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Residential Property Risks and Opportunities Report
15 Jan 2021

From a buyer's market to a seller's: Sydney and Melbourne are projected to deliver 8-12 per cent capital growth in 2021

The landscape of the housing market has shifted rapidly across the past three months from a buyer's market to a seller's market. With regards to COVID-19, several vaccinations are likely to rolled out in 2021, providing confidence that a sustainable solution will ultimately be found, and property market sentiment has surged. 

A range of government measures have led to significant shifts in buyer confidence and house price expectations, particularly through September and October 2020.

Alongside ultra-low interest rates, that make it typically cheaper to buy than to rent from a cashflow perspective - and proposed changes to responsible lending obligations - these measures have resulted in a materially increased demand for detached houses.

With only a low availability of stock of quality assets in popular areas, and increasing demand, this has been reflected by increasingly robust auction clearance rates, and it is projected that both Sydney and Melbourne will deliver capital growth in the range of 8-12 per cent in 2021.

Therefore, new highs for housing prices in Sydney and Melbourne are once again on the horizon.

In particular, houses with a high land value component and scarcity value are likely to enjoy very strong demand and capital growth, both in the short and long term.

Our market research shows that some sectors of the housing market continue to represent a high risk at the present time, in particular inner-city apartment markets, which are oversupplied and are experiencing falling rents as Australians look to avoid the higher density locations.

These risks, combined with higher vacancy rates and increased serviceability (i.e. cashflow) risk, have made inner-city apartments less attractive to investors, who represent the main cohort of buyers in these locations.

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