Price gains in 2021 just the beginning of the boom

Australia’s phenomenal property performance over the past 12 months is shaping up to be just the beginning of the boom, and while price growth is expected to moderate in 2022, solid gains remain extremely likely.

While some market analysts are starting to identify downside risks to Australian property prices, SMATS Group executive chairman Steve Douglas said investors should be positioning themselves to prosper from further future growth.

Mr Douglas said the main factor shaping his opinion was that Australia’s national property price growth of 25.3 per cent in the 12 months to the end of October was that the vast majority of the buyer demand had been coming from owner-occupiers.

“It’s not an investor-driven surge, it’s absolutely owner-occupiers looking for a place to live that’s better than what they used to have to survive any future COVID lockdowns or issues,” Mr Douglas said.

“We are also seeing a lot of activity by owner-occupiers because the low interest rates mean that it is now cheaper to own a property than it is to rent one. 

“Have you missed the boat? I don’t think so; I think we are at the beginning of this push, not the end, and that’s because it’s not a boom or bust mentality, this is genuine demand with lack of supply, with a market where one of the biggest stimulation factors, population growth, is at record low levels.”

Mr Douglas cautioned, however, that Australian property markets were not without risk.

“You’re going to have to buy something that is really nice at a price  that is more than you are willing to pay, but you have got strength in the quality of that asset,” he said.

“But if you just go ‘that’ll do’ and pay a crazy price for it, I’m not sure you will be happy with that decision later on. 

“Whatever you buy, recognise that there is risk and the single best way to mitigate risk is through quality. Buy the best property you can afford, whether its location, size, view, features, whatever it is, get the best property you can afford and then enjoy it, that’s the key.”

For prospective investors, Mr Douglas said now was a good time to buy in any Australian market, even as many remain on the sidelines unwilling to purchase because of the recent rises in values.

He said migration was currently on pause, but with borders starting to open and movement between states likely to be free within the next few months, a significant amount of capital was ready to start flowing into Australian property. 

Mr Douglas urged investors, however, to act judiciously when they are considering what sort of property to buy.

“Just always be mindful that the key decision-maker at the moment is lifestyle, so pick a property that is extremely liveable, is extremely well-located and the best value you can get for your budget,” he said.

“One of the things that you do want to be mindful of is what I call the release and relocate bonus. 

“Particularly in NSW and Victoria, people are selling their properties in good quality high value suburbs and then relocating to Queensland.

“For those buyers, everything in the Queensland market is unbelievably cheap.

“Those people with money are not going to buy second-rate property. They’re not going to buy other people’s mistakes. They are going to want to buy the best properties in the best suburbs and they’ve got the cash to win at auction. 

“If you want to be in that market then they will take you on the ride to more profit. 

“That’s what you want to look for, you want genuine buyers looking for genuine homes to live in and upgrading their lifestyle because they can afford to.”

The easiest way to identify which sub-markets to look at is to follow the money, Mr Douglas said, and look at where expats are buying in Sydney, or where upgraders are buying in Perth, as two examples.

“Look at where the money is going because the money will take profit with it. It will improve suburbs and drive regeneration … it will do all sorts of wonderful things that usually end up in higher than average profit,” he said.

“That’s what you want to do, enjoy the lifestyle, get a better area, maximise your budget and you’ll be fine if you make the right choice on the right property.”

For those concerned about the prospect of higher interest rates, Mr Douglas said Australia’s lending regulations had ensured that the availability of cheap credit had not created a property bubble.

While he said higher interest rates would impact the market to an extent, the sheer numbers of people in a low debt or a no debt position meant that any change in the cost of finance would only affect certain market segments.

Looking forward to 2022, he said genuine buyers with capacity would underpin further gains, but not at the same rate as what occurred this year.

“I would suggest that it’s not going to be double digits, growth should temper back to sub-10 per cent growth,” Mr Douglas said.

“Hopefully it will be in the range of 6 per cent to 8 per cent, which is sensible and moderate.

“The market will naturally readjust and it’s hard to get double digit growth on top of double digit growth.”

The other factor that will drive price growth is housing supply, Mr Douglas said, with building approvals starting to trend down since government stimulus packages had been wound up.

“There aren’t enough approvals coming through now to satisfy the market,” he said.

“Luckily we are at a time when migration is low, but it has a knock-on effect. 

“If it’s not getting approved now it’s not going to be delivered in two to four years’ time when migration normalises and people start coming back in.

“There is a big problem brewing here which is bad if you are waiting to buy but it is fantastic if you have already bought.

“These are factual elements that are keeping the market very strong in a real sense. 

“It’s not hope or a wish, it’s not a speculator’s dream, it’s in a real sense, and that’s why I’m so confident in the Australian property market and I’m sure we’ll have a very good year next year. 

“It won’t be as strong as the last year, which was phenomenal, but it will be a good year of at least 6 to 8 per cent growth in every state.

“I’ve picked Queensland to be the star, with all that money flowing from other states, and WA will hopefully continue its recovery because it’s been waiting a long time for that.”