2020 Vision: Property Experts Reveal Their Top 3s For The Year Ahead
API Magazine spoke to some of the leading experts in the country to determine their top three factors affecting property markets, finance and legislation in 2020.
We’ve all lived through the tumult of 2019’s wild property ride. From shock election results that saw negative gearing shelved indefinitely, to surprise market resurgences on the east coast and prolonged decline in the west and north. There were floods and bushfires that affected property in a very physical and brutal sense, and less directly through insurance premiums and resale prospects. First home buyers had little to cheer about as wages continued to stagnate, but record low-interest rates offered a reprieve to homeowners and an incentive for buyers.
But we’re not here to navel gaze at the year gone, but rather to stare into the crystal ball and, without the benefit of 2020 vision, conjure a vision for the coming year.
So without further ado or any more overwrought pun, here are the far from exhaustive lists of the top three things to look out for in the year ahead, from those who know about this stuff.
Andrew Woodward, founder of The Investor’s Way
1. There will be one more interest rate cut, most likely in February. While the economy hasn’t been growing as required to generate wage growth and therefore household spending, the Government appears to have given up on the absolute necessity of a surplus by bringing forward capital spending. This is a sign that they recognise interest rates alone are not enough.
2. I don’t expect prices to take off across the country but there are good signs that prices in the capital cities will start to grow steadily in 2020. With a further interest rate cut likely and signs buyers and sellers are returning to the market, it is likely returns of 5-7% could be seen in the eastern capital cities and a more modest 3-5% elsewhere.
3. With a US election in 2020 and a Senate impeachment trial pending, Brexit, and the ongoing trade wars, the biggest factor in 2020 could be how the political landscape plays out. With so much uncertainty and potential for shock factors, I expect the financial markets could be in for a rocky ride, which has the potential to divert money to property. Alternatively, it could just scare people out of all markets. This is the biggest unknown for 2020 and one that will require careful navigation to ensure above average returns can be achieved.
Richard Morgan, founder of Freedom Funding
1. With some economists forecasting up to another two RBA rate cuts in 2020, it certainly looks like rates are going to stay low for the foreseeable future. We are also seeing lenders start to amplify some of their provisions in terms of both pricing and offers like refinance cashbacks of up to $4000. I’m expecting the battle for new customers will continue to be a huge theme – and for many, 2020 will present a significant opportunity to benefit from refinancing.
2. I think we’re going to see the market continue to grow into 2020. Particularly in the first home buyer segment, due to the First Home Buyer Deposit Scheme starting early in 2020. We’re also seeing a huge swing of investors coming back into the market, and I expect that trend to continue given the yields in cash accounts are so low. At the end of November 2019 markets like Sydney were still 8 per cent off the peak market value so I predict plenty of upside for 2020 as we see the correction of 2018 continue.
3. There have been some green shoots in the lending world in recent times. Things like servicing floor rates dropping, releasing more borrowing capacity, or selected lender policies freeing up and making their assessment criteria less strict. I’d expect a mix of changes in 2020; while lenders are hungry for new business and willing to put great offers out there to get it, I think the focus on compliance and adhering to the evolving regulatory environment will be the absolute priority.
Both APRA and ASIC are taking lenders to task over recent breaches, and in the case of Westpac as an example, that is also leading to a class action being launched against them. I’d also expect to see lenders continue to evolve. We are seeing technology start to enable their processes and become easier to deal with. For instance, some lenders now have digital signatures that reduce paperwork and time taken to manually print and sign documents, greatly accelerating approval times and making for better customer experience.
Adrian Kelly, President of the Real Estate Institute of Australia (REIA)
1. It will be interesting to see what happens in the property taxation space politically, particularly Labor’s proposed policies on negative gearing. There’s no imminent election, but their stance can still have implications for the market.
2. The Federal Government will clamp down on money laundering, whether its foreign or local proceeds of crime being filtered through the property system. Action is necessary but not easy. What we don’t want to see is onerous reporting requirements or cost implications imposed on real estate agents. The Government can already get the required information through the existing conveyancing process.
3. REIA is setting out its own position on climate change action with a view to providing practical advice to the Government that may help it formulate policy. The real estate industry has to accept that things are changing and climate change is having a massive impact. We sell properties on the coast, on floodplains, and in at-risk fire zones. It affects everything, from insurance to safety. It’s not about credits or anything, it’s about real change.
Hayden Groves, Deputy President of the REIA
1. There is the prospect of an exodus of sales reps from the industry in 2020. This is due to changes to the Real Estate Industry Award compelling agents to annually assess sales reps remunerated by commission-only to ensure they reach 125% of the minimum award rate in annual earnings, to enable them to remain commission-only. Currently, at around $56,000, this provision will see significant numbers of sales reps leave the industry throughout the year.
2. Potential changes to federal laws are likely to be introduced, designed to strengthen anti-money laundering via real estate transactions. Although there are no clear decisions from the Government yet, agents are likely to be compelled to report suspicious property transactions, with penalties applied to those that fail to do so.
3. Support for first home buyers via the First Home Loan Buyer Deposit Scheme, assisting 10,000 buyers to enter the property market, will help keep a solid base under the property market, especially in areas of low affordability such as Sydney and Melbourne.
James Nihill, Managing Director of Patrick Leo
1. Across the board, property prices have stabilised and started to show growth across 2019 and this is set to continue in 2020. Most markets should see increases of around 5 to 10 per cent, depending on the location. In general, buyer demand remains strong and is fuelled by low interest rates and low stock levels. ScoMo’s new First Home Loan Deposit Scheme also starts on 1 January, 2020 and is expected to increase competition in the more affordable price brackets that traditionally investors also favour.
2. Buyers will keenly focus on build quality for brand new construction, in the wake of the Opal Tower and Mascot Towers defect issues in New South Wales. Brand new property will always hold particular appeal for investors, so investors won’t be deterred from buying it, but will have a renewed focus on build quality.
Builder credibility, reputation and previous work will come under the buyer microscope and more emphasis will be placed on building inspection reports and professional third-party evaluation prior to purchase. Government reform will also hopefully start to come into play and provide further guidelines and an additional layer of security for property buyers.
3. With stagnant wage growth and the continued low interest rate environment, many investors will seek to refinance and unlock lower repayments through more competitive loan structures. This will be particularly prevalent among investors that were locked into older loans on interest-only repayments.
Chris Gray, Your Empire CEO
The waters of Sydney are where I see the top three market prospects of 2020. Namely,
1. Bondi Beach – it’s a world-famous beach for a reason and there’s always a queue of high-income earners wanting to buy or rent there. Supply is extremely limited as most buildings are already at their height limit and inches away from their neighbours. Short supply and high demand are exactly what most investors are after and despite the high median property price, there’s plenty of people that have paid over $10m for an apartment, showing there’s still potential in there if you buy an average one.
2. Manly – Not everyone is a fan of the Eastern Beaches and so Manly Beach on the north shore is paradise for those that want a more relaxed lifestyle away from the hustle and bustle of the city. Travelling to work by ferry is the ultimate work/life balance that many crave for and that can be seen in both the historical and expected future property prices. There’s almost no limit to what someone will pay for a property accommodating that kind of daily routine.
3. Balmain – Sydney Harbour is about the best it can get and for those living in Balmain, they get the peace and quiet of a village just a stone’s throw from the ferry and the heart of the city. Property is in incredibly short supply, with many of the properties being small terraces rather than huge skyscrapers. Off-street parking is a very valuable asset in this area, so if you get an investment property with one of those, you’re bound to do well with future capital growth.