Property price growth could slow by the end of 2021

It’s no secret that Australia’s property market is thriving at the moment. Lack of housing stock, record low interest rates and a better-than-expected economic recovery from COVID have combined into a perfect storm of real estate activity - pent-up demand bubbling into a buying frenzy.

But this could soon be set to simmer down, according to Deposit Power general manager Grant Bailey. He told MPA he believed price growth would start to plateau towards the end of the year.

“There’s general consensus, certainly from the Reserve Bank and economists in general, that interest rates are going to stay low for the foreseeable future,” he said. “Notwithstanding there’s a few inflationary pressures around, they’re still saying it’s going to stay relatively low.

“With that in mind I think what’s driving a lot of the price movement at the moment is lack of stock. In the back half of this year, I think there will be more supply coming on to the market and that will ease the pressure on prices in the last quarter of this year into next year.”

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Bailey has seen firsthand the dramatic increase some Sydney markets have experienced. Semi-detached dwellings in his local area of North Bondi have recently sold for more than $5 million – the sort of price a detached house would have fetched in previous market conditions.

He said the return of 40,000-50,000 ex-pats last year, many of whom could convert British Pounds, Euros or US Dollars into a property purchase had also helped drive the market to new heights.

This heated market has been reflected in the sort of revenue Deposit Power has earned in the first quarter of 2021. According to Bailey, revenue was up by almost 68% in Q1 2021 compared to Q1 2020, while transactions were up 19%.

“The disproportionate revenue growth in the first quarter when compared to transactions was due to, first and foremost, higher average deposit amounts, a trend which has continued into the second quarter,” he said.

Historically, Deposit Power would issue a deposit bond in excess of $250,000 a couple of times a month. However, a couple of weeks ago, it issued two $500,000 bonds in just one week – one for a $5 million house, and another for $10 million house. It even issued a record $1 million bond – a previously unseen feat in its 32 years of trading.

He said in the current environment of asset-rich, cash-poor buyers, there was a clear opportunity for brokers to deliver added value to their real estate agent referral networks.

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“Any movement in the property market represents an opportunity for brokers and I think those brokers that have relationships with real estate agents should be making them aware of the deposit guarantee product and how it can assist in closing a sale quickly when a buyer might have their cash tied up elsewhere,” he said. “That’s the key, where above and below being here to write a loan, they can add value to a referral partner for saying, ‘not only can I do a loan but through this product I can also assist in helping the sale take place’.”