Forecast for 2020/2021 - When and where to jump on the bandwagon!

Bottom prices create opportunities for property investors, project developers, and first-time home buyers. Take a sneak peek at some predictions for rebounding Capital City markets.

Nathan Daly
May 21, 2020

Forecast for 2020/2021 - When and where to jump on the bandwagon!

The last two years have seen an overall downturn in Australian real estate prices, with Sydney (down 14.9%) and Melbourne (down 10%) seeing some of the most significant drops over the last two years as they have seen in recent history. But the downturn was not isolated to these two cities.

According to Business Insider Australia, Brisbane dropped 11% since reaching its high in 2016. Hitting its peak in 2014, Perth has since slipped 14%. And by July 2019, Darwin was 26% lower than its 2013 peak. Combined, it was a substantial reduction in property values across the country and the positive performers, such as Adelaide (up about 4% every year from 2013 to 2018), and Canberra (up 23% over the last five years), just weren’t strong enough to keep the country’s numbers in the black.

So, What Happened?

There were a number of factors contributing to the “soft landing” of the real estate market: APRA rules regulating banks, the Labour party’s plan to change capital gains taxes and negative gearing incentives (franking credits) and a lack of consumer confidence among them.

But, that all seems to be behind us now. With the election results, all-time low-interest rates and an easing of restrictions, the recovery is well on its way. The fact that many cities across Australia are witnessing population growthand a growing job market with low unemployment rates are building consumer confidence and swinging the pendulum toward a speedy recovery. And with the recent correction of housing prices, many Australians are entering the market - many for the first time - driving positive growth for the last four months in a row.

The recovery is sweeping through the Australian property climate at phenomenal speed, and many wise investors are looking to enter the housing market in this “buy low” period. There are opportunities waiting to be had. If you’re considering entering into property investment or need help with investment lending, contact the professionals at Acumen Finance. They are private/P2P loan specialists with access to a pool of sophisticated investors who want to help you help yourself.

So, where should you consider investing?

Sydney and Melbourne to Lead the Recovery

Sydney and Melbourne have been the hardest hit in the last two years. Not “out for the count”, they are also making the strongest comebacks - and at record speed. They are, by far, the hottest markets, true to their historical trends.

The Property Investment Professionals of Australia (PIPA)’s chairman, Peter Koulizos says there had “been a surge in buyer sentiment in recent months, with corresponding price increases in Sydney and Melbourne.” The organisation’s survey indicates that 82% of investors feel that now as an excellent time to buy. Further, they noted the optimism, fueled by activity from other buyers - particularly first-time buyers - indicates that the recovery is in full swing.

SQM's managing director Louis Christopher sees the rapid property increase in Sydney and Melbourne continuing into 2020, and believes that sometime before September, new records will be set in these two capital cities. Christopher goes further to predict that most “other capital cities are expected to have low to mid-single-digit price increases in 2020.” He also warns that the current boom will not likely match the one experienced in the five years to 2017, adding that Sydney and Melbourne are “still overvalued relative to economic conditions” by 21% and 27% respectively.

Sydney

Sydney is a hotbed of emerging residential and commercial opportunity. It is recording the fastest turnaround in decades, recovering over 5% of the nearly 15% loss it experienced during the market correction beginning in 2017. People see the opportunity provided by lower prices, and in some markets where stock is low, multiple bidders are driving up the prices by offering as much as 10% over asking. SQM’s Christopher forecasts that Sydney prices may increase between 10 to 14% over the next year. More conservative forecasts come from ANZ Bank which predicts that to be just 8%.

Melbourne

Melbourne’s housing market is very fragmented, and its recovery is most notable in higher-end housing. The driving forces of Melbourne’s recovery are a strong economy, job growth and an increase in population as more people are migrating to Victoria’s capital city. SQM Research predicts Melbourne could experience a 15% increase in “dwelling prices” by next year.

Brisbane

Brisbane, Australia’s third-largest city, is the home of “subtle growth”. The Property Update website reports that migration rates are rising, supply is under control, and the housing is rather affordable, making Brisbane a lot healthier than other capital cities. SQM Research predicts an increase in Brisbane properties to reach from 3 to 7% in the coming year.

Gold Coast

“The Gold Coast is on track to escape the bulk of the national housing market correction that has seen Sydney and Melbourne hit particularly hard,” explains Moody’s Analytics economist, Katrina Ell. “The Gold Coast didn’t experience the same aggressive run-up in values that Sydney and Melbourne experienced.” CoreLogic-Moody’s AnalyticsAustralia Home Values Index Forecast predicts that home values in the Gold Coast region will jump by 4.5%, increasing the median value from $608,000 to $635,000 over the next two years.

Adelaide

Adelaide is steady as she goes - its housing downturn was more moderate than the rest of the capital cities. Weathering the latest storm rather well with only a 1.2% correction, SQM Research predicts only a modest increase of 1 to 4% in the coming months. There may be better options for long-term wealth creation with one of these other capital city locations.

Perth

Perth, now the most affordable capital city, is still immobilised by a mix of weak economic and demographic conditions. The good news is that its rental markets have been tightening up, but the experts don’t see a significant increase in real estate values over the coming months. SQM Research, on the other hand, predicts values to increase from 3 to 7%.

Darwin

With the end of the mining boom, Darwin is experiencing a soft-employment market and a lack of migration and infrastructure spending. As such, Darwin may struggle in the months to come. While vendors are discounting their properties on average of 9.3% to close the deal - down from 7% from the previous year - SQM Research predicts that prices could continue to fall another 5%. Better to wait and just watch this investment space awhile.

Canberra

Canberra is earning the moniker “quiet achiever.” In the past five years, Canberra has increased in value by over 23%. Although a little sluggish over the last 12 months at a mere 2% growth, SQM predicts a steady upward climb from 3 to 8% into 2020.

Hobart

Investors chasing the “hotspot” that was Hobart, drove up market values and created the boom of recent years. Unfortunately, Hobart is seen as “too small” of a market to be in a long-term investment grade position. Michael Yardney of Property Update.com.au doesn’t have much hope for Hobart’s investment potential, saying it lacks employment, people, and there is not enough spending on infrastructure to maintain its position as the “best performing market.” But SQM doesn’t see it that way, predicting that the capital city of the island state of Tasmania could see an increase of 5 to 9%.

As you can see, predicting the future isn’t easy - even the experts don’t always agree. But one thing most of them do agree on is that the recovery is here: prices are at their lowest, but they’re starting to move upwards. So if you want to expand your portfolio into property investment, this is the climate in which to act. Need help getting started? Contact Acumen’s team of financial experts to see what type of loan you qualify for, and jump on the bandwagon before it’s too late.