FHBs need to return to the market to underpin next recovery stage: BIS Shrapnel

The Reserve Bank of Australia is to go easy on interest rates in the next 18 months and there could be the possibility of more cuts if property conditions worsen, according to BIS Shrapnel.

BIS Shrapnel has forecasted 156,800 dwelling commencements across the nation as the final result for 2012/2013, an annual increase of 8%.

BIS Shrapnel says investors and upgraders/downsizers have underpinned this upturn in dwelling commencements, however first home buyers will need to return to the market to support the next stage of recovery.

“The changes to the First Home Owner Grant (FHOG) are so far limiting any increase in demand from FHBS, with all states/territories except for the Northern Territory having either made changes or announced changes to the policy,” says BIS Shrapnel.

FHBs are forecasted to gradually return to the market and are expected to play an important role in 2014.

BIS Shrapnel says the gradual return of FHBs will see growth accelerate in 2014, with private house commencements picking up strongly.

There is forecasted to be 166,150 building commencements in 2014, an 8% increase, with private dwellings reaching their highest annual level since 2004.

BIS Shrapnel says New South Wales is leading the way as the strongest growth region for total dwelling commencements, an annual increase of 24%, but the residential property market remains tight.

This tightness is supporting strong growth in dwelling prices and rents and makes Sydney the least affordable out of the Australian capital cities, with a vacancy rate of 1.8%.

BIS Shrapnel says the number of loans given to FHBs in New South Wales dropped by 44% over 2012/2013.

“Filling the void left by FHBS has been the investor segment of the market, which is increasingly competing for properties at the lower end of the established market.

“Although this makes it difficult for FHBs, it still provides a market into which upgrader/downsizers can sell their existing dwellings and creates the desired turnover required to encourage the development of new dwellings.”

Meanwhile, BIS Shrapnel says Melbourne is the opposite as its property market is estimated to have moved into oversupply with the vacancy rate increasing to 2.8% in the past year.

BIS Shrapnel expects the vacancy rate in Melbourne to continue to rise with a sizeable number of dwellings coming through the supply pipeline.

BIS Shrapnel forecasts Melbourne’s oversupply to continue in 2014, which will limit the prospects for future increases in residential building activity.