As we approach the end of 2016, it’s time to look forward and see what’s on the table for the property market in 2017. However, before we look into the future, it’s worthwhile relooking at what has already occurred this year so far.
Interest rates have fallen from 2.0 per cent at the start of the year and now sit at 1.50 per cent – an historic low. This low interest rate environment has helped support the domestic demand, whilst the lower exchange rate since 2013 has also helped the trade sector.
Currently, the economy is growing at a moderate pace. There has been a large decline in the mining industry and this growth is being offset in other areas including residential construction, public demand and exports.
The lower exchange rate has also meant that borrowers can take advantage of the low funding costs of taking on a mortgage when buying property.
The unemployment rate has declined this year; however, employment growth across the country dramatically differs. As a whole, employment growth across the country has slowed, but part-time employment has been growing strongly.
In the near-team it is expected that there will be an expansion in employment.
Lenders have become more cautious throughout the year making it more difficult for both investors and developers to be approved for finance. Because of this, growth in lending for housing has slowed over 2016. This is also a reflection of the slowing property market from the boom time highs.
Housing prices have also steadied this year and have not grown at the great pace as they did this time last year. However, in recent months, some markets have been seeing a rise in dwelling values including Sydney, Adelaide and Darwin according to the latest CoreLogic report.
Buying property as a foreign investor has toughened up this year, particularly in Melbourne where foreign buyers have been hit with an increase in stamp duty surcharge from 3 per cent to 7 per cent as well as a hike in the land tax surcharge for absentee owners from 0.5 per cent to 1.5 per cent.
In NSW, the introduction of a 4 per cent stamp duty surcharge was introduced in the middle of the year, whilst from 2017 foreign buyers here will also have to pay an extra 0.75 per cent land tax. It will be interesting to see how much of an impact this increase in fees for foreign investors will have on these property markets.
Over the next year, the economy is forecast to grow at close to its potential rate, before gradually strengthening. Inflation is currently quite low and is expected to gradually pick up over the next two years.
China has been in the news a lot during 2016 with price crashes, however recently economic conditions in China have steadied, helped by growth in infrastructure and property construction. It’s worth noting that there are still medium-term risks to growth, whilst inflation remains below most of central banks’ targets.
2017 Property Market Forecast Overview
Brisbane will remain as the most affordable city along the east coast in 2017 and will see growth start to pick up. If you have yet to buy in Queensland and you’re a first home buyer, then you can still benefit from the $20,000 first home buyer grant, if you buy before 1st July 2017.
After double digits’ growth at the end of 2015 and still some strength in the market in 2016, we expect Sydney’s market to start to slow down, mainly due to the unaffordability issue. There are still handfuls of suburbs to keep in mind though with some good opportunity. However, do not expect the levels of growth that have been seen in the last few years.
Certain parts of Melbourne will remain attractive to invest in in 2017 if you want to avoid the high prices of Sydney. However, some suburbs will see a high level of new apartments coming onto the market, which could see rental prices decline until all of this stock in the market is absorbed. This is mainly concentrated to the CBD, Docklands and Southbank.
Rental yields currently sit at an all-time low, particularly for Sydney and Melbourne and will continue in 2017.
Josh Johnston’s 2017 Property Market Forecast
Josh Johnston is one of iBuyNew’s Senior Property Consultants. When asked about what will happen to property in 2017, this is what he had to say.
Our national identity and confidence is tied up in real estate and now that the boom is over, people are feeling more insecure and unsure about the market, especially with conflicting negative headlines.
I see no rush to invest in Sydney property in 2017 as the market will be flat for a number of years. Developers are still riding the wave of the boom but as future projects launch in coming years, there will be more competition for buyers from other developers and we may see more incentives being offered. You can therefore look for better value in other areas until then.
Over the next year, there is going to be a period where Sydney settles and finds its equilibrium. Buyers have been so used to the boom, its absence has shaken their confidence. You need to remember that real estate in Australia is a very robust investment. Once people remember this and get over their fears, they will start to invest again.
Interest rates have never been a determining factor on whether the market goes up or down. It was a helpful stimulus to the boom in the last cycle, however, history has proven that the market will do what it wants to do regardless of rates, just look at the boom of the late 1980’s with rates in the high teens.
People often lose sight that owning a property is a good thing irrespective of what the market is doing. It is always better to own a property than not to own one. In the last 35 years there has only been five negative growth years in Sydney, four in Melbourne and seven in Brisbane. Property will help you reduce tax and existing debt whilst consolidating your position so you are ready to buy again before the next boom cycle.
You therefore need to take action whilst you can. Supply is already tightening up, interest rates will eventually rise and buyers need to use their deposits before they spend them, which sadly, I see happen all too often. Even in a flat market, you are far better off financially owning a property than not owning one. In a flat market of 2-3% growth, the average Sydney property will increase by approximately $20,000 per year. This can be the difference between an affordable property and being priced out of the market.
