In recent months the property market has sounded very pessimistic about the future. There are fears that property prices remain grossly inflated relative to income, inflation, rents and GDP, to cause a bubble and an impending crash. However, economic forecaster BIS Shrapnel says that the concerns have been exaggerated. In their report Residential Property Prospects 2015 to 2018, they say that the country’s home prices will move downwards starting from 2017. The reasons for the decline will include : an increasing supply of residential properties, lower affordability and tightening interest rates. They add that, in 2015-2016, home prices will increase on the back of lower interest rates and an under-supplied residential real estate market.
Key points from the report
- Development activity is concentrated in apartments, resulting in a supply imbalance between detached homes and units, and a subsequent difference in price outlook.
- For rental income to remain healthy and apartment values to stay robust, tenant demand must be strong. However, the country is experiencing a population slowdown.
- Overseas migration has dropped from 235,700 people between 2012 and 2013, to around 184,000 in 2014. Most of the slowdown has been witnessed in the Northern Territory, Queensland, and Western Australia.
- While the falling affordability in Melbourne and Sydney may see single-digit price growths, a recent weak price growth in Brisbane may accelerate with interest rate cuts, making homes more affordable.
- Interest rates will rise in 2016. This will impact residential markets in Melbourne and Sydney, where recent price rises have decreased affordability.
Price growth in different capital cities
Median housing in WA’s largest city fell by 3 percent between 2014 and 2015. The decline is expected to continue into 2015-2016 and 2016-2017, with the possibility of stabilizing in 2017-2018. BIS Shrapnel forecasts that Perth’s median home prices will be 3% lower by mid-2018 in comparison to June 2015 levels, amounting to a decline of 10%
Median home prices are expected to fall by 4% between 2016-2017 and 2017-2018. Investors and owner-occupiers are anticipated to be discouraged by price growth and higher interest rates, especially as demand pressures start easing a bit.
Median home prices are expected to remain flat over the three years to mid 2018.
The report believes Brisbane to be the only capital city that won’t witness a fall in median home prices over the next three years. Prices are expected to increase by 13% over the same period.