REINSW: FOUR PREDICTIONS FOR 2022

With real estate transaction activity set to kick back into full gear in  February, the Real Estate Institute of NSW (REINSW) has identified four key predictions  for the market in 2022.

“The economic principles which shaped the market at the end of 2021 still apply, which means we  can expect a similar performance from the real estate market to start the new year. Low interest  rates and the weight of demand from buyers should see the environment of steady price rises  continue,” says REINSW CEO Tim McKibbin.

“Elsewhere, the growth experienced in key regional markets is expected to resume, rental vacancy  should stay tight and affordability will likely stagnate, given no progress has been made to address  the solution to this issue, being more supply,” he says.

Here are four key predictions from the REINSW for the year ahead:

1. Price growth will be steady and sustainable 

While there’s a possibility that the Reserve Bank may raise the official cash rate later in the year, interest rates will remain low in the short term and when they rise, they will be doing so from a  historically low base. 

This, combined with the systemic undersupply of homes to buy and rent, should continue to  underpin prices, Mr McKibbin says.

“Peak growth may have passed but we see the upward trajectory in prices to remain constant this  year. Low rates and low supply make subdued, sustainable value growth for both houses and  apartments a much more likely scenario than a correction,” Mr McKibbin says.

“Early signs for the year suggest the top end of the market continues to perform well while the  more affordable markets remain attractive to first home buyers. Demand is strong across buyer  profiles, as owner-occupiers remain active and investors are beginning to return to the market in  greater numbers.

“While suburban factors will influence individual local markets, as they always will, across the  board we expect small, sustainable price increases to characterise the market and vendors can be  confident of achieving a strong price, while being mindful of the growth in value they have already  enjoyed through the boom,” he says.

2. The flood of supply…is merely a drop in the ocean

With a flood of new listings to hit the market from February, transactions are set to pick up again  and buyers will be presented with greater choice. But it’s nowhere near enough to make a tangible  impact on the broader undersupply, says Mr McKibbin.

“Agents are ready to hit the button on a high number of listings, but it’s not enough. The  fundamental undersupply of housing remains and the need to create new housing is urgent.

“This depends on improvements to planning processes with Councils facing pressure to provide  clearer frameworks for new development and to embrace less adversarial relationships with  developers. The strain on supply experienced in some regional markets highlights the inadequacies  of existing processes and as such, no ground is being made in improving affordability.

“The pure numbers make it clear that the state is not creating sufficient dwellings to satisfy  current, let alone future, demand.

“Even as the market experienced a flurry of listings in late 2021, auction clearance rates remained at an extremely healthy 70%-plus level week-on-week due to the weight of demand, and we  expect this will resume in coming weeks,” he says.

3. Pressure on regional markets won’t ease any time soon

Before Omicron, there was speculation that the exodus to the regions, driven by the acceptance of  working from home, might be a trend that was easing as the end of lockdown, the return to the  office and the opening of borders provided positive demand signs for metropolitan markets. 

But the impact of this latest wave could have the effect of cementing regional growth as a  permanent phenomenon as opposed to a temporary trend, Mr McKibbin says.

“This year we expect regional vacancies to remain tight and select markets will struggle to  accommodate the continuing influx of people. The pressure these markets have been under will  continue this year,” Mr McKibbin says.

“Recent CoreLogic data highlights the impact of this spike in demand for regional accommodation  on rents, with 12.1% annual regional rental growth rate recorded nationally in 2021. Regional  house rents have increased 33.2% over the last 10 years while regional unit rents are up 41.4%  over the same period, vastly outpacing the combined capital city figures.

“Many regional markets have been found wanting, unable to cope with the huge spike in demand  resulting in considerable affordability challenges,” he says.

4. Real estate to remain the state’s revenue behemoth

This year and in the years ahead, the NSW Government will continue to look to the real estate  industry to be the engine room powering the state’s economy through the recovery.

“Stamp duty is being collected in jaw-dropping volumes never seen before, with the current financial year budget for stamp duty on track to be exceeded by an enormous $3 billion, to $14  billion,” Mr McKibbin says.

“The resumption of full real estate transaction activity from February will most likely see a  resumption in Government revenue to the tune of $1 billion-plus coming from the industry each  month.

“Yet despite this consistently enormous windfall, there remain some gaps in logic as to the  Government’s support for the industry on which it so heavily relies. For instance, rental  moratoriums proved extremely damaging to mum and dad investors and yet landlords of some  commercial premises must continue this support with rent waivers until July. Government’s plan is  to take the financial difficulties of the tenant and transfer it to the landlord.

“It’s unreasonable to require a particular sector of the economy to take on a financial burden,  especially when that sector is part of an industry contributing so much.

“Meanwhile, discussion of the Premier’s property tax model has gone quiet. This is not surprising  given the tax the Government is raking in under the current system. However, let there be no  doubt, it hasn’t come off the agenda. 

“Either way, the writing is on the wall: the NSW Government will once again look to the real estate industry to contribute more than any other to the economic recovery,” Mr McKibbin says.