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7 factors driving the property market in 2021

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Written by

Emily is a Sydney-based real estate writer.

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2020 was a year of highs and lows for the property market, where many interesting and unexpected trends emerged. 

As the dust has started to settle and we move out of ‘panic’ mode into a ‘new normal,’ we look at the trends that are likely to continue and the factors that will drive the property market in 2021. 

Are you a buyer, seller or investor? Find out how changes in the market may impact you.

First home buyer concessions

It was a big year for first home buyers in 2020 with many taking advantage of first home buyer incentives such as the First Home Loan Deposit Scheme (FHLDS) and HomeBuilder program

The latest ABS Lending Indicators report reveals that first home buyer loan commitments increased 3.4 per cent over the month of October and 48.6 per cent over the year. 

This is more than 30 per cent higher than any pre-covid month since 2009. 

The Government’s HomeBuilder program also seemed to be driving demand for new homes, with commitments for the construction of new dwelling rising 65.6 per cent since July, which coincides with the implementation of the program in June 2020. 

First home buyers are expected to continue to dominate the market in 2021, capitalising on sustained low interest rates as well as the extensions of the FHLDS available until 30 June 2021 and HomeBuilder program extended until 31 March 2021. 

Credit leniency in March  

The Federal Government’s plans to change credit laws could come into effect on 1 March 2021, if passed by Parliament. 

The proposed framework aims to make it easier and faster for people to take out mortgages and refinance their home loans. 

The lending reforms will reduce verification procedures meaning that borrowers will not need to hand over as much information to banks as they currently do. It will place greater responsibility on the customer to provide accurate information on their ability to repay a loan. 

If the legislation passes, this will further support housing demand as there will be easier access to credit which will encourage more buyers into the market as well and increase property construction. 

Stamp duty changes

The NSW Government’s property tax proposal aims to reduce the financial barrier to home ownership.  

The proposed changes could give buyers the freedom to choose between paying stamp duty upfront or paying a much smaller annual property tax when you purchase a home. 

The removal of this large upfront cost of stamp duty could cut tens of thousands of dollars from the home purchase process making it easier for first home buyers to enter into the market while also giving more freedom to existing home-owners to up-size, down-size or relocate. 

The reform could be set in motion in the second half of 2021 following a public consultation process. 

NSW and the ACT are currently the only states that have moved to phase out stamp duty for residential property, although this proposal will pressure other state Governments to pursue their own reforms.

Regional areas continue to increase in popularity 

Demand in regional areas surged in 2020 as remote working opportunities became more prevalent. 

The latest CoreLogic Home Value Index shows that regional housing values significantly outperformed capital cities over the year, rising by 6.9 per cent compared to a 2.0 per cent rise across capital cities. 

The latest ABS report on migration also revealed that capital cities had a net loss of 10,500 people from internal migration in June 2020, which is the largest quarterly net loss on record. 

This trend in demand for lifestyle properties is expected to continue in 2021 as people continue to work remotely and seek larger dwellings. 

Investor behaviour is changing 

It seems that 2021 will be a tough year for the high-rise apartment market with many investors opting to put their money in regional areas and freestanding homes. 

Inner city apartments particularly in Sydney and Melbourne have experienced weak demand and high supply due to stalled overseas migration and a lack of international student numbers.  

Martin North, Founder of Digital Finance Analytics says in a recent vlog with Property Consultant, Edwin Almeida that the recent announcement from Premier Gladys Berejiklian stating that she no longer plans to start bringing back international students is “another nail in the coffin for the high-rise sector.” 

“Many of the inner CBD high rise apartments were let to students and we know both in Sydney and in Melbourne there are massively high vacancies because nobody wants to rent there. Also people aren't working in the CBD area where they used to. 

“It’s going to put huge downward pressure on the highrise sector that already is wrestling with remediations of poorly built properties, an oversupply of poorly built properties and the failure of a number of developers,” he said. 

CoreLogic’s Head of Australian Research, Eliza Owen believes that investors in 2021 will gravitate towards the smaller capital cities such as Perth, where rent values rose an incredible 8.2 per cent in the year to November. 

Will there be an increase in housing supply? 

Lack of housing stock on the market was an underlying factor throughout 2020 with demand outstripping supply. 

According to Mr North, he expects housing supply to increase however the wind up of JobKeeper in March could weaken listing numbers.

“In my surveys, people are expecting to list but probably not for a week or two so my own view is that we will see a bit of a spike up over the next few weeks but I think it will be the end of the March before we really know what the situation is because that’s when the final Government support mechanisms end and the banks stop forgiving mortgages,” he said. 

Rising consumer confidence 

The latest Westpac-Melbourne Institute Index of Consumer Sentiment published in December showed consumer sentiment hit a ten-year high. 

This gain comes despite the reduced support from the Government JobKeeper and JobSeeker measures and the ongoing reduction in bank deposit rates. 

The projected roll out of the vaccine in mid-to-late February is expected to continue to push sentiment upwards. The vaccine will help to contain the virus more effectively, decrease unemployment rates as businesses open and effectively aid in the recovery of the economy.