Investors contending with competing forces in 2022
Investors contending with competing forces in 2022
When trying to grasp the many variables that will shape the property market in 2022, prospective investors are contending with a range of conflicting influences.
Australia’s red-hot property sector is eliciting myriad opinions from the nation’s economic commentators.
According to the most recent CoreLogic report, 2021 property home values rose nationally by 3.9 per cent in the three months to December, down slightly from a 4.8 per cent increase in the three months to September.
More tellingly, the value of Australian homes increased by a massive 22.1 per cent over the past 12 months, down marginally from a cyclical high of 22.2 per cent in the 12 months to November.
The lower priced properties were outstripping the top end of the market in terms of growth rates. In the three months to December, capital city homes in the lowest 25 per cent of values rose 3.7 per cent, compared with 2.6 per cent for the top 25 per cent of homes.
Home values in Sydney rose 25.3 per cent in attaining a record high. Melbourne rose 15.1 per cent, just 0.1 per cent off a record peak, while Brisbane zoomed up 27.4 per cent for another record high.
Can this remarkable upward market trend continue? In short, yes providing the supply-demand ratio continues to be tight. However, if more stock comes onto the property market, the market can be expected to stabilise this year.
In 2022, property investors look poised to snap up apartments and established homes throughout Australia, with low interest rates persisting, rental vacancies tightening and a continuing store of pent up demand.
Driving this market are lifestyle locations that continue to exert their gravitational pull, luring many to make the move from the cities. Pandemic burnout continues fuelling the desire for a sea or tree change to a location that will make any future self-imposed COVID restrictions endurable.
Many market watchers are predicting choppy waters ahead. There’s the uncertainty inherent in state and federal elections. There is also the possibility of rising interest rates in 2022, which are widely predicted to occur later this year as inflationary pressures take hold.
Those future interest rate rises could constrict investors’ future borrowing capacity. The heady growth experienced by most markets has raised concern as to how much higher prices can rise.
However, investors can still secure investments at affordable price points but they will need to look beyond the popular east coast locations to achieve it.
While interest rates may not go up immediately, tougher lending provisions shepherded in during 2021 made investor loan approvals more difficult to obtain.
Changes to loan guidelines, particularly the debt-to-income ratio formula and the standard interest rate buffers that decide the affordability of a mortgage should interest rates rise by three per cent, give investors even more reason to look for affordable capital city locations.
Overall market sentiment remains ebullient on the back of a sublime year for property investors. According to the Australian Bureau of Statistics, new loan commitments surged by 89.6 per cent (to October 2021).
Fresh loan drawdowns for investment properties totalled $9.73 billion (to October 2021), despite Sydney and Melbourne investors taking a rent yield hit in 2021.
In 2021 rents in Melbourne dropped markedly, making it one of the cheapest capital cities for renters. Rents for apartments declined by 7.5 per cent (to September 2021), while house rents declined 2.3 per cent.
In line with that trend, Sydney apartment rents sunk two per cent during the same period. In contrast, house rents rose as tenants searched for more space during the rolling lockdowns.
Both markets depend on international students and overseas migration to drive rental occupancies. Both groups were locked out of the country due to the pandemic.
In striking contrast to Sydney and Melbourne, Queensland enjoyed a net influx of prospective buyers and tenants as people looked to escape lockdowns. This trend is likely to continue.
Researchers are predicting tenant numbers to increase in both Melbourne and Sydney as Australia’s borders reopen to international backpackers, casual workers, tourists and students in 2022, creating demand for investors nationwide.
Investors looking to access the short-stay rental market may also benefit from a predicted rise in Airbnb property demand.
Julie Crockett, CEO of Australian Property Investment Solutions, offered her three top suggestions for investors taking their next step in 2022:
- Never lose sight of the fact property investing for wealth is a long-term proposition, involving retaining properties for around 10 years. Look to acquire assets that can navigate short-term turbulence.
- Focus on buying affordable assets in city locations that provide cash flow as well as capital growth.
- Get into the market as soon as you have your deposit ready because there is never a “best time” to start investing.