What Does Our Crystal Ball Show Us For 2020

So, what does 2020 hold for the property market? Well for one thing, I guarantee it won’t be a repeat of 2019, which had more speed bumps, false starts and outside interference than any free market asset class should have to face. And yet, here we are at the start of a new year with a level of unpredictability on the world stage that has the media torn between bushfires, world war three and the stock market at record levels.

The housing market really did suffer in 2019. Whilst house prices remained relatively benign in greater Brisbane compared to other states, it is the volume of sales that had many agencies scratching their heads in term of buyer confidence. The house price for greater Brisbane, whilst showing no real correction from the middle of 2017, has demonstrated a level of sustainable growth, albeit quite modest. If the ASX continues to break records, expect this outcome to change with the market being led from the top down with more exclusive properties initially experiencing the greatest price growth.

The volume of sales though is where the greatest level of concern should be focused. Housing volumes continued to decline throughout most of 2019, though there is an expectation that it should start to pick up again in the final quarter of 2019 and the first quarter of 2020, the caveat being where the property is located. The fringe suburbs of South East Queensland are finding the going tough as we enter the start of 2020, though much of this is due to investors having largely left this market segment. Our data shows that interstate investment in some land projects exceeded 75% of interstate buyers. When the investment cycle stops, many of these projects are left with varying degrees of market appeal, higher vacancy rates and as a result, declining yields. Capital gain is also often diminished as a result.

So, what are the head winds that are likely to affect how the market performs in 2020?

• The USA and China continue to battle through their economic differences. Until the trade war reaches a complete conclusion, it will create broader uncertainty in the economy having a moderating effect on growth. The fact a Phase 1 agreement has been signed should provide a level of certainty…but then there’s the US President.

• Hong Kong continues to create political instability with China as does the landslide election of the Taiwanese President with an enormous majority. Both States/countries would be leaving Beijing exposed and feeling that control is being eroded and potentially influenced by foreign governments. The world cannot afford for an imploding China nor one that is overly aggressive in retaking what it believes is rightfully its own. Australia’s trade could be disrupted by any serious international events on this front.

• The USA and Iran are arguably far from sorting out their differences. This is just another distraction that saps confidence from the world economy, clearly witnessed by how sensitive the major stock exchanges are to this part of the world when both positive and negative news is announced. Hopefully the worst is now behind us.

• Australia’s bushfires have created a distraction around the countries leadership almost accusing the Prime Minister of being the one lighting the matches to the undergrowth. This has brought the issue of Climate Change to the fore and remains an incredibly divisive topic. It does appear that action on this front will be accelerated creating jobs and new enterprises as solutions are found. This will be both regional and capital city based.

• First home buyers are likely to find the going tough. This is expected to occur as the residential sector recovers and investors re-enter the market believing that the recovery is under way and the bottom of the cycle has now passed.

• Unemployment rates are unlikely to reach the RBA’s new 4.75% benchmark of full employment in 2020 with the status quo likely to remain for most of the year give or take a small increase or decrease either way. Residential construction is expected to pick up though.

• Consumer confidence will need to find a reason to lift. The author thinks this may be possible through a better stock market and increasing house prices making people feel wealthier and more likely to put their hand in their pocket.

• If the status quo remains, households are more likely to continue to reduce their levels of debt rather than use the discretionary income for bolstering the retail sector. It’s not all bad news though, and there are signs that the tailwinds in some sectors have improved or are showing signs of improvement.

• Building approvals in the east coast capital cities have again started to lift after reaching levels not dissimilar to that of the GFC period. This should help stimulate the economy and create more jobs.

• House prices across the east coast capitals are again starting to show signs of improvement with Brisbane expected to show the greatest growth in 2020 as many infrastructure projects gain momentum. Combined with this has been the undersupply of new product in the inner and middle ring suburbs which are now becoming quite constrained.

• Interest rates are unlikely to change much which means there has theoretically never been a better time to borrow in terms of the rate attached to home loans.

• Investors will again enter the market though are unlikely to have the same appetite for the “investor” grade product of the previous cycle. Purchasers will be looking for capital gain and the tax advantages that come from negative gearing. Expect these buyers to be local with a limited overseas component. This should create a more stable and sustainable residential environment. There will also be another, arguably more prolific investor who will take advantage of the low interest rates and look to higher yielding residential properties that can reduce the debt burden quickly before interest rates again increase.

• The Federal Government will continue to loosen the purse strings to help get key projects out of the ground. This will be both capital city and regional where valid business cases can be made.

• International population growth will continue to drive NSW and Victoria, though QLD is anticipated to continue to improve its market share. Interstate migration is likely to favour QLD as the house price differential makes the SE corner of the State highly attractive to both the younger and retiree demographic.

• Many capital cities will begin to see their weekly rental amounts increase as supply has stalled in the preceding 2-3 years. This is another reason that investors will return to the market.

• The improving stock market will increase the number of million dollar plus properties sold. The relationship between a strong stock market and the top end residential sector has usually gone hand in hand.

• Demand for Australian resources will provide greater certainty for many regional centres. It may even be the catalyst that turns the Perth market around which has to be at the bottom of the cycle and offering a value proposition that hasn’t been seen for years.

• The low Australian dollar should continue to drive international and domestic tourism. However, the tourism sector needs to learn from the retail experience and continue to reinvent itself. If it can’t do this, it will be left behind globally.

• The industrial market will remain one of the strongest sectors as 2019’s robust activity continues to flow through into 2020.

• Whilst retail is currently doing it tough, there is an expectation that this sector will turn in the second half of 2020 as confidence starts to flow through to the consumer market.

• And finally, banks really do look like they are open for business again having lost significant market share to the shadow financial industry. Seeking finance should see some great rates achieved.

Overall, 2020 appears to be better positioned than 2019 for a soft turnaround. It is unlikely that the property market or economy will race ahead, however the early signs are encouraging that many of the headwinds are now moving to the side or tail. Expect to see more cranes on the skyline.

All the best in 2020 Matt Gross | Director | mgross@nprco.com.au