As Australia’s economic recovery forges ahead, the Australian property market remains a hot topic. For years we have been hearing that the bubble must burst, yet property prices in most of our major cities remain sky-high. COVID-19 hasn’t slowed the most popular markets, and in many cities and regions recent growth has been significant.
So, are we going to see a continuation of the property boom or the long-predicted bust in 2021? The answer might be somewhere in the middle.
Oversupply a risk
Undersupply has been a key driver of property price appreciation for some time. However, with low migration leading to a significant reduction in population growth, a swing to oversupply isn’t off the cards – particularly if construction continues at its current rate.
When it comes to oversupply, one area that might be significantly impacted is rental yields. Many international visitors and visa holders are renters and in a climate of closed borders, we may see increasing supply and decreasing demand for rental properties, particularly in university suburbs and city fringe areas.
Interest rates may rise, but likely with caution
There has been talk for some time that the Reserve Bank will take its foot off the pedal when it comes to quantitative easing measures. However, in the wake of the pandemic, there is likely to be hesitancy as any sudden moves could impact the economic recovery.
In saying that, interest rates are at historic lows and there is really only one way they can go. We have experienced a long period of very low interest rates and there is no denying that when interest rates rise, it will have a significant impact on loan affordability.
Our banks could play a role
Our big banks can and historically have driven property price movement. When our banks ease lending criteria, it gives buyers increased access to debt and therefore drives up demand. In today’s landscape, where bank profits have been impacted, we may see a further loosening of lending criteria to generate more revenue.
On the other hand of course, the regulator could come in at any point and swing this the other way – as was predicted but didn’t occur in the wake of the 2018 Banking Royal Commission.
Regional growth might slow
In 2020, we saw significant increases in many of our regional areas as a pandemic-driven exodus from our cities sparked demand. Notwithstanding recent lockdowns, many employers are now looking to the future, and there are no guarantees as to continued work-from-home arrangements, particularly once we have higher vaccination rates. If big businesses do ask workers to return to city-based offices in 2022, it’s likely demand in regional areas will slow, potentially returning to pre-pandemic levels.
So, should you buy in 2021?
With property, as within any investment, timing the market is near impossible. Whether you should buy at any given time really depends on your objectives.
If you are a home buyer looking to purchase a property to live in for the next few decades, it’s a lifestyle asset, not a financial one. The best time to buy is when you are in a financial position to do so. Continuing to hesitate as you try to time the market may just end up costing you more, so it may be time to bite the bullet. Even if the market does dip after you get in, you intend to hold the asset long-term, so the financial impact on eventual sale is likely to be immaterial.
If, however, you are an investor purchasing property as a financial asset, there are additional considerations, and you may want to tread carefully. With closed borders likely to continue for an indeterminate period, your rental yield may be impacted into the future. Property prices remain high across most areas and the purchase will likely require either significant debt or use of capital, so give careful consideration as your margin of safety may be limited.
Whether you are buying as an owner-occupier or an investor, there are always uncertainties, so it pays to get advice that takes into account your circumstances and goals. If you are thinking about buying property in 2021, reach out to Apt Wealth Partners for personalised advice, so you can live for today while planning for tomorrow.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.