Both the Sydney and Melbourne markets are softening, and one global accounting giant has mapped out when the two markets are expected to move into growth territory.
The Housing Affordability: Sydney and Melbourne Housing Market Update report by KPMG Economics refutes the assumption that house prices will go into free-fall, but says the two major capital city markets of Sydney and Melbourne expected to reach their lowest point this calendar year.
However, Melbourne is expected to recover during 2020, while Sydney is expected to lag behind until 2021.
The reasoning behind this was found to be due to the difference of the impact of local investors in both capital cities, according to Brendan Rynne, KPMG’s chief economist.
“A relatively high level of increases in the stock of residential dwellings in both Sydney and Melbourne, a decline in financing for housing investors, and the tightening in APRA lending standards have all combined to drag house prices downwards,” he said.
“But what we have also found is that dwelling prices in Sydney are much more sensitive to the demand created by domestic investors than dwelling prices in Melbourne. It is predominately this factor that is causing the difference in expected dwelling price growth between the two markets.”
Another aspect set to influence the property market this year is the rising number of foreign students in Australia, with approximately 30 per cent of dwellings entering the market in NSW and 25 per cent in Victoria required to accommodate foreign students.
“With now more 800,000 foreign students studying at Higher Education, Vocational Education, Schools and ELICOS institutions in Australia, and even adopting a higher occupancy rate than the average per dwelling, the accommodation demand for foreign students would have been around 87,300 dwellings in Sydney and 78,500 dwellings in Melbourne in 2018,” Mr Rynne said.
The KPMG Economics research also found that there is a ‘long-run relationship’ between house prices and the influencers of property prices that is expected to revert prices back to equilibrium over the long-term.
“Our housing update shows that the tougher regulatory actions and taxation measures by both federal and state governments we identified last year have had a significant effect,” said Mr Rynne.
“There has been a falling-away in foreign interest, notably from China, and lending to domestic buyers has got stricter, while housing supply has increased. This is why prices have declined – but we believe that process will reach its peak over the next few months and then go into reverse later this year.”