Open for inspections are now once again permitted. It’s great news for Melbourne’s resurgent property market, as it continues to gather momentum into 2021 and rebound from COVID-19. It's also a timely moment to pay tribute to property industry workers and customers alike, and their ability to successfully overcome what’s been a very challenging year for Victorians.
Property to roar in 2020
It’s the season for parties and property predictions. Both activities can be a triumph or a tragedy for the planner.
Before I give you a 2020 capital city outlook, it’s only fair that I share my forecasting successes and failures from these pages 12 months ago.
Successes first. Back in December 2018, I correctly anticipated that property values in our largest capital cities would continue to fall in the first half of 2019 and my 3-5% range was about right. I also judged that the comparative over-performance of smaller cities in 2018 would not be sustained. However – to failures – I also thought that the second half of 2019 would be rather unexciting, with a plateauing market of no growth in the larger capitals. Instead, the last six-monthly growth figures for Sydney and Melbourne sits around 8% and even some smaller capitals grew (where I thought they would fall), so I was wildly pessimistic.
The biggest non-property surprise of 2019 was the defeat of the Labor party at the Federal Election. And whilst I was less concerned than many commentators about the impact on property of a Labor win, a Coalition victory does support values more insofar as it represents a continuation of favourable property investment tax policies.
The other main reasons for the swift recovery were the three interest rate cuts and improved lending conditions. The loosening of monetary settings was undoubtedly more aggressive than anticipated.
To 2020. In contrast to 2019, I don’t see any big ticket domestic economic, regulatory or political items in the calendar that might spook the property market. No banking royal commission. No federal election. Elsewhere there is of course the US election, but given surprise is the new normal there, we are probably inured to whatever happens.
Nationally, there are two positive domestic policy settings for property. There will be two tranches of the First Home Loan Deposit Scheme – starting 1 January and 1 July – so expect a boost to the entry level market in the first and third quarters of 2020. More broadly, knowing the federal government is unwilling to be more fiscally expansive in the face of a puttering domestic economy, the Reserve Bank has signaled its commitment to providing the necessary stimulus to avoid a downturn. Look out for 25 or even 50 basis points of interest rate cuts over 2020.
How will this impact supply and demand dynamics and ultimately prices? Taking demand first: there is currently a palpable hunger and, at times, a fear of missing out, in the buyer pool in several pockets of Melbourne and Sydney. Over 2020, I believe this sentiment will continue and spread, to encompass more parts of our two largest cities and then include Canberra and some parts of Brisbane.
Underpinning this buyer urgency will be a stubborn lack of established property stock for sale, despite the signal of higher prices. Many discretionary vendors are put off by the fear of not being able to buy a replacement property – which is a Catch-22 for the market overall. But a growing tendency for owners to hold on to property for longer also suggests undersupply could become structural and persistent.
I therefore expect strong or solid price growth in most capital cities. Sydney and Melbourne may well see 8-to-10% growth in values over 2020. Canberra and Brisbane will deliver a 6-to-8% price rise for the year. In Adelaide and Hobart, values will be 4-to-6% higher in a year’s time. Only Perth and Darwin will struggle off the back of specific economic weaknesses, but even out west and up north I expect prices to rise 2-to-4% over 12 months.
These predictions are city-wide averages, and there will be significant variance in price growth within cities. There will be triumphs and tragedies. For instance, in Sydney and Melbourne, don’t be surprised to see some blue-chip properties jump 15% in value over the year, whilst prices stagnate or even fall in the high-rise sector. Richard Wakelin (originally appeared in the Australian Financial Review, 10 December 2019).