Melbourne inner ring house prices to increase by 9%: My 2015 forecasts

GUEST OBSERVATION

2014 was, for the most part, a solid and steady year for Australia’s residential property market in its major cities.

The Reserve Bank of Australia’s efforts to jawbone the property market down has had little to no effect on our major cities markets’, which have remained steady.

It is likely that interest rates will remain at current levels throughout 2015, with an increasing number of economists even tipping another interest rate fall. These low rates combined with steady demand and confidence from buyers suggests that the market will remain buoyant in 2015.

The New Year is tipped to open strong as a successful spring always leads to a strong opening in February. In 2015, Easter falls early in the year, which will bring forward activity in February and March.

Government intervention into the financial sector, in particular, placing a ban on borrowing to buy property within self managed super funds will cause a slowing in investor demand for property. Furthermore, the government has capped investment loans to 10% of banks capital lending requirements.

Most of the major banks are already at this limit and most of the secondary lenders have already exceeded this limit, the causal effect of this being a ban on investment property loans or credit squeeze – a sure way to destroy confidence and subdue demand.

Unemployment is the elephant in the room, though. Property is all about confidence. A sharp rise in unemployment will cause property markets to stall.

In 2015, it is likely that the strongest sections of the market will be established houses under $2 million within 10 kilometre of Melbourne’s CBD, and established houses under $2 million within 11 kilometres to 20 kilometres from Sydney’s CBD.

Affordability will become the main staller of our markets as median house prices in Sydney reach $800,000 plus and $650,000 plus in Melbourne. These markets have a tendency to self-correct in the long-term though. Population growth is likely to remain strong and supply of detached housing remains in short supply, this will keep prices higher.

Out of all the major cities, Perth is predicted to experience the least growth with values unlikely to increase in the short to medium term as the market absorbs oversupply.

Oil prices have fallen sharply to $60 a barrel. If sustained at these levels, there may be once again a renaissance in the motor vehicle with buyers prepared to make life style choices and commute larger distances.

The Australian dollar has fallen almost 20% over the past 18 months, this will make Australian property cheaper to foreign buyers and expats who are often paid in U.S. dollars.

Despite our forecast of stable conditions in 2015, selecting a property that guarantees good capital growth is a complex process. Many different factors including size, condition, suburb, street, lot location, orientation and broader economic conditions hold bearing on a property’s potential capital growth.

Analysing a property’s historical performance is probably the most important activity to undertake when selecting an investment grade property.

MY PROPERTY TIPS FOR INVESTORS IN 2015

• Research the market and invest in areas where new infrastructure is planned – this will add amenity to the suburb.
• Practice caution when dealing in new property and investor driven markets that are overly influenced by foreign buyers.
• An increasing number of homes are being dressed for sale. Look past the gloss and identify potential long-term issues.
• Avoid properties in compromised locations, such as next to busy roads. They may appear cheap but are less likely to experience capital growth under slower/normal market conditions.
• Acquire property that’s adaptable/suitable to peoples’ current lifestyle needs like properties with sunny northerly aspect rear yards, alfresco outdoor areas and open plan living areas.
• Do your homework! Buyers need to put in the time and the effort to complete thorough research into any property purchase to ensure it will perform well in the future.
• Investigate comparable sale results, sale history of the property, conduct building and pest inspection reports and review intangible aspects such as locational attributes, street appeal, floor plan, orientation, outlook, future surrounding development, town plans and zoning precincts.
• Bid early and hard at auction.

State by state forecasts begin on the next page. Please click below.

STATE BASED MICRO 2015 PROPERTY FORECASTS

Overarching forecast of Melbourne’s property market in 2015:

• The low interest rate environment will continue to assist Melbourne’s property market; facilitating strong demand and confidence from buyers. This should result in steady property price growth throughout Melbourne’s most established suburbs.
• Introduction of neighbourhood zones in leafy inner areas of Melbourne have effectively shut out developers from areas majority of people want to live. This supply constraint will over time effectively cause prices to rise in these locations as demand will outpace supply.
• The oversupply of land and new housing in Melbourne’s growth corridors will contribute to patchy results in these locations.
• The ever increasing supply of off the plan properties in Melbourne’s CBD and inner ring will continue to negatively impact new and modern apartments in the city.
• In short, Melbourne’s property market in 2015 will closely resemble 2014, except it is likely to experience 1 - 2 percentage points less in growth terms.

Overarching forecast for Sydney’s property market in 2015:

• In 2015, stock levels in Sydney will remain historically low while demand for vacant land will remain steady to strong.
• Demand from overseas buyers will continue - subject to any FIRB changes.
• The entry level market is likely to see good growth.
• Granny flat sites will continue to draw in buyers, particularly Chinese and subcontinent investors.
• Acreage markets will experience growth, particularly within new land release areas.
• New unit prices will stabilise and soften as increasing stock levels drive oversupply. This may cause a reduction in rental returns, particularly within overseas investor driven localities.
• The south-west rail line will greatly benefit south-western growth centres.

Overarching forecast for Adelaide’s property market in 2015:

• Record low interest rates have been a key driver of growth from late 2012 onwards. During 2014 demand has generally exceeded supply in the inner ‘blue chip’ suburbs resulting in a ‘sellers market’.
• Affordability continues to become an issue - we have seen very strong growth for infill development in the middle north-eastern and south western suburbs during 2014. Growth in this segment is expected to slow into 2015.
• Increasing unemployment in the manufacturing sector and recent reductions in government grants will continue to have a negative impact in some segments of the market; particularly in the outer mortgage belt areas to the north.
• In general we expect that most segments will normalise in the middle and inner suburbs during the later part of 2015.

Overarching forecast for Perth’s property market in 2015:

• Whilst low interest rates will in time rekindle buyer confidence and stimulate market activity, values are unlikely to increase within the short to medium term as the market absorbs the oversupply.
• The slow-down in the resources sector is likely to see a further reduction in activity.

Overarching forecast for Brisbane property market in 2015:

• Minimal upward movement for land prices.
• Good demand for new house and land packages.
• Lot production continues to rise and expected to reach 9,000 lots per annum by 2015/16.
• More positive local economic conditions.
• Residential and Commercial construction markets are likely to improve further.
• Relatively higher rental yields.
• Increase in interstate migration and move to lifestyle property.