The Australian Property Market: What’s happened and what to expect

As we emerge from lockdowns and learn to live with Coronavirus, normal life is resuming and properties listed for sale are increasing. The easing of restrictions and returned confidence in spending play large roles. To break down what’s next, DPN Director of Finance, Mark Moenting, offers extensive experience in property finance with insight towards the future.

Impacts of 2020 and 2021 lockdowns

Evolving from March 2020, the fear surrounding the pandemic, lockdowns and job losses resulted in cancelled purchases in the property market and beyond. On the upside, plenty of Australians paid off credit card debts and saved money. However, as people weren’t buying, the market understandably flattened out.

By August 2020, many realised the importance of having something to fall back on, along with the need to secure a financially stable future. Therefore, the country saw a surge in consumer demand to buy property among both investors and owner-occupiers, with a strong focus on regional properties. This trend flowed through to Christmas.

As the ‘work from home’ movement increased, many city-dwellers looked to areas offering improved lifestyles. People began to upgrade from two and three-bedroom properties, in particular, to incorporate appropriate offices for online meetings and privacy. This led the way towards a demand for regional properties. We now see that property prices have risen over 20% in the last 12 months to Sept 2021. Over the next year, they’re forecasted to rise again between 7 and 15%.

Taking the heat out of the property market

To avoid a property bubble, protect the market and consumers, the Federal Government and The Australian Prudential Regulation Authority (APRA) are tightening lending rules. With continued low RBA interest rates, this is achieved with a change to the servicing rate. APRA expects banks to operate on a higher serviceability buffer of 3% above the loan interest rate, due to high debt-to-income borrowers.

This means buyers, on average, can borrow slightly less. Going into 2022 with limits on consumer borrowing could impact property prices. APRA's goal is to regulate lending rules to keep lenders' policy balanced so consumers are protected. They may impose further interventions like a proposed change to DTI (debt to income ratio), that will further limit access to credit, create a safety net around over-committing for buyers and ensure banks lend responsibly.

Between affordability constraints and tighter lending conditions, the pace of growth for property prices should soften over a 12-18 month period. The aim is to restore balance between competitors, such as investors and first home buyers, so that everyone has a chance to get into the market.

Property market opportunities

Studies show that 1 in 3 people wanting to get into the market are worried about securing finance. Thanks to the building boom and high demand for construction materials, the cost of building is going up. Land supply remains tight, which was exacerbated by the government Home Builder Grants. On top of that, rental rates are increasing due to a lack of supply. For those in this category, it’s a good idea to get pre-approval on finance before looking at property.

Alternatively, the ‘Bank of Mum and Dad’ is a big growth driver for first homeowners and offers a step up if the opportunity is available. This refers to parental funding to assist with property purchases, via parents providing a security guarantor to assist with the funding the deposit or by providing cash to help their children get into the market.

In terms of supply and demand, the post-pandemic immigration plan is set to drive up demand and economic recovery, with a population surge predicted over the next 5 years. Affordable regional growth areas, including the new communities west of Brisbane, Sydney’s south western region and Wollongong, provide attractive opportunities for investors. Furthermore, duplex properties are increasing in popularity, with the offer of manufactured equity upon completion, whereby equity can be released as cash, re-invested or retained to increase cash-flow and passive income.

We've seen the Australian property market is resilient to withstand and even thrive during a pandemic. As we learn to live with the Coronavirus and further lockdowns appear unlikely, the light at the end of the tunnel is shining bright once again, especially for those who are organised with pre-approved finance and can take advantage of the record low interest rates. Just remember, that the only time you make money is the time you are in the market.