Sydney and Melbourne property prices to fall over next three years
With property markets peaking (and slightly deflating in Sydney and Melbourne), what should property owners and would-be owners look out for next financial year?
According to a new report released by BIS Economics, Australian house price growth is forecast to slow or decline in some markets over 2017-18 and 2018-19, due to further tightening of lending to investors and growing oversupply of dwellings.
Recent moves by APRA to reduce interest-only loans and tighten lending conditions is expected to cause investor retreat across the country. This drop in investor interest, combined with the rapid rise of new dwellings is expected to dampen price growth over the next three years.
The report predicts some upside by 2019-2020 partly due to a slowdown in new dwelling construction, which is soon expected to reach its peak.
Apartment prices to fall by up to 14%
Angie Zigomanis, senior manager at BIS Oxford Economics, says there is excess stock in the unit sector across Australia, which has resulted in median unit price growth to be below median house price growth across nearly all capital cities over the past three years.
He expects real declines across the country in terms of units, ranging from 2% to 14% over the three years to 2020.
"New apartment completions in Australia will hit a record in 2016-17, which have been largely bought off-the-plan by investors," says Zigomanis.
"As the apartment buildings are progressively completed, most cities will find that tenant demand will not be sufficient to support rents and consequently values."
Sydney prices to soften
BIS Oxford Economics expects Sydney's median house prices to be 4% lower by 2020. The supply of new high rise apartments in NSW will continue to stay high over the next three years as projects are completed.
Zigomanis says more supply, plus less investor demand due to tightened bank lending policies, will alleviate pressure on prices and likely result in modest price declines.
"In NSW and Victoria in particular, where the strength of investor demand has been a key driver of the Sydney and Melbourne residential markets respectively, the decline in investor activity is expected to impact price growth," he says.
"As investor expectations of capital gains are reduced, investor demand is expected to weaken further, creating additional downward pressure on prices."
Hobart and Canberra to boom
The report also predicts that Canberra and Hobart will have the best prospects for median house price growth.
BIS Oxford Economics says the detached housing marking in Canberra is in deficiency. Given that the population growth in ACT has improved, this should be able to support some house price growth.
Hobart is also booming, with the report stating the capital has attracted a "lion's share" of Tasmania's migration. With Hobart property supply also in deficiency, there will likely be a moderate rise in house prices.