Frustrated house hunters holding out for a property bubble to burst could be waiting a long time, according to an industry insider who warns there is no price balloon to pop.
In fact, not only will there be no crash on the horizon, according to EG Advisory managing director and urban planner Shane Geha, commercial private lenders Sydney he said already soaring real estate prices will continue to rise across most Australian markets before they slow down.
“Four months into the pandemic last year and most serious economists were saying that this year would see a recession and that property prices would collapse. I was one of the few predicting that property would actually go up by 30 per cent,” he said.
Nationally, dwelling prices have increased by more than 20 per cent in the past 12 months. CoreLogic’s September national home value index rose another 1.5 per cent, taking Australian housing values 20.3 per cent higher over the year.
That pace of annual growth is now the fasted rise since the year ending June 1989. But dwelling values won’t stop there, said Dr Geha.
“The property market in Sydney in particular, and perhaps also in the other capital cities, will do another 10 per cent before the end of the year. So, you’ll actually end up with a 30 per cent plus year and none of those prices are going to regress based on the fundamentals that I see,” he explained.
Australia is just so hot right now
One of those key fundamentals is the fact that Australia is just so desirable, Dr Geha said.
“Our capital cities; Sydney, Melbourne, Brisbane, Adelaide and Perth are probably among the nicest places in the world to live – that’s the truth, but everyone forgets that.
And given that the bulk of Australia’s population lives in just six major cities, Dr Geha explained that those centres will continue to have solid price growth – at least in the short term.
“The second fundamental I see is that, even with the locked borders, expats are coming back with millions of dollars and either thinking ‘Let me settle in Australia, or invest in Australia’. Plus they’ve all been happy to pay over the odds because they’ve got cash,” he said.
There’s a spending frenzy
As long Australians felt like they have access to “free money” Dr Geha said they’ll continue to invest in the lucrative local property market.
“People are realising that they can borrow at 2 per cent, rather than have savings in the bank earning zero. They might make 8 per cent to 12 per cent long term capital gain, which is the compound rate for Sydney property on average,” he said.
In addition to the record low interest rates enticing big spending on bricks and mortar, Australians have found plenty of extra pocket money during the pandemic.
“We also must remember that as a nation we normally spend $65 billion a year on overseas travel, but that didn’t get spent.
“If that money sits in the bank and it’s earning 12 per cent then that’s where people might leave it, but when it’s practically earning zero – like it is now – well, people are turning to property and to some extent shares,” Dr Geha said, adding that even large scale investment funds had relocated their hundreds of millions of dollars away from cash and bonds, instead preferring to park their funds in property.
“These are very specific circumstances in which we find ourselves right now,” he said.
The waitlist is a long one
When considering a post-pandemic property market, Dr Geha explained that even when international borders reopen and Aussies start redirecting their savings from real estate to travel, it won’t create a drop in property values.
“Anyone thinking that prices will fall once things get ‘back to normal’ isn’t counting on the millions of people who are just waiting to come here and invest money. We’re now the envy of the world,” he said.
“International students and other foreign workers are a huge part of our economy and they’ve been non-existent for close to two years. They’ll come back with a vengeance, and investment will come back with a vengeance,” Dr Geha added.
Given that Australia lost hundreds of thousands of workers in the wake of Covid, and the country is facing a $500 billion plus debt thanks to the pandemic, he said the government will need to increase the number of migrants to play financial catch up.
This influx of people will put additional demand onto a property market that is already struggling with supply.
One year into the pandemic, and Australia’s migrant stock was 300,000 people fewer than it would have been without Covid, coupled by a net migration decline of 97,000 people, according to Federal budget estimates.
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