- National price growth expected to decelerate and micro markets to diverge in 2022
- Buyers should adopt a strategic approach to purchases and pay attention to data, says Arjun Paliwal of InvestorKit
- Virtual buying, lifestyle migration and use of self-managed super fund amongst trend predictions
Leading Australian property experts have seemingly reached a consensus that price growth will continue to decelerate, but many are left asking what this will mean for buyers in the new year.
InvestorKit founder and The Property Tribune Contributor, Arjun Paliwal, advises buyers to adopt a strategic approach to property purchases in 2022.
Mr Paliwal said although property prices have been booming in recent times, he does not expect national price growth to continue on this trajectory next year.
“Australia experienced an unprecedented property boom in 2021 as households saved more cash, government grants and stimulus packages propped up the economy, expats returned and purchased property, lifestyle became a higher than ever priority, interest rates remained low, existing housing supply took a nosedive, and all of this whilst an infrastructure boom is in play.”
Arjun Paliwal, InvestorKit founder
Mr Paliwal commented on the trends he expects to arise in the new year, and cautioned buyers to be mindful that every region differs in market conditions.
“In 2022, we can expect property prices to be led by high demand in select areas extending their growth cycle rather than a blanket approach of low stock nationally, rental vacancies for apartments likely to decline as international borders open, a fall in first home buyer activity is expected in our major cities, and Aussies continuing to make a sea-or treechange.
“It’s important that those looking to buy look at the data to understand local market trends, as each will differ, and we won’t see growth everywhere like we have on a national level,” said Mr Paliwal.
Seven predictions for the 2022 market
1. First homebuyer activity to carry on falling
First homebuyer activity has already been declining, with an 18% growth in housing values over the past year pricing many first homebuyers out of the market.
New loan commitments for first homebuyers fell 16% in the 12 months to October, and Mr Paliwal predicts this trend will continue.
“As property prices rose to such high levels this year, many first home buyers have been priced out amongst major markets. The biggest challenge for those looking to buy in 2022 and beyond will be their home deposit.
“While money remains cheap, benefits on offer with price caps attached aren’t very possible to stay under due to price growth,” he said.
2. Stock levels to recover, prices will be demand-led
Almost all Australian markets suffered low stock levels earlier this year, driving prices upwards and resulting in the first growth phase in 2021.
However, as we enter the second phase of the cycle, Mr Paliwal expects locations without solid fundamentals to stabilise in stock levels and hence see reduced price growth.
“Many areas carry a multitude of reasons for their respective cycles to continue: localised strength in their economies, the continuation of the exodus, affordability, weaker last 10-year rates of growth paving way for a greater cycle length and high current market pressure.
“These areas are expected to be the majority when counting the total number of cities in Australia seeing high demand,” he said.
3. Aussies flock to lifestyle areas
The mass migration of Australians to lifestyle destinations has been well-documented over the past year, with many taking advantage of flexible work arrangements to make the move.
Mr Paliwal proposed Australia’s ageing population will also play a large role in future, as retirement plans are accelerated.
“The pandemic made people rethink their living situations and seek a better lifestyle sooner. We saw people try different tactics to achieve retirement earlier by downsizing or investing. It’s not a new trend – it simply became supercharged during lockdowns – and will continue at higher than previously seen levels,” said Mr Paliwal.
4. Virtual buying here to stay
Mr Paliwal said buyers are gaining confidence to buy beyond their local boundaries, and are more willing to rely on data to make decisions.
Opinions are shifting in which areas are considered strong markets, with regions like Geelong and Ballarat seeing 84% and 70% growth in a 10-year period, compared to Melbourne’s 69%.
“The concept of virtual buying has been around for some time, but it has accelerated during the pandemic and through greater professional presence of buyers agents to make it easier to buy outside one’s own city or state and ease buyer’s concerns,” said Mr Paliwal.
5. Growth to differ across micro markets
“Unlike in 2021 when property markets across all of Australia increased, it’s important that investors don’t go into 2022, thinking that they can just buy anywhere and the same upward trends will happen again. Each micro market will have its own factors influencing growth,” Mr Paliwal explained.
Mr Paliwal compared the recent price boom to similar market conditions in 2000 to 2004, explaining that while most did observe significant price growth, it was not ubiquitous.
“Buyers need to be strategic and look at the data to understand where markets will continue at this pace,” he advised
6. Apartments to fill up, squeezing rental prices upwards
The highly anticipated return of skilled labour immigrants and international students is set to see apartment vacancies fall. As a result, pressure on rental prices will likely see rents increased.
“This is good news for investors who were caught in the apartment exodus and saw rents decline during this period,” said Mr Paliwal.
7. More purchases made through self-managed super fund
“Prior to the pandemic, interest rates for SMSF investors were not competitive; however, in recent times lenders have started coming out with sub 4 per cent SMSF home loan rates at higher loan to value ratios,” said Mr Paliwal.
Mr Paliwal noted that SMSF enquiries at InvestorKit have since surged, a trend he expects to continue if interest rates remain competitive.