Australia under pressure to cap price growth
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Australia under pressure to cap price growth

Australia under pressure to cap price growth

by Sasha Karen | July 09, 2018

There’s many working parts coming together that will see price growth capped in Australia in the near future, according to a new report from realestate.com.au, but there’s still a positive side to this.

Australia, under pressure, price growth

In the realestate.com.au Property Outlook – July 2018 report, various factors are coming together that indicate that price growth will likely be capped. The report outlines that this could occur during the next six months of the year.

The reasonings behind this are:

Fewer foreign investors

With the introduction of new taxes targeting foreign investors, applications to the Foreign Investment Review Board declined “dramatically”, the report stated. There is still rising interest from foreign buyers, but no transactions are taking place. Less developments are being built; foreign investors can only purchase new properties.

Fewer local investors

The report notes investor lending has fallen by 15 per cent during the last year, with investor sentiment changing due to mostly having issues securing finance, as well as reduced incentives for investors going off-the-plan and general price declines, among other factors.

Royal commission

Despite it still ongoing, banks are reacting to the royal commission and have started to restrict lending and have placed more scrutiny on who they lend to. In the past, banks took people for their word, but now, the report noted, more proof is required. Interest-only loans, a favourite of investors, have also seen restrictions, with more restrictions expected over the next year.

Mortgage rates

While rates have not moved in Australia for almost two years, they have risen in the US. This impacts Australia as the banks lend approximately from wholesale markets and are impacted by international markets. If the much-predicted interest rise does eventually happen, all of these moving parts together will result in less money being borrowed.

A changing government

If the Labor party wins the federal election next year, the report said their policy of changing negative gearing could have a big impact on the property market, according to a report by RiskWise and Wargent Consulting, estimated to be a fall of 10 per cent in Sydney and Melbourne. If prices continue to drop, this will see them drop further still.

With all of these moving parts taken into consideration, the report stated that the most likely outcome in the near future (of the next six months) is that of continued price moderation in Sydney and Melbourne, with falls to be more severe in Sydney than in Melbourne.

Overall, the economy is slowly reaching the growth portion of the property cycle and due to the sudden slowdown of property development, supply will shrink, therefore causing demand to grow stronger. According to the report, this should soften the negativity expected in the market, which the report noted is something that did not happen the last significant fall were recorded post-GFC.

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