According to the latest Residential Property Prospects 2015 – 2018 report from researcher and forecaster BIS Shrapnel, property prices will start to fall in 2016-2017, and the frenzied buying we have come to see in both Sydney and Melbourne will slow down.
This is due to a number of economic factors such as rising interest rates leading to more unaffordable properties, an increase in supply, but lower investment returns.
However, the property market over the next 12 months will pretty much continue as it is, with some of the undersupplied markets expecting to see a rise. The report highlights that regional areas such as Woollongong, Newcastle and Cairns as well as south-east Queensland could see a rise in property prices by 10 per cent over the next three years.
Sydney and Melbourne property markets to slow down
Capital cities such as Sydney and Melbourne which have experienced staggering price growth in the double digits over the last few years will experience a much slower rate of growth, and by June 2018, Sydney is expected to have a median house price under the $1 million mark, which is just 2 per cent higher than it currently is today. Melbourne would be slightly better off, sitting at 4 per cent. However, property prices in Perth and Canberra would drop marginally.
Brisbane property prices to improve
The report also suggests that the apartment market would come off worse compared to the housing market, particularly for anyone who is paying at the peak of the cycle; however it’s good news for anyone who has bought or invested in apartments in Brisbane or will be investing here, as property prices are expected to be higher in June 2018 compared to what they currently are today.
The report also shows that overseas migration has taken a fall from 237,500 during the financial year of 2012-2013 to just 184,000 across 2014, even though there are another 210,000 developments expected to start during the financial year of 2015-2016. This slow down in net overseas migration would weaken the rental and investor sector, particularly for resource-based markets according to BIS Shrapnel.
Undersupply of properties
There is currently an undersupply of properties at the moment and construction of the 210,000 is only just beginning or will commence soon. It will take at least two or three years for these developments to complete, by which time price reductions will start to be seen.
According to AMP Capital chief economist, Shane Oliver, “The real risk for property is in 2017, when the Reserve Bank starts raising rates, and then you will see prices come off 5 to 10 per cent, particularly in Sydney”.
Over the next 12 months, Angie Zigomanis, the author of the report, states that the strongest markets would be New South Wales, Queensland and Victoria, due to a shortage in supply. However as affordability worsens in both Sydney and Melbourne, price rises would only marginally increase, whilst Brisbane would spur stronger growth due to an improvement in affordability.
New apartment construction
Today, most of Australia’s capital cities are concentrating on more new apartment constructions, with new apartment developments being built at record rates, helped by the investor demand. Angie Zigomanis states that, “As these projects are progressively completed, strong tenant demand will be required to support rents and consequently values upon completion.”
By next financial year of 2016-2017, BIS Shrapnel expects that both the economy and employment would start to improve which in turn would help property prices. However, interest rates would start to tighten by the end of 2016 and Mr Zigomanis believes that the cash rate will rise by 50 basis points, which might not sound a lot, but would be enough to slow down the growth in Sydney and Melbourne, whilst weaken other markets where price growth has been limited.
So if you are looking for a property market to get into right now, then Brisbane is still very affordable, with prices still below where they were five years ago. Over the next three years, house prices here are expected to increase by 13 per cent over this timeframe, and apartments will see an increase of 6 per cent with a median unit price moving from $435,000 to $460,000 in June 2018. For the apartment market, Brisbane is also the only capital city that is forecast a gain.
To find out more about the property market for 2017, be sure to read our Ultimate Property Market Forecast for 2017
Published on 2nd of February 2017 by Marty Stanowich