos – The Property Buyer’s Golden nugget: make sure you’re listening to the right noise. You need to be keeping an eye on economic indicators. If this is the year you’ve targeting for buying your first home, be mindful that conditions are ripe and the fact that we’ve got lending availability loosening, it could be a market that moves quickly. If this is the year, now is the time to take action.  

Peter Koulizos – The Property Professor’s Golden nugget: get your ducks in a row, see a strategic mortgage broker, qualified property investment advisor, if you don’t know how to do it yourself, go and see a great buyer’s agent. There’s no doubt that prices will be up by the end of this year, and then it will be up in 2022 as well.