Property market forecast for 2022. In this market insight, we take the opportunity to share our perspective on what the year ahead will look like in the Melbourne/Victorian residential property market. We continue to see optimism into 2022 and beyond.
What happened in 2021?
The property market in 2021 saw some very good returns, well above the average capital appreciation. The property market not only presented fantastic returns it continued its resilience against the global pandemic. There was a high demand in buyer activity, thanks to a number of government grants, particularly in Melbourne. During the course of the year, it was first home buyers that pushed the market forward and in turn contributed to strong capital growth. Regional Victoria saw an in-flux of attention, with vacancy rates remaining well below metropolitan Melbourne.
It was house and land packages that took the stage by storm. There were many house and land packages bought and sold, mostly in outer suburb areas. The northern, south eastern and western corridors saw unprecedented levels of sales. Apartment sales came in very low in comparison to prior years before the pandemic, with past issues such as owners corporations and cladding to be the area of concern. Townhouses continued to remain popular, particular those in inner suburban areas, but affordability was challenging for those buyers. We also saw townhouse living take place in outer suburban areas where first home buyers found an affordable way to get into the property market.
In the last quarter of 2021, the property market experienced further capital growth, with rental yields also improving from the lows it experienced in 2019, when the global pandemic crossed our shores. Rental returns in metropolitan Melbourne have started to increase with a drop in vacancy rates while regional Victoria remained steady. The market has been ‘hot’ and its been rewarding for many buyers in 2021. Congratulations to those buyers who took the opportunity to buy in an environment no one has lived in before.
The property market forecast for 2022
At Crest Property Investments, we have the privilege to oversee market trends, buyer activity and research various forms of data. Many economists may see the property market forecast differently while some may see our perspective to be on point! We have been approached from time to time, from people thinking the property market will burst, but they have no evidence to back up their opinion. In our perspective, we continue to see optimism into 2022 and beyond, but as always, due diligence will be very important. Don’t buy with your heart, buy with your head!
While our property markets are slowing down with the end of year approaching, there is still plenty of momentum driving optimism into 2022. The largest factor to watch out for us the Reserve Bank of Australia (RBA) decision to maintain or increase interest rates. The second largest contributing factor is from the Australian Prudential Regulation Authority (APRA). Will they tighten the lending criteria? If so it will make it harder for buyers to purchase property.
No one has a blue crystal ball. There is always unforeseen events and these can alter any property market forecast, but here we outline some of the property trends expected in the year 2022.
1. Property prices will continue going up
Property prices are likely to continue pushing upwards. This will be largely influenced by future buyer demand. As we end the financial year, the demand looks to continue to outstrip supply. With the below trends including consumer confidence, low-interest rates and positive economic growth these place upward pressures to prices. Not all property types or location will deliver increased prices, but many parts of Melbourne will enjoy further positive returns. It is expected that the rate of capital growth will be achieved at a slower rate to 2021.
Lending approvals are still increasing as we approach 2022, which demonstrates buyer demand will outweigh supply. General economics, when demand outweighs supply, prices go up. The pricing gap between houses and apartments has really separated, so we anticipate apartment prices to witness some capital appreciation. As immigration, student visas and other overseas attention enters our shores, its likely to have a positive effect to apartment living.
For investors, there are some very good buying opportunities next year that will offer great long term returns. With various government spending, there are a number of areas set to see capital growth potential.
2. Rental yields to increase
Rental yields over the last two years have dropped historical lows. Many tenants or renters moved in with friends and family for emotional/financial support while immigration become near non-existent during the height of the global pandemic. As Melbourne reopens, we are seeing higher employment gains, sustainable income and many looking to regain their independence to moving back on their own. There will be a rental supply shortage in 2022, which provides landlords or renters the opportunity to increase the rental prices. This is starting to happen as we speak and will continue next year.
It does come down to location, but metropolitan Melbourne will regain demand among tenants wanting to enjoy their re-found social life. Lets hope Melbourne remains open when we return into the colder months mid next year.
3. Property investors will return
Property investors have started coming back over the last few months. Many of these buyers have been fortunate to sustain good employment and disposable income. Over the last two years, Melbournians cost of living has been low with everything lockdown. According to recent studies and research conducted by the Reserve Bank of Australia, Australians with mortgages have significantly increased their financial buffers.
Having increased equity in their home or additional cash savings, investors will likely look to advance their financial future through property.
4. Interest rates likely to remain unchanged
In the wake of the global pandemic, job security and wages growth remain below average. The Australian economy continues to try and make ground for the losses taken place over 201-2022. While both the economy and wages remain soft, we believe the RBA will hold interest rates at the current historic lows to help further stimulate the country. It won’t stay at these levels forever, but it will be difficult to raise them in the near distant future.
When immigration and tourism arrive, this will provide a prompt impact and will have the RBA reassess their position on interest rates. The banks/financial groups may look to increase their rates against the guidance of the RBA, so it is something to watch out for.
5. Property affordability issues
Property affordability, particular in Melbourne/Victoria has continued to worsen. Many first home buyers are leaning heavily on the assistance of family. We are seeing parents offer collateral or security of their home, while others are providing cash to help improve their loan application. This affordability issue will start to slow property price growth as demand will come down form current levels. During the restrictions of home bound lockdowns, many held back from either selling their home or buying. This may bring further demand into 2022.
Not all areas will be impacted by affordability. There will be likely a two-tier property market. This means some areas will witness better property price growth to others. Location in property investment is always the pinnacle with next year highlighting this importance. Our property market forecast anticipates inner city suburban areas to outperform outer suburban areas. The outer suburban areas have been more affordable and hence seen fantastic returns, however affordability will start to show in some of those corridors. As Melbourne remains open, many will look to occupy in closer areas to the city.
We believe middle and high-income earners will have recovered well with reoccurring employment and income. Many will see themselves in front placing them into a buying opportunity. Some of these people will look to upgrade their home, while others will be taking advantage of their savings and commencing/extending a property investment portfolio.
In summary
In the year of 2022, sensible and strategic planning will see you find some great investment value in the property market. Be mindful, not to absorb half a story from friends and family. Seeking professional advice will help source the right property for you.
If you are a property investor, buy when you can afford and maintain a long term time frame. Employing some simple principles will delivery the returns you desire.
If you are looking to buy a property (wither to occupy or invest), please don’t hesitate to contact us. We can help source and negotiate a deal that’s right for you. We do not charge buyers a fee to help you purchase a property.
While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you want to learn more, please contact us. We welcome the opportunity to assist you.
December 2021