In 2017, Melbourne and Brisbane will be the two best cities to buy in. For Melbourne, you should ignore the CBD areas including Southbank and Docklands as these areas are majorly oversupplied. Instead you should be focusing on areas out of the city where there is less development and due to Melbourne’s strong population growth, this demand will only create more competition.
In Brisbane, there have been a lot of permits approved, but only about one third of these residential developments have or are being built, which does very little to help alleviate the city’s undersupply. Once current new developments have been constructed and absorbed, Brisbane will still face an undersupply situation and vacancy rates have only marginally changed, an indication of strong demand absorbing current supply.
2017 will be a great time to buy property and you should be looking at the key fundamentals:
- Demand is still exceeding supply;
- New approvals are down;
- In some cities new supply has dropped by 20% - further tightening of undersupply;
- Australian real estate remains a robust investment;
- Lending has never been more affordable;
- Get correct advice from an expert advisor such as iBuyNew
Alex Goldhagen’s Property Market Forecast for 2017
Our Senior Property Consultant Alex Goldhagen also offers the following advice for 2017.
Anyone can make money in a booming market, but you need to get the right advice during this period in the cycle. What we’re seeing right now is perfectly natural and we have to wait another seven to eight years for Sydney to reach the bottom of the cycle again.
This now gives investors the chance to explore outside of Sydney. Granted, that if you bought anywhere in Sydney before the boom, you would have done very well but the time has come where the growth phase will give way to a recovery period of tightening rentals and waiting for incomes to increase.
Going into 2017, buyers need to consider the risks more carefully than before and seek expert advice from Property Consultants like iBuyNew. The majority of people believe that the Sydney market is going to continue to grow, but in actual fact the market will start to flatten out. Based on 2015/16 growth an $800,000 property would be worth $4m in 10 years at that rate, highly unlikely. There are three main things you should focus on in 2017:
- Reducing your personal debt, otherwise known as bad debt;
- Minimise your tax and investigate better structures;
- Convert your income into assets that can replace your salary in the future.
The boom has created high confidence and excitement; however, now may not be the best time to buy in Sydney. Entry price here is extremely expensive, and with low rental yields, the potential for return on investment is very low. Buying a property here has a high risk rating due to the higher debt you now require which puts you under more financial strain, especially if interest rates creep up.
During the next two to three years, there is potential there will be more mortgage stress as interest rates rise.
However, if you do manage to find a Sydney property for under $550,000, with good rental yields then this might be a worthwhile opportunity so long as you plan for 7-10 years.
In 2017, Brisbane will become more attractive due to its affordable property prices alongside good rental yields; lower entry price and higher rental yields reduces your risk substantially.
Melbourne, although more affordable than Sydney, will continue to suffer from low rental yields closer to the CBD and so the areas from 10-30kms from the CBD will represent the best opportunities providing they still have the fundamentals (schools, shops, public transportation etc.)
As long as you’re aware of the risks, you can work to mitigate them. Ensure that you surround yourself with a good team of reputable professionals including a Property Consultant, Mortgage Broker, Solicitor, Accountant, even a Doctor and a Mechanic but keep in mind you wouldn’t ask your Mechanic for medical advice, likewise your Accountant cannot give advice on Mortgages or Property.
A Broker’s Perspective
If you are looking to take out a loan next year or thinking about changing loans, then our in-house Broker, Derik Karamian has the following advice.
“You can never be exactly sure what is going to happen with interest rates. If there is speculation that interest rates are set to come down, should borrowers ignore low fixed rate offers and keep their mortgage on a variable interest rate? Or conversely, if interest rates are expected to increase, should you ignore the low variable rates and lock in a good fixed rate.
Now, most economists and analysts believe that rates will stay on hold and possibly be reduced slightly further in the short to medium future. However, the most recent rate rises by the Big 4 banks and the likes of Suncorp and ING in the investment loan space, may make us believe that investment loan rates will be on the rise. Further evidenced by the fact that most banks have increased their 5 year fixed rates, thus predicting that rates will increase over the next few years.
As mentioned, it is very difficult to predict interest rate movements and people should consider their own personal and financial situation. However, it would be wise to split your loan as part fixed and part variable. Thereby, locking in a great fixed rate whilst taking advantage of the features/benefits of a variable rate (i.e. possible rate reductions, having access to an offset account and redraw). This will also allow you to protect yourself in the event of adverse interest rate movements”.
To learn more about buying property in 2017 and which city best suits you, why not come in and meet with one of our Property Consultants at iBuyNew who can run you through our great range of new developments. You can also meet with our in-house broker to understand your borrowing capacity. Give us a call today on 1300 123 463
Published on 20th of December 2016 by Marty Stanowich