Thinking about investing in property? Here’s everything you need to know about the market in 2021

Image: iStock/courtneyk
  • Inner city dwellings may not recover until international visitor restrictions are lifted.
  • Westpac forecast property growth of over 20% over two years.
  • Investors making a comeback, new lending figures rise 4.5% month-on-month.
  • Average investor 3-year fixed mortgage rates have fallen 42 basis points in a year.
  • Visit Business Insider Australia’s homepage for more stories.

As Australian dwelling prices continue to climb, and increasingly more would-be buyers fight it out at over-crowded auctions, it’s worth exploring whether now is the right time to expand your investment portfolio into property.

For those considering investing in property in 2021, as always, location and timing are everything.

A potential oversupply of apartments

A 2020 report forecasting the next five years in housing by the National Housing Finance and Investment Corporation (NHFIC) noted that “population shortfall” and “throttled overseas visitors” may result in apartments outnumbering renters in Sydney and Melbourne.

While houses across greater Sydney continue to be bolstered by growing demand from owner-occupiers and investors, there’s a chance that high-rise inner-city apartments may continue to struggle until restrictions are lifted.

“COVID certainly had a negative impact on [CBD and harbour-front apartments], due to the geographic location of being positioned in an area that most were distancing themselves from in March of last year up until the start of the fourth quarter,” said Richard Shalhoub, Sales Agent with McGrath Estate Agents.

“There was a reduction in listings in the CBD as most of our clients were not in a position where they needed to sell so subsequently withdrew their properties from the market once COVID hit in full effect.”

“We did however continue to sell property throughout this period just at a slower rate of sale, with a number selling to Australian expats living offshore who purchased sight unseen,” Mr Shalhoub said.

Australia’s population growth was forecast to fall 56 per cent – from 350,000 in 2019 to 154,000 in June 2021, according to projections from the Treasury. This was largely attributed to a shortage of migrants and tourists due to international arrival restrictions.

Once border restrictions are lifted and COVID-19 vaccine rollouts continue, demand may once again return to inner city dwellings.

How the housing market has recovered

The old adage “safe as houses” appears to ring just as true in 2021, as Australians who were restricted from overseas travel and granted work-from-home allowances have gravitated towards property during the COVID-19 pandemic.

The latest home value index figures from CoreLogic for April found that dwelling values increased 2.8 per cent in March 2021. This was the fastest rate of appreciation since October 1988, in which values increased by 3.2 per cent.

Sydney recorded the biggest spike in March, as dwelling values grew by 3.4 per cent, followed by Hobart at 3.3 per cent. Melbourne also recorded an increase in dwelling values of 2.4 per cent for March.

Sydney and Melbourne have now staged a full recovery from the pandemic-influenced downturns of 2020. However, it is difficult to tell just how far this momentum will take the market.

“Over the last 12 months there has been the most dramatic change I have seen in my 20-year career selling property across Sydney,” said Homesurge Director, Joel Hollis.

“I have noticed some of my clients and friends that are first time investors are buying out of Sydney and opting for brand new house and land packages on the outskirts of other major cities, like Brisbane and Melbourne,” said Mr Hollis.

Westpac’s February Housing Pulse report saw the big four bank forecast gains of over 20 per cent in the housing market over the next two years. But real time growth has already begun to outpace this.

“We’ve seen momentum and prices climb an average of 2 per cent a month, which is quite a bit stronger than the 10 per cent per year Westpac originally predicted,” said Westpac Senior Economist, Matthew Hassan.

“And that momentum is clearly sustaining, as demand is still outstripping market supply with auction clearance rates up 80 per cent,” said Mr Hassan.

And the next stage of recovery in the property market may see more owner-occupiers priced out – particularly in Sydney and Melbourne.

If owner-occupier demand eases off, the slack will be picked up by investors, according to Mr Hassan.

“Investors are much more focused on potential capital gains, rather than affordability considerations. We often see a transition happen when the market has good momentum, owner-occupiers start to fade and then investors become a more prominent part of the market as they chase those price gains.”

“We think we’re nearing that transition in Sydney and Melbourne,” said Mr Hassan.

In fact, the value of new owner-occupier loans dropped almost 2 per cent in February, according to the latest seasonally-adjusted lending figures from the Australian Bureau of Statistics (ABS). First home buyers have also retreated, with this value falling 4 per cent month-on-month.

Meanwhile, investors have surged back into the market, with investor lending growing 4.5 per cent month-on-month and almost 32 per cent year-on-year.

Investors locking in interest rate bargains

There are four key factors driving the property market boom: record-low mortgage rates, changes to serviceability, government schemes, and a fear of missing out.

While investors don’t qualify for some of these government schemes, such as HomeBuilder and the First Home Loan Deposit Scheme, they’re capable of taking advantage of the current low-rate market.

“Property buyers are in a fortunate position that a good lender can [offer] historically-low interest rates to take advantage of right now, so money at the moment is cheap even though sale prices are higher,” said Homesurge Director, Joel Hollis.

Average investor rates, principal and interest, January 2015 – April 2021. Source:

RateCity research shows that year-on-year, the average 3-year fixed investor mortgage rate (paying principal and interest) fell 42 basis points, from 3.13 per cent to 2.71 per cent.

According to RateCity’s database, there are currently 64 lenders offering rates below 2.5 per cent. The lowest investor mortgage rate on the market sits at 1.89 per cent, as at the time of writing this.

This means that an investor locking in a variable rate of 1.89 on a 30-year, $500,000 mortgage would only be making repayments of $1,821 a month.

Source: Data accurate as of 22.04.2021.
Note: Calculations based on hypothetical 30-year loan at a variable rate of 1.89% paying principal and interest. Figures do not factor in fees or potential rate fluctuations over one year.

“I still believe now is a good time to buy real estate. Although buyers need to be realistic and understand that buying in a “boom market” takes longer to see the gain over time,” said Mr Hollis.

“Buying today would mean monetary gain returns might not be seen for the next five to seven years, or even longer.”

Alex Ritchie is a writer for RateCity.

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