Delta, vaccinations and the property market

Graeme Salt Broker 2, News Leave a Comment

We live in crazy times – and yet one constant has been the strength of the Australian property market.

As we inch toward the end of this Covid pandemic, will this growth spurt come to an end?

In 2021, the Australian property market is likely to have grown by around 20 per cent – much of this has been driven by ultra-low interest rates.

But the growth has not been uniform, the price trajectory of a 4-bedroom house in Hornsby has been completely different to that of a 2-bedroom unit in Green Square.  Where to now?

Undoubtedly the lending environment remains good for buyers – even in this current lockdown, the banks have kept on lending as they discovered in 2020 that the economy bounces back very quickly and unemployment will stay at the low five per cent mark.

To cap it off, with wage growth at the anaemic 1.7 per cent, the Reserve Bank is likely to extend its Quantitative Easing programme where it pumps cheap money into the economy.

But there have been some fundamental changes to the market.  Many of us have enjoyed working from home and others now want to practice more social distancing; larger houses with a garden have grown in popularity compared to inner-city apartment blocks.

And space is king, often if a couple are working from home, they need to be able to Zoom colleagues in different rooms.

Pre-Covid, much of the demand for Australian property was underpinned by a quarter of a million immigrants per annum who often first located in downtown apartments.  With international borders closed, its hard to see the Docklands market springing back to life.

And yet, there is real value in these unloved segments, recent research shows that units are as little as 14 per cent of the price of a house in the same suburb.

In the medium term these differences are likely to continue.

But, longer term, demand will drive back to units for two reasons.

Ultimately, buyers will be driven by affordability and see they can get more value from apartments.

And, once the international borders are fully open, we will see many returnees from places such as India and China, who all need a home.

This shift won’t be tomorrow – but in the long term, the market finds an equilibrium.  You can bet everything on the house – but you may end up coming flat.

Graeme Salt is a leader of The Futurus Group, whose brands primarily comprise Origin Finance, Chan & Naylor Finance as well as Walker & Miller Training. For a no-obligations consultation on your lending needs, please contact him on 1300 30 67 67

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