Insights into the 2022 Australian property market bubble

As things begin to slow down in 2022, the general prediction is that overseas buyers and expats looking to return home will dominate the Australian property market - and there’s a good reason for this. Cash buyers such as successful investors or those with high equity in other properties will be best positioned to buy, plus they have patience and play a long game!

Figures already suggest one in seven (15 per cent) homes sold across Australia since early 2020, have been purchased by someone living overseas. And this number will only rise as more Australians are set to return home following the border opening.

So, while others are worried about the Australian property market bubble (predicted to burst in 2023 and fall by 10 to 12 per cent), overseas investors are most likely to be happy to take the early hit to secure property for the future. And this is despite the Australian property bubble becoming a “Lalaland” where sellers and agents keep demanding exorbitant prices (and keep getting them!).

With that, here’s a run down of our..

Australian property market predictions for 2022

1. Prices will peak in 2022

Just when you thought prices couldn’t go up anymore! Analysts predict that prices will climb another 5 per cent in 2022, peaking and settling towards the end of the year. Already first homebuyers and local investors are turning away and not by choice. With prices rising more than 20 per cent or more in some areas, housing affordability is further out of reach than ever before - if only our wages could go up as quick?

 The huge price push has been due to low supply of housing stock, low titled land and hard-to-get building materials; all a direct result of the pandemic. Now, 60 per cent of economists believe that the re-opening of international borders will contribute to rising prices as international investors re-ignite the market.

 Once we finally say goodbye to lockdowns and movement restrictions, the market will begin to open up again. Returning to normal will take some time, meaning 2022 will be a very quiet year for sales commissions. For home builders and sellers who’ve missed the boat, it is going to be a shock to return to reality in 2023 or 2024 in a post-pandemic property world.

2. Interest rates and borrowing

Borrowing still remains cheap.. for now. However, lenders have been asked to account for a predicted rate rise and implement at least a 3 per cent “serviceability” buffer. This means those on higher incomes or in a better financial position, are able to outbid at auction and get financial approval.

Banks also need to conservatively value each property based on the predicted 2023 lull and market crash. More than two in five economists (42 per cent) believe that there has been an increase in banks knocking back loans, due to final auction prices being higher than their own internal valuation. So without a big fat deposit of cold hard cash or equity in other properties, you can forget about accessing a credit loan.

3. Winning at auction

The chatter about increasing interest rates and lowering house prices has many sellers and vendors scrambling to go to auction while they’re still confident in current market prices. This suits the savvier and riskier investor. They’ll bring along their 10 per cent deposit (and then some), with many auctions going well above asking.

Young couples and families can hardly compete with cashed up expats from oil rich countries in the Middle East or US and Europe investors exchanging to the dollar. These overseas buyers hold all the cards and want in on the action. The first week of November recorded the third-busiest auction week of the year and a clearance of 75 per cent or more.

4. Returns are not all doom and gloom (despite high purchase prices!)

Rental returns may not have kept up with skyrocketing purchase prices, however, they’ve enjoyed their highest increase since 2008. National rental rates grew 8.9% higher year-on-year in the September quarter, and jumped 12.4 per cent for regional areas for a similar period. The average gross rental yield for capital cities was 3 per cent and for regional areas was 4.4 per cent; an average of 3.3 per cent for Australia but arguably much higher in regional hotspots.

This beats investors’ returns on term deposits of next to nothing, and is less risk-averse as the Australian share market continues to slide. So, even paying higher prices for bricks and mortar in Australia may be the best way to invest their money.

Make no mistake, it’s war out there for renters. Finding an affordable rental in this market is like a needle in the haystack. Traditionally, rental vacancy rates have always been tight and have remained steady at 1.7 per cent for the past six months. So, finding tenants and eliminating vacancy should not be hard at all.

So, will the Australian property market crash?

All signs point to a resounding ‘No’. Predictors of the Australian property market say it will correct itself, even with a helping hand if required. With any luck (and some smarts), there won’t be many huge winners, or more importantly, losers.

 Next year will see the Australian property market propped up by expats and foreigners, while first home buyers and domestic investors take a back seat. With a few rate adjustments and price slumps by 2023, it’ll soon be game-on again in a free and open market.

 So, if you’re a cash buyer from overseas you’ll be laughing all the way to the bank. Now’s the time to secure your long-term portfolio against little to no competition - but you’ve got to be willing to pay the big bucks!

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Disclaimer: The views, information, or opinions expressed in this blog post are for general information purposes only and should not be relied upon. We have not taken into account specific situations, facts or circumstances, and no part of this blog post constitutes personal financial, legal, or tax advice to you. You should seek tax advice from your accountant, specific to your situation.

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