What does 2021 hold for Investors in Australia?
The Year in Review and What Lies Ahead.
As we come out of this unprecedented year of 2020, its time to look back and review what’s happened, but more importantly, to look forward to the realistic expectations of the year ahead. Here’s a snapshot of key indicators that will assist decision-making for investors.
By world standards, Australia is doing exceptionally well in dealing with the health responses to the pandemic. Together with Singapore, Taiwan, New Zealand, Vietnam and some others, Australia has effectively controlled the spread of the virus, even with the vaccine rollout not yet started. As economic outcomes are heavily dependent on health outcomes, Australia is in a very strong position as we move into 2021.
Prior to the Covid-19 induced recession, Australia had enjoyed almost 30 straight years of economic growth. Our last recession was back in the early 1990’s. Surveys conducted by banks this month show both consumer and business confidence is now higher than it has been for several years, and Victoria’s economic growth has bounced back in a dramatic V-shaped recovery to be the top growing state in Australia.
China Trade Restrictions
You will be aware that China has imposed wide-ranging bans and tariffs on Australian imports into that country. Australia’s commercial response has been swift and positive. You can read how Australia has turned this problem into a new opportunity in the accompanying article, China’s Trade Sanctions Create New Markets for Australian Exports.
Back in April 2020, some economic forecasters were predicting double-digit unemployment for Australia due to Covid-enforced restrictions. At its peak, unemployment reached just 7.5%. Government support programs like JobKeeper achieved their objective of containing unemployment and now as the programs are being phased out, Australian statistics show 90% of jobs lost in 2020 have been recovered and job advertisements rose 2.3% in January – the highest for many years.
Australia’s central bank, the Reserve Bank of Australia (RBA), has reduced interest rates to the lowest level in history, at just 0.1% (official cash rate). The RBA has also committed to two very important settings: 1. They will not go into negative interest rates; and 2. They have given a fixed date of 2024 before there will be any increase in interest rates. These two factors mean that Australians will have the cheapest interest rates ever and this is having a major effect on housing as thousands of home buyers and property investors are moving to take advantage of these ideal conditions.
Again, despite initial predictions of a house price crash at the beginning of the pandemic, the opposite has, in fact, occurred. Initial slumps have quickly reversed and the average for all capital cities for 2020 is a 3% increase in house price values over the previous year. Of course, increases in property values are not uniform. Inner city apartments have been hard hit and vacancy rates remain high for apartments. But in the outer suburban growth areas, property prices continue to increase, spurred on by the low interest rates and strong demand.
In summary, Australia has done extremely well in its pandemic response compared to many other countries. Its economy is strong and bouncing back fast. Confidence is high, fuelling demand for consumer spending on everything from domestic holidays to online purchases and, importantly, for housing.
In Australia, 2021 is shaping up to be a very positive year for property buyers. Even allowing for some bumps along the road ahead, investors in Australian property can be assured of interest rate certainty, high demand for rental housing and property asset appreciation in the year ahead.