Melbourne’s property market forecast to grow in 2021, but where should you buy?

“SQM Research managing director Louis Christopher is now expecting prices to jump by 7 to 11 percent in Sydney and by 2 to 6 percent in Melbourne and NAB’s Andy Kerr is forecasting property price growth upwards of 5 percent in each of the next two years nationally,” O’Brien Real Estate director Dean O’Brien said.

According to him, price growth in the first half of 2021 is likely to mirror the upward trend seen since COVID restrictions were relaxed over the last quarter of 2020.

Growth factors

Mr O’Brien said that there are fundamentals that will ultimately drive growth in the Melbourne property market moving forward.

1. Consumer sentiment

According to Mr O’Brien, consumer confidence is at a seven-year high.

“Although rising coronavirus cases in the USA and Europe have recently weighed on investor sentiment, we believe the vaccination rollout will restore a bullish optimism.

“Investors returning to the property market in 2021 will continue to improve as the safe haven of the banks will barely return anything on your money when you apply the rate of inflation,” he said.

Investors in 2020 accounted for less than 25 per cent of total sales, the lowest participation level on record, but with the economy expanding in 2021 through heavy government stimulus, Mr O’Brien expects investors who sat on the sidelines in 2020 to find certainty in bricks and mortar.

“Investors will no doubt be lured back by the potential of bigger capital gains and the low interest rates. The next major catalyst for market growth will continue to come from the first home buyer with their incentives continued until 30 June 2021.”

2. Strong buyer activity

Cheap liquidity, continued strong first home buyer activity, as well as renewed investor interest will also play their part in Melbourne’s recovery, Mr O’Brien said.

“We believe their impact on demand will flow through to most suburbs through detached home sales and not so much apartment sales.”

It also helps that loan deferments, which accounted for 10.1 per cent of loans at the peak of the crisis in June, have dropped to 3.4 per cent, he noted.

3. Economic stability

While population growth in Australia hit a snag in 2020 due to the pandemic, the restrictions on overseas travel have led to an increase in local spending through retail and local tourism.

According to Mr O’Brien: “Economic stability in 2021 will continue to improve. China trading will improve and we will see stock market growth continue and perhaps surpass the February 2020 all-time record.

“The good news is also flowing at the moment on new jobs growth through JobMaker and JobTrainer and infrastructure projects.

“Overall, the economy is slowly recovering with business confidence rising and our international trade surplus now at $7.46 billion.”

4. Housing supply improvement

Flowing on from the recent increase in building approvals created through the HomeBuilders grant and social housing projects, Mr O’Brien hopes to see an improvement in housing supply in 2021.

“This, in turn, will lead to improvement in stock turnover,” he highlighted.

Hotspots

According to Mr O’Brien, family suburbs with great access to schools, such as Berwick, Essendon, Blackburn, Glen Waverley, Bentleigh and Bundoora, will continue to be very popular in 2021.

Investors, meanwhile, will benefit from suburbs that are in close proximity to CBDs, transport links and universities, such as Footscray, Brunswick, Caulfield North and Geelong.

“The most popular growth corridors for first home buyers in 2021 will be similar to 2019 and 2020. The postcode of 3064 in the city’s outer north will continue to be the most popular followed by 3029 in the city’s outer west, along with Clyde North and Officer in the South East.

“New land that has opened up in Sunbury, Plumpton and East Pakenham is proving to be popular as buyers look for new digs. Regionally, across Victoria, we see great opportunities for growth in Ballarat and Geelong along with Bendigo, Wangaratta and Warragul,” Mr O’Brien concluded.