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The Australian property market in 2022

In the previous article on the Status of the Australian Property Market last year, we shared that there was a significant growth in residential values across the country that were mainly driven by scarcity, coupled with a high demand from buyers engaging in an extremely low interest rate environment. The property price increases last year were the biggest since 1989 and, whilst we’re unlikely to see this replicated in 2022, growth in the market is nevertheless forecast for the coming year.

This article breaks down what might come in the Australian property market this year in 5 main points:

Price increases, but at a slower rate

Australian property values are projected to increase this year: from NAB’s report forecasting a 4.9% hike to REA Group’s PropTrack Property Market Outlook 2022 Report projecting a near 10% increase in housing prices over the year when compared to the year before.

One of the reasons for the slower rate of growth is growing limitations on buyers’ borrowing power alongside rising mortgage rates and tighter lending standards. In October last year, the Australian Prudential Regulation Authority (APRA) lifted the interest rate serviceability buffer for Australian mortgages. Investors will be more affected by this as they tend to borrow more and may have other existing debts. First-home buyers on the other hand, tend to be under-represented as a share of borrowers borrowing a high multiple of their income due to constraints resulting from large deposits.

These changes have affected many, including mortgage broker Angelique Zimmer’s clients. "We are seeing people, on average, be able to borrow about 5% less than they would have, say two months ago, and people being more concerned about the interest rates," she says. APRA’s objective is to ensure that mortgage lending is conducted on a prudent basis, and that borrowers are well-equipped to service their debts under a range of scenarios.

Analysts are expecting the APRA to intervene again this year by setting a limit on loan-to-income ratios. The regulator could also impose a limit on borrowers with loan-to-valuation-ratios LVR of 80 to 90 per cent.

Addition of stocks

The first two years of COVID-19 saw interrupted project timelines and the delay of new build properties, drastically reducing the supply of new homes available in the market. The recent lifting of restrictions and the ability to resume work has now created new construction supply, easing buyer demand and an increase in homes for sale.

The effects of this will trickle onto this year as more new homes are complete, increasing supply, hitting the brakes on rapidly rising prices. This extra supply of properties for sale will soften the tough competition that buyers faced last year, removing the sense of urgency to purchase a property.

Lack of rental supply

Over the pandemic, vacant rental apartments, especially in the larger cities raised concerns for homeowners and landlords. Many tenants were moving out of the city because they weren't required to work in the office and since many were working from home, people were moving out of the city for cheaper rent.

This year, people are moving back into the city as working in the office becomes acceptable once again. Thus, the apartment rental vacancies are expected to decrease and in turn add pressure on rental prices. Apart from this, as international borders reopen, skilled workers from overseas as well as international students return. These students and professionals are more comfortable living in apartment units in the cities near to the offices and universities, raising demand for inner city apartment units. What could happen as a result, is the lack of rental supply.

Smaller cities to take the lead in price growth

This year, smaller cities such as Brisbane, Perth, and even Hobart, are expected to see greater increase in price growth when compared to its larger counterparts Sydney and Melbourne. The latter will experience reduced growth rates as listings return to ‘more normal’ levels. The past few years saw cycles where Sydney and Melbourne dominated the housing market, creating affordability challenges for tenants and buyers.

Given the affordability issues facing in the bigger cities, more and more investors are looking to regional areas in search of value. Lifestyle locations like Queensland are projected to do well as people continue to depart the other states badly hit by the pandemic. The regions that are well connected and commutable with good infrastructure and service provisioning will see a greater demand.

It is pertinent that investors consider factors that influence growth and explore areas that were otherwise not conventionally popular before buying in 2022.

Increased popularity in apartment units

The gap between the prices of detached houses and apartment units grew more than 35% last year. Due to rising Australian house prices last year, many first-time buyers face affordability constraints and are therefore pivoting to more affordable options such as apartment units. This increases demand for apartment units close to the cities - in both buying and renting.

University students and younger Australians tend to lean towards apartment-living as they are usually located in close proximity to public transport networks, amenities such as supermarkets, restaurants, gyms, and are also easier to manage. As a result of this trend, 2022 is set to see apartment-living become more appealing.

All in all, this year we are likely to see more stable dynamics return to the Australian property market, with price and rental growth at a level that can be sustained in the longer term.

We hope you’ve found this article useful in expecting what is to come this year.

The Tailor My Property team has helped many clients with overseas properties including Australia over the years, and although it might seem challenging to penetrate the Australian property market, we are here to make those challenges a lot easier for you, whether it be obtaining a mortgage, tax advice, and property options. As always, reach out to have a conversation with us anytime.


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