Increased borrowing capacity and changing market trends hold great opportunities for investors and property buyers from 2021 onwards, says Pete Wargent.
On the Get Invested podcast, highly respected investment expert Pete Wargent told KnowHow founder Bushy Martin about about the outlook for Australian property beyond the pandemic.
He said a key emerging trend that will impact the property market is a transition to coastal and ‘tree change’ properties.
“The big thing that’s happened this year has been people looking at coastal or tree change property, and they may not all be persisting in the years to come, but at the moment, there are a number of (emerging) markets like the Southern Highlands in New South Wales or northern New South Wales coast,” he said.
“There’s just been an outward demand shift away from density, which I suppose is rational when you’ve got a pandemic or risk of a pandemic in Australia’s case. So, we’re just hearing reports of local schools being oversubscribed and, you know, loads of competition for houses in certain coastal regions.”
Although, he said this movement won’t necessarily hold great longevity.
“The big thing that’s changed this year has been no immigration. And once immigration returns, of course, probably 90 percent of immigrants will go to the capital cities and stay there,” Pete said.
“There’s definitely been a shift this year, that’s beyond question. My suspicion is though once the border is reopened, you’ll see the capital city starting to get the bulk of demand again, but largely driven by new arrivals to Australia, because where do you go when you come to Australia? Sydney first, maybe Melbourne now. That’s where the demand tends to go when people arrive from overseas.”
Pete also explained that there is a clear demand emerging from families and first home buyers.
“The markets that will do best are those sort of family-suitable properties in areas that are popular with families. That’s where the shortage of stock has been, and I suspect that’s where the demand will return to,” he said.
“The other thing that’s really noticeable is the number of first home buyers coming back into the market. Now it is the highest level since 2009, so it’s really taking off on the back of the stimulus packages.”
Record low interest rates and upcoming adjustments to lending laws from March 2021 will also increase people’s borrowing capacity, which Pete believes will lead to an upcycle for property.
“I think [the lending laws] might just speed things up a bit because it’d become a very onerous exercise, providing banks with all kinds of detail on living expenses and in some cases tiny amounts being questioned by lenders because they were too panicked by the banking royal commission to do otherwise,” Pete said.
“So hopefully it should increase the flow of credit and just might make the exercise of borrowing a bit less painful.
“People saw a lot of commentary saying a cut in the cash rate from 0.25% to 0.1% won’t make any difference. But as you well know, that’s not how monetary policy works.
“We spent several years there where every day there was a scare story about rising interest rates. And of course, not only did it prove to be wrong – actually rates are now falling – but often people made decisions based on that trend. And clearly fixed rates are only heading in one direction at the moment and that’s down. So, it will definitely pump up the property market, that’s beyond a doubt.”
However, Pete warned property investors and buyers to carefully review their situation and strategy before being swept up in these compelling trends and options.
“The thing to be mindful of is just because there are low mortgage rates available it doesn’t mean you have to jump on it, because you need to consider your financing strategy. And for a lot of investors, you need to have the appropriate flexibility,” he explained.
“The cheapest mortgage rate may not be the best product, even if it’s pumping up the market. You need to look at it in a context of your own situation. Is there an offset facility? What happens to mortgage rates beyond that fixed rate period? which is something that seems to get overlooked. So that’s where the experts in finance come in.”
Listen to the full interview here.
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