As of 31st December 2021 - Property Market Update - searchpartyproperty

As of 31st December 2021 – Property Market Update

After an extremely strong 12 months, the property market has closed out the year with a bit of a whimper. House values may have increased by 22.1% over 2021, but growth has significantly slowed, down to 1% for December. This has been led by softening Sydney and Melbourne markets, both of which recorded their worst results since October 2020.

But it is not all bad news, with a few key markets showing no signs of slowing. In fact, Brisbane, Adelaide, and regional Queensland closed the year out with their strongest recent monthly performance.

Source: Core Logic

The varying fortunes we are seeing across the country are largely being chalked up to affordability and availability. That said, the areas that have performed the best over the last month have also been key targets for domestic migration. And, with most internal borders now open, this trend could have an even greater impact over the next few months.

Source: Core Logic

Many analysts are also keen to highlight the renewed strength of regional markets, which are comfortably outperforming the capitals on a combined basis. In these areas, availability is seen as a particular challenge, with listings down 35.9% on the 5-year average. There is also sustained interest from those looking to relocate from the capitals, with many locations offering significant lifestyle appeal.

Source: Core Logic

On the rental side, things are a little more complex with median rents up, but rental yields down. This is mostly because The rental market has also maintained its recent form, with median rents up and yields down. That said, we are seeing a notable strengthening of demand for unit rentals, particularly in major markets like Sydney and Melbourne. As a result, unit rent growth has begun to outpace house rent growth, reversing the recent trend.

Wrap Up of 2021

With 2021 now behind us, we wanted to take a moment to reflect on the last 12 months. All in all, it was an interesting year for the market with plenty of ups and downs. There were also a few interesting trends that emerged and a couple of important lessons for investors.

Here is what we will remember about 2021:

  • It was a time of significant growth: Building on the momentum of the last quarter of 2020, the Australian property market had quite a stellar year. Some have even called the 22.1% increase in the national median dwelling value a “once in a generation boom”. And the results were even better in some areas, with growth in regional NSW and Tasmania almost reaching 30%.
  • But things began to turn: After median price growth peaked at 2.8% in March, it steadily slowed over the remainder of the year. And, as outlined above, by the end of the year, monthly growth had dropped to 1%. Most market watchers have identified affordability issues, increased supply, and tightening lending requirements as the reason for this decline.
  • A two-speed market developed: While most markets began to slow down toward the end of the year, a few began to speed up. In fact, as noted above, the growth rate in Brisbane, Adelaide, and regional Queensland all hit new highs in December. This is a stark contrast to Melbourne and Sydney, where December saw their lowest monthly growth rate for the year.
  • Regional markets experienced a renaissance: For the property market, one of the most lasting impacts of the global pandemic is the move toward lifestyle locations. With working from home now the norm, commutability to a major business centre has become less of a factor for buyers. This has seen a significant increase in interest in popular regional areas, like NSW’s Central Coast and QLD’s Sunshine Coast.
  • Availability was a major consideration: While a few factors have contributed to the growth seen this year, a lack of listings has been a major driver. This has been particularly true in some of the most popular lifestyle locations, where demand skyrocketed but supply was limited. This led to some of the year’s most substantial prices increases and continues to have an impact in many areas.
  • Rental yields reached record lows: The record for the lowest gross rental yield was repeatedly broken over the last half of the year. While this sounds like a tragedy for investors, it was more of a lesson in the economics of the property market. The truth is, rentals actually performed fairly well across the year, with rents increasing 9.4%, and house rents up 10.1%. But this was dwarfed by the almost unparalleled increase in property values, which caused the comparative rental yields to fall.

What to expect from 2022

The start of the year is also a great time to look ahead and consider the conditions we are likely to face. While the outlook is not entirely rosy, there are at least a few bright spots on the horizon. And, for astute investors, this year still promises plenty of interesting opportunities.

Here is what we will be looking out for in 2022:

  • Reduced demand: All signs seem to suggest that the pent-up demand created by COVID-19 has passed over the last couple of months. As such, we expect there will be fewer people looking to buy over the next 12 months. This, combined with increasing supply, could begin to put the power back in buyers’ hands.
  • More modest growth: While some are predicting that the market will crash, most of the current evidence suggests this is unlikely. Instead, we expect to see continued price growth over the next year, albeit at a lower rate. This view is supported by the big banks, who are forecasting an increase of approximately 6% across 2022.
  • Obvious investment hotspots: It seems like the two-speed market that has developed over the last couple of months might be here to stay. As such, we expect to see certain areas significantly outperform the rest of the country. In particular, we foresee Brisbane being a real star performer, with most of South-East Queensland also delivering strong results.
  • Changing financial controls: With lending requirements already beginning to tighten, we will likely see further regulatory controls introduced over the next year. As part of this, we expect plenty of talk about potential interest rate increases and further changes to lending standards. And, with an election only months away, there is a good chance we will see further incentives for first home buyers.
  • A renewed interest in unit rentals: The gradual opening of the international borders is great news for investors, and particularly those with inner-city apartments. We expect the return of international students and migrants will see interest in these properties increase, particularly as rentals. That being said, as this market segment is so reliant on international travellers, we suspect it will remain quite volatile.

Suburb Spotlight: Kincumber (NSW)

Kincumber waterfront, Central Coast NSW Australia.

Sitting on NSW’s popular Central Coast, Kincumber is a great example of why the area was so popular in 2021. While only approximately 90km from the centre of Sydney, it feels a world away, with its leafy surrounds and coastal vibe. This has traditionally made it popular with holidaymakers and retirees, but more recently, young families have started to see its appeal.

Despite not being beachfront, Kincumber is considered by many to be one of the best located towns on the coast. It is right on the doorstep of some of the area’s best beaches, walking trails, and shopping and dining options. Kincumber also enjoys easy access to a great range of local amenities, including a shopping centre and well-regarded schools.

Despite this, property in Kincumber remains reasonably affordable, with a median house price that currently sits comfortably under $700,000. This is particularly impressive when compared to some of the town’s millionaire neighbours, like Copacabana and Avoca Beach. But recent interest is helping close this gap, with house prices up 37% over the last year and townhouse prices up over 80%.

Kincumber’s rental market has performed just as well over the last 12 months, with house rents up 20%. And, with median weekly rents now around $600, investors in the area can expect a yield of more than 4.5%. This means that, whatever your investment strategy and goals, you are sure to find something suitable in Kincumber. 

At Search Party Property, we specialise in developing tailored investment strategies and will work with you to come up with a suitable plan of attack. We also regularly assess your strategy ensuring that it is fit for purpose and delivering the desired results.

Book your 30 minute property investment assessment here.