Across much of the world including Australia, 2021 might just rank as one of the most anticipated years in a very long time. We’re all pretty keen to welcome the New Year and right now for us there’s ample reason to do so.

This is good news for residential property markets as confidence leaps into positive territory. Consumer confidence has almost fully recovered to pre-covid levels, further reinforcing the potential for positive markets in 2021.

So much so that we’ve already seen predicted house price increases creep up from miserable figures into double-digits. However, this is only one prediction for 2021, let’s look at some of the other factors that might impact.

Feeling much better – thanks!

Since the weeks of lockdowns, restricted personal contact and very limited travel and even the wide-scale cancellation of our love affair with sport, we are now mostly starting to feel better.

That’s very important as insecurity and a lack of confidence is always a negative for the housing market. The big question now is how much more confidence there might be when we all have access to a locally approved vaccine.

Nonetheless I think that stability can be a complicated topic, as there’s always a mix of news, some good, some bad or somewhere in the middle.

A vaccine will be good news, but Australians are a cautious lot and if there are problems we’ll be none too happy. There’s also China related issues, low immigration and the economy still to navigate.

However, with the New Year just a few weeks away one prediction for 2021 is that market sentiment should be positive, and that’s a big plus.

Vaccine a silver bullet

While there’s little doubt that a local vaccine will have a big impact, I suggest the critical period will be March to June 2021.

The first six-months of 2021 will be a period of adjustment as markets consider if price and demand trends are a short-term reaction to less disruption, or with the impact of a vaccine are a long-term shift permanently stimulating prices and demand.

As we watch for falling unemployment, March may also see less direct government support and a move more towards support for more infrastructure spending which takes time to cascade through the economy.

However, the speed of recovery in 2021 will also be very dependent on how much reform we continue to see in fixing business barriers and red-tape. If a vaccine boosts the economy there may be less incentive for reform and that would be disappointing for property development, and not only residential. Hopefully we will see continued reform like the proposed stamp duty reforms in NSW.

Low interest rates here to stay

Interest rates are always critical – we are now locked into a sustained period of very low rates that are without precedent. Low interest rates will continue to have far-reaching impacts during 2021. Such affordable rates will continue to boost demand partly off-setting the impacts of low wage growth for existing borrowers.

Given that home loan customers are so important to the banks we may have more competition and incentives to capture or retain home loan business among both the big-4 banks and a raft of new players. A side impact could also see some consolidation between lenders as they seek greater market share.

Investors will also benefit, even if some rents are still under pressure low rates will help cushion the impact. However, as employment and much more of the economy returns to normal, and as new supply slows or even comes to a stop, in some areas rentals should start to adjust and rise from mid-year.

This combination will see rents start to recover even if slowly, the unknown is how tenants will react and we may see steeply different rental trends across different locations and a pattern that’s already evident. The prospect of much higher rents in very popular locations looks almost certain. The only down-side would be less demand due to slowing population growth.

New Projects

Off the plan sales are the lifeblood of a majority of new apartment projects and that applies equally to investors or owner-occupiers.

However, currently OTP buyers are at a disadvantage in NSW stemming from doubts over stamp-duty. Supply will be further impacted as construction of build ready projects are being held back by doubts surrounding OTP sales.

While the days of big sales rates at release, when a majority of apartments were sold OTP may be gone, OTP sales are essential for a majority of projects to proceed to construction and that also directly boosts employment and demand across the economy.

Quality & Location

Quality is set to remain a big issue into 2021 and in reality this was never going to be a short-term issue.

The need for quality will not pass when the apartment market improves. Buyers will continue to demand quality and even more so when buyers are trading up, expectations have rightly moved permanently towards better quality.

However, we will also see much more attention paid to location. As we move into 2021 location will be a prime consideration. Buyers are reassessing location and while there will always be choices in markets as big and diverse as Sydney or Melbourne, location along with quality will be key in 2021.

It’s a set of trends that will require careful planning to ensure that projects match changing and varied demographics. The trend will impact inner city locations but also spread to the suburbs.

The strength of demand for the outer suburbs, including land, has been strong for a number of reasons, not only driven by lifestyle but also a raft of direct government incentives.

I would also suggest that we should not under-estimate the appeal or resilience of CBD markets. Our CBDs were at the blunt-end of many changes caused by covid and the impact was highly visible however, 2021 may well see more demand as CBDs recover their central role in the appeal and prosperity of our main cities.

While I appreciate that there’s been demand in regional centres I also suggest that the trend will stabilise in 2021 and there’s potential even to reverse. That may happen if there’s not enough infrastructure to support regional centres as demand peaks post-vaccine.

Lifestyle adjustments

Property markets will also be impacted by a number of broadly based consumer trends including an appetite for less for debit and more savings which were recently estimated to increase this year by some $100 billion held by the banks alone.

However, eventually these savings will be spent, and some will flow into property.

This may have already helped fuel what’s being termed as ‘Revenge Spending’ which is more evident at the retail level and into the demand for new cars and it’s reasonable to suggest the trend will extend into the property market, with investors possibly taking the lead.

Population growth

This time last year there were concerns around falling levels of supply and while that’s still an important issue, we are now facing a complex set of questions around population growth and immigration that will now define 2021.

Low population growth from falling birth rates and low levels of immigration are new trends to Australia and will influence demand, levels of supply and prices in metropolitan and regional locations. There’s also the potential for a big impact on the economy.

However, as we’re dealing with market predictions, it’s reasonable to suggest that post-covid Australia and also New Zealand will become much more attractive places to live.

Currently our borders are shut, even locking out university students, but when we re-open there’s a fairly reasonable prediction that migration may well boom.

I’ve noted that various reports suggest Australia to be among the best places for people to move to post-covid. One reason being that Australia ranked number one out of the 76 countries listed as democratic by the Economist Intelligence Unit partly due to our ideal average annual temperature and overall friendliness to immigrants based on a Gallup survey.

We’ve already seen higher interest from Hong Kong, but a gradual recovery in migration looks a reasonable prediction for 2021.

There’s no doubt that events of 2020 including the 2019-2020 bush fires and covid have hurled us all into a future where our work, where and how we live, the environment and relationships have changed, and are often shaped by technology.

Property markets have also seen and will continue to see big changes into 2021 and I’ve nominated some of my predictions. It’s a very mixed and complex outlook, but there appears to be a more positive view prevailing as we leave 2020 behind.