5 Min Read.
While we are experiencing a boom in the Victorian housing market people are starting to ask “will it last?” A fair question to ask. Especially if you’re looking to buy property in the last quarter of 2021. Many real estate and economic industry experts are already coming out and predicting that the boom is unlikely to last given the weak growth in wages and population we’ve seen post-COVID-19.
Property prices in Victoria did soar when the real estate market reopened after the state’s longest COVID-19 lockdown. Now Victorian stamp duty rates are forecasted to rise 12.7 per cent during 2021-2022. This rise is also following a 3 per cent fall from earlier in the year. There are likely to be many more rapid changes to the Victorian budget which will see house prices increase or decrease in the next couple of years.
COVID-19 will continue to affect our livelihoods here in Victoria thanks to restrictions such as border closures. With overseas travellers barred from entering Australia it’s likely we won’t have an influx of new immigrants coming in for the next two to three years. It’s these immigrants which help to stimulate Victoria’s population growth year after year. The same can be said for international students which helped to create a thriving student housing industry before COVID-19.
Interested to see how the Victorian budget will affect the housing market over the next few years? Let’s take a deep dive into the numbers so far and what economic experts are predicting.
Thinking of selling property this year? Get in touch with your local Vendors Advocate in Melbourne for support every step of the way.
What has been causing house prices to rise?
The combination of ultra-low interest rates, upbeat sentiment, and new government concessions created a perfect storm for new home buyers. The realisation that more office work can be done remotely also encouraged many families and working couples to take the leap and move out further from the CBD where housing is considerably cheaper.
With fewer properties for sale, the Victorian housing market has been quite competitive. This competition in the housing market has naturally helped drive up house prices to the likes which we haven’t seen since the late 1980s. But this boom in house prices is predicted to slow or at least moderate because of the weak population growth caused by the closure of our borders to international visitors.
As for when we see a boost in population it’s anyone’s guess right now. There is definitely a baby boom happening right now in states like Victoria. But this baby boom is unlikely to affect buying attitudes. What will continue to affect buying attitudes for the immediate future is population growth. Our population is no longer growing as rapidly as it used to thanks to our borders being closed.
When borders reopen and house buying immigrants come back we will finally see a boom in property sales. But so far it’s been very difficult to predict when borders reopen thanks to the unpredictable nature of the COVID-19 epidemic. We likely won’t see our borders reopen completely until Australia has high vaccination numbers. There will also need to be more confidence in COVID-19 procedures from other countries until our borders are officially open to them too.
How stamp duty will affect property buyers
Stamp duty is set to get a big boost thanks to plans for increasing the tax payable on homes worth more than $2 million. Stamp duty will be increased from 5.5 per cent to 6.5 per cent. This increase is part of a property tax hike that will increase land tax and charge developers who try to take advantage of windfall rezoning gains. The change is pitched as a bid for those who have done well, asking them to pay their share and contribute back in an equitable way.
Some economists argue that the increase in stamp duty was an inefficient tax. Many have made the point that it would be better to replace the tax with a more broad-based land tax. Some experts argue that reforming the stamp duty tax would be better left till after conditions in Victoria go back to normal. But the real question we should be asking is will we ever revert back to a normal situation? WIll conditions with the COVID-19 pandemic ever subside to a point where our main source of population growth will be immigration once again? Only time will tell.
When will the rise in house prices stop?
Experts are forecasting that housing prices will continue to rise up to at least 13 per cent over the 2021 calendar year. This rise follows a fall of just 4.9 per cent that occurred from March 2020 to October. The price rise is expected to stop or at least moderate when the housing supply comes back online. This includes the completion of new builds such as new houses you’ll find in real estate developments.
One factor that could also stop house prices from rising is the way banks behave when it comes to loans. If banks begin to start allowing more risky loans, the regulator could step in and make it harder for lenders to approve these loans. When these loans become harder to attain, there are fewer bidders in the market that are able to afford to buy a property. With less competition, house prices will inevitably go down.
The medium to long-term outlook
The medium to long-term outlook for the Victorian housing market seems fairly uncertain thanks to the way the COVID-19 pandemic situation continues to change. As we go in and out of lockdowns, buyer confidence can fluctuate. Buyers are unsure if post-covid conditions will make purchasing conditions easier or more difficult.
The lack of population growth from immigration is expected to cause weaker price growth over the next two years. This smaller population is also likely to cause fewer transactions over the coming years. A smaller number of transactions can put pressure on the revenue growth that comes from land transfer duty. This is another reason why you can expect to see drastic changes to land transfer duty over the coming years.
How rentals are being affected
Many young working professionals seek to live closer to the city for convenience with transport and a better work-life balance. The inner-city rental market is expected to recover as workers continue to return to the city for work. Again this recovery is also reliant on international travelers returning to our shores. International travellers on temporary visas made up a large percentage of the rental population in Melbourne’s inner-city rental market.
To give you an idea of how inner-city rentals were affected let’s look at the numbers. From March to October 2020, the vacancy rate rose from 2.2 per cent to 7.8 per cent. The Melbourne wide vacancy rate tells a much different story. This rate rose from 1.8 per cent to 3.7 per cent. Again, uncertainty continues to plague both rental markets thanks to the closure of the international border and how long the vaccine rollout is taking at the moment.
Final thoughts
While Victoria slowly gets back on the path to economic recovery it could be a while until things start to normalise again. The big factor will be the reopening of state and international borders. It’s the added competition of international buyers and renters that ultimately drives up a lot of house prices and rental rates. So try and stay tuned on the ongoing COVID-19 situation and how it affects immigration.
If you’re still unsure as to whether now is the right time to sell, then consider talking to a local real estate expert. A real estate agent or vendors advocate will have their finger on the pulse. They can tell you how the local market in your property’s suburb is performing and if conditions are favourable for selling your home.
Get advice from your local Vendors advocate. Contact Vendors Advocate Melb today.
