Powered by MOMENTUM MEDIA

4 key challenges for the property market in 2021

research
1 minute read

4 key challenges for the property market in 2021

by Bianca Dabu 23 February 2021 1 minute read

With financial assistance and government stimulus easing, can the property market remain afloat in 2021?

4 key challenges for the property market in 2021
February 23, 2021

While several factors contributed to the resilience of Australian residential real estate during the pandemic, government incentives are said to have played a key role in creating the current strong market conditions, REA’s latest property outlook report revealed.

According to REA, the federal government’s First Home Loan Deposit Scheme, along with HomeBuilder and other state-based incentives, paved the way for more first home buyers.

Further, interest rate cuts pushed mortgage rates to record lows, while government-driven liquidity allowed banks to offer mortgage payment freezes at the height of the pandemic.

“The availability of cheap funding is fundamentally what set this recession apart from previous downturns,” said REA Group’s chief economist, Nerida Conisbee.

Advertisement
Advertisement

But major tax reforms, such as changes to stamp duty in NSW and Victoria, also drove positive movements for property and the broader economy in 2020, Ms Conisbee added.

As such, the level of distress across both residential and commercial property remained very low, with only five distressed residential listings recorded in December and 71 across the entire year.

Risks

With economic conditions said to further improve in 2021, as household wealth reaches record highs and retail trade powers ahead, Ms Conisbee flagged a few challenges for Australian real estate.

For instance, unemployment, although on the downturn, remains high and job vacancies are now above pre-pandemic levels.

Additionally, Ms Conisbee noted, renters may continue to feel distress moving forward.

The chief economics laid out four of the major problems that the property markets could face in the year ahead:

1. Slow vaccine rollout

While Australia’s vaccine program kicked off earlier this week, Ms Conisbee opined that delays could be expected.

“In the meantime, we continue to be at risk of COVID-19 outbreaks.

“While we are getting better at managing them, there is always the risk of an economic shutdown,” she highlighted.

2. Interstate border closures

Aside from the vaccines, the constantly changing nature of interstate border closures also creates uncertainty across the real estate market, Ms Conisbee warned.

This, she opined, could ultimately impact investability, especially among interstate property buyers and border communities.

3. Weakness in CBD markets

The business districts also face challenges as mobility remains restricted for workers, students and tourists alike.

“Very few people have returned to the office; students are yet to make in-person return to universities, and visitation levels remain low,” Ms Conisbee noted.

Moving forward, the high vacancy rates could be up for a slow improvement.

“Measures to get people back into the city will take time, impacting livability. In 2021, CBDs will remain our most challenged residential markets, particularly in Melbourne.”

4. Lack of international migration

Finally, low levels of international migration are tipped to continue to impact new development.

Ms Conisbee cited a recent study by the University of Queensland, which showed that without migration, population growth could drop from 1.4 per cent per annum to 0.4 per cent – the lowest rate of growth since World War 1.

Based on this, new household formation could go from 150,000 per annum to just 29,500, the chief economist explained.

“The flow-on impacts new development and established housing.”

Still, with the vaccine likely to open international borders in 2021, thus resulting in an undetermined movement for overseas migration moving forward, “the overall impact long-term on housing is still unknown”, Ms Conisbee concluded.

4 key challenges for the property market in 2021
4 key challenges for the property market in 2021
spi logo

About the author

Bianca Dabu

... Read more

From the web

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.