As property prices continued to increase and auction clearance rates consistently stayed high on the back of strong demand from home purchases and investors alike, along came the bullish optimistic forecasts from economists across the board. There has been a recent focus on the upward growth of the smaller capital cities, Adelaide and Perth.
Two of the big four lenders Commonwealth Bank and Westpac also predicted solid returns in 2021 nationally, expecting house prices to increase 8% and 10% respectively.
Interestingly enough, the ANZ report revealed that it believes the capital of the Western state Perth, will come in as the strongest performing city by the end of the year. The expectation was to see Perth house prices rise by a stunning 19% in 2021.
ANZ also believed that Adelaide would also hit double-digit growth this year, potentially achieving over 13%.
So, how have house prices played out for the smaller capital cities of Adelaide and Perth?
Despite earlier predictions, the Index results are in and Adelaide is currently outpacing the Perth market. Adelaide houses prices have already hit double-digit growth achieving a strong 11.14% to date. Perth has also seen solid growth, achieving 6.9% to date, but if earlier predictions are correct, there may be more solid returns before the year ends for Australia’s smaller cities.
Nationally, capital city house prices have already reached a solid 7.7% which is a major turnaround for the residential sector post-pandemic [1].
However, what could help continue fueling prices moving forward and can the early ANZ prediction of 17% be reached at the end of the year?
On the back of record-low interest rates, strong sentiment and even the recent budget announcement from the federal government targeting additional incentives for first home purchasers, there seems to be no slowing down of price increases for some time in the Australian residential property market.
Recently the federal government announced the extension of the ‘First Home Loan Deposit Scheme’ for an additional 10,000 potential first home buyers where suitable applicants will only require a 5% deposit to secure their first home. The government also announced the introduction of the ‘Family Home Guarantee’ that aims to support single parents entering the property market.
The government incentive supports single parents with deposits as small as 2% who meet the eligibility criteria to qualify for a home loan.
No doubt, the continued government incentives will have a positive impact on the property markets across the board, but will this flow into the smaller cities of Adelaide and Perth and potentially continue pushing pricing up in these regions?
One key consideration is the price cap on the building of new homes in both South and Western Australia. In both capital cities of South and Western Australia, the price cap is $550,000 and a cap of $400,000 across the rest of both respective states applies [2].
Potential first home purchasers in both South Australia and Western Australia can also potentially take advantage of further government incentives when building new homes. In South Australia, a grant of up to $15,000 can be secured for new purchases and constructions less than $575,000 [3].
In Western Australia, a grant of $10,000 is on offer for new purchases. Property prices capped at $750,000 for the South of the 26th parallel and $1m for the north of the 26th parallel [4].
Both Adelaide and Perth have seen strong results so far this year and based on the current low-interest-rate environment accompanied by additional government stimulus, the smaller cities could have the ability to shine brighter by the end of 2021 and into the horizon.
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Jarryd Gauci – Property Investment Consultant
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.
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