The Year in Review & Projections for 2022

2021 – What a year.

While we endured many follow on effects from 2020 including the numerous lockdowns, employment shortages, supply chain implications, border restrictions and vaccination rollouts, there were a number of benefits that presented themselves – particularly for investors.

Driven by the shift in buyer priorities and complemented by historic-low interest rates, government stimulus packages and improved household savings, the last 12 months provided the perfect framework for a booming property market across major capital cities.

Let’s take a deeper look into the year that was and what investors can expect in 2022.

The Acceleration of the Australian Property Market

Derived from the impacts of the global pandemic, the acceleration of the property market was initially driven by three main factors:

The closure of international and state borders, leaving many Australians with surplus cash
The shift towards flexible and remote working, removing barriers for those looking for a sea-change
The housing affordability in regional areas, making it possible for many Aussie’s to purchase a home and ditch the rental market

Since then, the ultra-low interest rates coupled with the incentives introduced by the Australian government, including the reduction in stamp duty for first home buyers and the home builder program became the perfect combination of factors for extraordinary price growth throughout 2021.

Over the last 12 months, the Domain Group reported that more than 446,000 houses were sold and more than 144,000 units were sold, both remaining on the market for the shortest time in more than half a decade. Across Melbourne and Sydney alone, the two capital cities saw a price increase of approx. 17% and 26% respectively, establishing an average dwelling price of $939,380.

Reference: CoreLogic

Further up the coast, the announcement of the 2032 olympics also propelled investor confidence in the Brisbane property market. With extensive infrastructure now being brought forward, this means development of premium recreation facilities and more efficient public transport will be established for local residents to enjoy long after the closing ceremony, creating a highly attractive investment profile on a global scale.

However while the Australian boom proved some exceptional results, there were some downsides. Resulting from record-high prices achieved nationwide, particularly on the East Coast, concerns around stamp duty reform were amplified.

At present, national stamp duty costs are equivalent to 4.2% of the median dwelling prices – and in Victoria, sits as high as 6.5%, the most costly stamp duty rate nationwide. This is a significant cost when you consider the average property price in metro Melbourne is $788,484, resulting in a whopping stamp duty bill of $47,310.

Put simply, stamp duty is impacting liquidity in Australian housing stock. With such large prices at hand, this has generated considerable implications on buy and sell transactions as it creates a barrier for people looking to upsize, down size or relocate and reduces the amount of stock on the market.

From the home buyers perspective, purchasing a home is significantly delayed as they must consider their deposit and stamp duty costs when saving for a property. Currently, the average wait is four to five years in most states and consequently, many have resorted to growth corridors as the requirements for their funds to complete the purchase (i.e. deposit, stamp duties and associated costs) is much more attainable. Yet for investors, it has generated greater flexibility as they can invest in other states with lower stamp duty charges and have greater variety in property types/contract structures.

As a result, many investors are now favouring house and land packages in national growth corridors – not only for affordability purposes, but for the reduced stamp duty costs because in many cases the cost can be less than half of buying an established property.

While there is no official solution for all stakeholders (first-home buyers, investors, upgraders etc), 2021 did highlight the need for greater focus on the supply side of residential properties, calling on the need for stamp duty reform.

What’s In Store for 2022

In line with forecasts from the other big four banks, the Commonwealth Bank of Australia predicts that house prices will reach their peak in 2022 (approx. 7% higher than 2021) before entering a correction period in 2023.

Complimenting this thought, SQM Research’s ‘Housing Boom and Bust Report 2022’, forecasts that dwelling prices across the nation will start to drop in the latter half of 2022, likely as a result of further intervention by the Australian Prudential Regulation Authority (APRA) banking regulator.

Managing Director of SQM Research Louis Christopher believes that the serviceability buffer rate will extend by approx. 3%, and APRA will announce macroprudential regulations targeting investors as they are believed to be the catalyst driving the surge in property prices.

So what does this mean for investors?

While stricter lending standards will curb Australia’s property markets by restricting the number of people that can service home loans or reduce their borrowing capacity, regulators are approaching this on a gradual basis. Moving into 2022, this will have a limited impact on middle-high income households with multiple streams of income, however it may pose some challenges for Australians looking to purchase property for the first time.

As we progress into next year, it is expected that Australia’s most popular cities, Melbourne and Sydney, will witness the biggest cooling in prices while Brisbane experiences a dwelling increase of 8-10%.

However, with an improving Australian economy and the return of 200,000 overseas migrants, this could contribute to significant price growth of units and apartments across Melbourne and Sydney, placing upward pressure on house prices in the already under-supplied property markets.

In summary, with borders set to reopen to overseas students, the stabilising of price increases and the economy moving past the brunt of the Australian lockdowns, investor confidence is on the rise due to the visible stability set to come.

Top Tips for Investing in 2022

With another interesting year on the rise, I will leave you with my top three tips for investing in a booming market.

1. Get Educated

More often than not, people begin to panic when the market is booming and rush into investment decisions. The decisions you make today in relation to property will impact you in 10, 20 or 30 years so you have to hold steady, get educated and be confident with your decisions. While you want to move relatively quickly to avoid missing an opportunity, you cannot jump into it without doing the appropriate research or seeking professional guidance.

2. Have A Plan

Property wealth planning is like building a business.You can’t start a business without a business plan and in this instance, you need a property wealth plan. Before investing, it’s imperative to create a comprehensive property wealth plan that includes a finance strategy, location strategy, property type strategy (established, new, off the plan, townhouse, house and land etc.) and most importantly, incorporates your financial goals.

3. Target Portfolio Grade Properties

These types of properties help you set out your portfolio at a high level as it supports your finance capabilities. You cannot build a property portfolio if the banks lend you money. If you don’t have a property strategy that enables positive cash flows on your existing assets, you will be limited in purchasing more properties in future, stalling your ability to achieve a passive income.

If you’re interested in learning how you could capitalise on the booming property market, please feel free to request a strategy session with one of our Senior Property Wealth Planners below, where you can take part in a complimentary, bespoke session, fully customisable to your financial position.



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