The rise in house prices over financial year 2016-17 has been predicted to be short-lived by industry analyst and economic forecaster BIS Oxford Economics.
House price growth has been forecasted to slow down, potentially decline, in most Australian markets over financial year 2017-18 and 2018-19 due to lending restrictions on investors and an increase of new stock levels.
Outlined in the Residential Property Prospects 2017 to 2020 report, the majority of markets will see an oversupply of property which has Angie Zigomanis, BIS Oxford Economics senior manager and study author, believing all markets will weaken as a result in a similar fashion to how they weakened in 2015-16 due to regulations of investor lending. However, a crash is unlikely due to a stable economic environment combined with low interest rates.
“New apartment completions in Australia will hit a record in 2016-17, which have been largely bought off-the-plan by investors,” said Mr 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.”
The oversupply is predicted to see 218,000 dwellings in financial year 2016-17 across Australia, which will translate to an oversupply for all states bar NSW, which is described as being ‘heavily undersupplied’ that will then create a drag on the Australian economy.
“In New South Wales 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,” Mr Zigomanis said.
“As investor expectations of capital gains are reduced, investor demand is expected to weaken further, creating additional downward pressure on prices.”
Owner-occupied demand has also been stated by BIS Oxford Economics to come from cuts to variable interest rates, which should translate to support for median house prices.
The capital cities primed for the most median house price growth over the next three years are Canberra and Hobart. For Canberra, this is because of population growth, a deficient detached house market and high incomes, while Hobart has Tasmania’s oversupply offsetting Hobart’s deficiencies combined with migration and population growth.
Other capital cities have only limited rises predicted, with new construction of apartments supporting the market in Melbourne and Brisbane, while Perth and Adelaide have downside forecast due to the ‘soft’ economic environment, a weak population growth and excess supply. Darwin, while it has similar issues like Perth and Adelaide, has the potential to bounce back in financial year 2018-19. Sydney’s median house price is predicted to end up being lower due to affordability measures, the loss of investors and tighter bank lending policies.
Units have been predicted to be where the majority of the oversupply will lie, where construction has predominately been caused by investor demand, which has already caused the median unit price to fall below the median house price.