Houses poised for price growth, units remain risky

Houses are set for price growth in 2021 across all capital cities as Australian property markets continue their march towards normality, but investors should be wary of apartments and units, particularly in high-supply areas. 

New predictions of price growth have emerged across the nation this week, with Sydney and Melbourne tipped to once again lead the way in 2021.

Market analysis by Riskwise Property Research released this week included projections of capital growth of between 8 per cent and 12 per cent in the NSW and Victorian capitals next year.

Brisbane house prices were tipped to rise between 6 per cent and 10 per cent, Perth to increase by 4 per cent to 8 per cent, while Adelaide and Canberra home values were forecast to rise between 5 per cent and 8 per cent.

Riskwise’s prediction follows a similarly upbeat forecast from big four bank ANZ, which recently flagged price gains of around 9 per cent across Australian capital cities next year.

ANZ, however, tipped Perth to be the market leader, with 12 per cent price growth forecast in the WA capital, followed by Brisbane with 9.5 per cent price growth and Hobart at 9.4 per cent.

Sydney’s home values were forecast by ANZ to rise by 8.8 per cent, while Melbourne prices were tipped to grow by 7.8 per cent.

The influx of positivity is a swift turnaround from the pessimism that’s shrouded property markets, particularly in Sydney and Melbourne, for much of 2020.

Capital city house prices collectively declined until October, which ANZ picking that month as the trough of the market.

Riskwise’s report indicated a complete shift in the housing market landscape across the country in the last three months, with buyer confidence and house price expectations combining with historically-low interest rates to stoke strong demand for housing.

Rental apartments, however, remain a risky proposition, Riskwise chief executive Doron Peleg said. 

Mr Peleg said the risks in some areas remained high, with a large pool of investors already experiencing negative equity and poor serviceability.

“In the immediate term, there are higher risks in the rental apartment segment, that are likely to result in price reductions across the country, particularly in heavily supplied areas in Melbourne, and to a lesser extent in Sydney,” Mr Peleg said.

“These markets may be more volatile due to the high proportion of property investors and high levels of external migration.”

Sydney’s surge

Early in the pandemic, Sydney’s housing market had shifted sharply in favour of buyers, but that has proved to be a temporary phenomena, with a solid increase in buyer sentiment and auction clearance rates flipping the market on its head. 

Particular areas in hot demand include the Northern Beaches, Baulkham Hills and Sydney’s Inner West, where very high auction clearance rates have occurred in the last four weeks.

Real Estate Institute of NSW chief executive Tim McKibbin said he expected those high levels of buyer activity to run right up until Christmas.

“In fact, with overseas holidays off the agenda this year, agents are expecting a busier than usual end of year period and next year’s listing period could kick off earlier too.

“Clearance rates are expected to remain strong, though the supply side of the equation remains a concern. 

“The extension of HomeBuilder has the potential to support new developments but unlocking existing stock needs incentivising too.“

While units in Sydney carry higher risk than houses for investors, Riskwise’s report said it was important to make a distinction between apartments designed for families as opposed to one or two-bedroom rental stock.

“Family-suitable apartments that are an affordable alternative to houses and units in popular areas, such as the Eastern Suburbs and the Northern Beaches, are likely to enjoy strong demand and material price increases,” Mr Peleg said.

“However, rental units in high supply areas present a higher level of risk. Irrespective of COVID-19, there are areas in Sydney that have experienced major unit oversupply in recent years.”

Melbourne momentum

Several months ago, Melbourne’s property market had all but ground to a halt, with the country’s harshest lockdown putting the brakes on transactions after in-person inspections were shut down.

Melbourne house prices also experienced Australia’s biggest falls in 2020, fuelling concerns of an extended decline.

In November, however, everything appears to have turned around, with the average Victorian home spending just 33 days on market before being sold, according to the Real Estate Institute of Victoria.

As with Sydney, investors should steer clear of rental-grade units and apartments in oversupplied areas, but confidence is growing across all other parts of the market. 

Momentum is particularly strong in Victoria’s new house and land markets, buoyed by a nation leading number of HomeBuilder grant applications.

Residential developer Oliver Hume reported an uptick of buyer interest across its Melbourne projects, with the number of enquiries rising by 26 per cent over the past week to be the strongest week since the end of June, prior to Stage Four restrictions.

Chief executive Julian Coppini said Victoria’s stamp duty waiver and the extension of HomeBuilder would ensure demand was boosted for the next six months.

“The impact of both measures, combined with record low interest rates, should go some way to overcoming any residual concerns about the lingering economic impacts of the lockdowns,” he said.

Sunshine state shines

Having held up well during the pandemic, Queensland cities are poised for more price growth due to a combination of demand for a coastal change and ultra-low interest rates.

But just like Sydney and Melbourne, houses are favoured over units, with apartments carrying a higher level of risk.

Riskwise identified inner Brisbane as the riskiest area, with a strong development pipeline and an increase in defaults for apartments bought off-the-plan.

Perth potential

Prior to COVID-19, Perth appeared set to break a five-plus year run of declining house values.

And while the pandemic put a slight pause on the WA capital, the state’s handling of the crisis has it well placed to achieve its long-awaited rebound in 2021.

“The improved economic conditions, the generous government support and the fact that it is simply cheaper to buy than rent houses in WA, materially reduce the risk for houses,” Mr Peleg said.” 

“It is highly likely that the much-anticipated price increases of this very affordable market, will be eventually delivered in 2021, in the range of 4 to 8 per cent, particularly for the mid and high end of the market. 

“Popular areas that have shown resilience in the past 12 months, such as Perth-Inner and Perth-North East, are highly likely to enjoy stronger demand in 2021.”