Return of investors and lack of listings tipped to drive property prices in 2021

A return of investors to the market, coupled with a lack of listings, is tipped to increase property prices throughout Australia in 2021.

CoreLogic research director Tim Lawless predicts property price increases of between 7 per cent and 10 per cent in 2021, with the smaller capital cities tipped to benefit the most.

Mr Lawless said Brisbane, Adelaide and Perth were most likely to experience the strongest price growth this year.

He said Sydney and Melbourne property price growth is not expected to be at the same level and it would be more concentrated in the suburban housing market rather than the inner-city apartment market.

Mr Lawless said a lack of listings would continue to drive the property market within the next few months.

“While listings started to lift at the end of 2020, they are still 21 per cent lower than at the same time the previous year,” he said.

“I think it will remain subdued throughout January and maybe into February. My guess is demand will continue to outweigh supply and that will be one of the recipes for higher prices. Investors will become more active in 2021.”

His predictions are backed by a national survey done on behalf of Custodian which found 19 per cent of people who already owned an investment property planned to buy in 2021, while 6 per cent of respondents had decided they would buy their first investment property in 2021.

It found 22 per cent of investors had put off buying an investment property in 2020 because of COVID.

Mr Lawless said while 2020 had been a volatile year it was more in relation to transaction numbers rather than a drop in property prices.

“The number of properties selling nationally fell 40 per cent in April, but they did start to lift in the second half of 2020,” he said.

“Dwelling values were pretty resilient, there were fewer buyers and also fewer sellers.

“Peak to trough values fell only about two per cent nationally and bounced back quite quickly.”

John Fitzgerald, the chief executive of Custodian, said many people had over-estimated how significantly COVID was going to impact the economy.

“If the COVID pandemic has shown us anything it is that property can be a safe investment, but you need to be careful about what type of property you invest in,” Mr Fitzgerald said.

“We recommend investment in land because it appreciates in value. Of course, many investors need to build something on that land to help them pay down their loan, that’s why we recommend building a new house in areas of high population growth and with significant amenity and jobs nodes nearby.”

Investor numbers were at record lows with only about 24 per cent of mortgage demand coming from investors when normally it would account for a third of loans.

Mr Lawless said investors were motivated by positive cash flow and growing capital gains and that was why smaller cities such as Adelaide and Brisbane would be the focus of demand this year.

They were more affordable than Sydney and Melbourne and had not experienced the downwards pressure from weakening rental markets that Melbourne and Sydney had.

“We will see buyer numbers remaining very high because of low interest rates and confidence, providing we continue to keep COVID under control. What we don’t know is how much stock will be added to market. My guess is it will be not much different from second half of 2020,” Mr Lawless said.