REINSW expects Sydney to keep riding wave in 2022

With real estate transaction activity set to kick back into full gear in February, the Real Estate Institute of NSW (REINSW) has identified four key predictions for the market in 2022.

“The economic principles which shaped the market at the end of 2021 still apply, which means we can expect a similar performance from the real estate market to start the new year,”  REINSW CEO Tim McKibbin said.

Low interest rates and the weight of demand from buyers should see the environment of steady price rises continue.” 

“Elsewhere, the growth experienced in key regional markets is expected to resume, rental vacancies should stay tight and affordability will likely stagnate, given no progress has been made to address the solution to this issue, being more supply,” he said.

Here are four key predictions from the REINSW for the year ahead:

Price growth will be steady and sustainable

While there’s a possibility the Reserve Bank will raise the official cash rate later in the year, interest rates will remain low in the short term and when they rise, they will be doing so from a historically low base.

This, combined with the systemic undersupply of homes to buy and rent, should continue to underpin prices, Mr McKibbin said.

“Peak growth may have passed but we see the upward trajectory in prices remaining constant this year.

“Low rates and low supply make subdued, sustainable value growth for both houses and apartments a much more likely scenario than a correction,” Mr McKibbin said.

“Early signs for the year suggest the top end of the market continues to perform well while the more affordable markets remain attractive to first home buyers.

“Demand is strong across buyer profiles, as owner-occupiers remain active and investors are beginning to return to the market in greater numbers.

“While suburban factors will influence individual local markets, as they always will, across the board we expect small, sustainable price increases to characterise the market and vendors can be confident of achieving a strong price, while being mindful of the growth in value they have already
enjoyed through the boom,” he said.

Flood of supply a drop in the ocean

With a flood of new listings to hit the market from February, transactions are set to pick up again and buyers will be presented with greater choice. But it’s nowhere near enough to make a tangible impact on the broader undersupply, Mr McKibbin said.

“Agents are ready to hit the button on a high number of listings, but it’s not enough.

“The fundamental undersupply of housing remains and the need to create new housing is urgent.

“This depends on improvements to planning processes with councils facing pressure to provide clearer frameworks for new development and to embrace less adversarial relationships with developers.

“The strain on supply experienced in some regional markets highlights the inadequacies of existing processes and as such, no ground is being made in improving affordability.

“The pure numbers make it clear that the state is not creating sufficient dwellings to satisfy current, let alone future, demand.

“Even as the market experienced a flurry of listings in late 2021, auction clearance rates remained at an extremely healthy 70 per cent-plus level week-on-week due to the weight of demand, and we expect this will resume in coming weeks,” he said.

Pressure on regional markets won’t ease any time soon

Before Omicron, there was speculation that the exodus to the regions, driven by the acceptance of working from home, might be a trend that was easing as the end of lockdown, the return to the office and the opening of borders provided positive demand signs for metropolitan markets.

But the impact of this latest wave could have the effect of cementing regional growth as a permanent phenomenon as opposed to a temporary trend, Mr McKibbin said.

“This year we expect regional vacancies to remain tight and select markets will struggle to accommodate the continuing influx of people.

“The pressure these markets have been under will continue this year,” Mr McKibbin said.

“Recent CoreLogic data highlights the impact of this spike in demand for regional accommodation on rents, with 12.1 per cent annual regional rental growth rate recorded nationally in 2021.

Regional house rents have increased 33.2 per cent over the last 10 years while regional unit rents are up 41.4 per cent over the same period, vastly outpacing the combined capital city figures.

“Many regional markets have been found wanting, unable to cope with the huge spike in demand resulting in considerable affordability challenges,” he says.

Real estate to remain the state’s revenue behemoth

This year and in the years ahead, the NSW Government will continue to look to the real estate industry to be the engine room powering the state’s economy through the recovery.

“Stamp duty is being collected in jaw-dropping volumes never seen before, with the current financial year budget for stamp duty on track to be exceeded by an enormous $3 billion, to $14 billion,” Mr McKibbin said.

“The resumption of full real estate transaction activity from February will most likely see a resumption in Government revenue to the tune of $1 billion-plus coming from the industry each month.

“Yet despite this consistently enormous windfall, there remain some gaps in logic as to the Government’s support for the industry on which it so heavily relies.

“For instance, rental moratoriums proved extremely damaging to mum and dad investors and yet landlords of some commercial premises must continue this support with rent waivers until July.

“The Government’s plan is to take the financial difficulties of the tenant and transfer it to the landlord.

“It’s unreasonable to require a particular sector of the economy to take on a financial burden, especially when that sector is part of an industry contributing so much.

“Meanwhile, discussion of the Premier’s property tax model has gone quiet.

“This is not surprising given the tax the Government is raking in under the current system, however, let there be no doubt, it hasn’t come off the agenda.

“Either way, the writing is on the wall: the NSW Government will once again look to the real estate industry to contribute more than any other to the economic recovery,” Mr McKibbin said.