BIS Shrapnel sees property price falls ahead
A new report by market analyst BIS Shrapnel is predicting that property prices in most national capitals will fall over the next few years.
Not by much in Sydney and Melbourne, but Perth and Darwin aren't looking pretty.
Brisbane, Canberra and Hobart will escape the fall.
A lower population growth, increased apartment supply, a weakening economy and lack of affordability will offset the impact of lower interest rates and investor demand.
Hardest hit will be apartments, particularly in large apartment complexes, due to a record 220,000 new dwellings to be started this financial year.
"As these dwellings reach completion, all states with the exception of NSW will have moved into over-supply, or be experiencing an increasing over-supply," said the report's author Angie Zigomanis.
"Rising supply and weakening investor demand will play an increasing role in the price outlook of Australia's capital cities over the next three years," said Angie Zigomanis, the chief of BIS Shrapnel's residential research unit.
Sydney is expected to be 1 per cent lower in 2019, or a real decline of 9 per cent over the period after taking account of inflation.
Melbourne is expected to be 1 per cent lower in three years, or a real decline of 8 per cent.
House and apartment prices are expected to fall in real terms in five of the nation's eight capitals with Perth forecast to slump by 23 per cent.
Darwin will continue struggling to recover from the collapse following the end of the mining boom.
Zigomanis, a senior manager, said 2016-17 will remain "relatively stable" but underlying pressures of oversupply, falling overseas demand and affordability will begin to erode gains.
He predicts a cyclical downturn that will take until the end of the decade to recover, assuming broader economic recovery to revive the property sector.
BIS Shrapnel senior manager and study author, Mr Angie Zigomanis, said the rate of price growth in Sydney and Melbourne has slowed in 2015/16.
"Investor demand has been a key driver of the upturn in both markets and moves by the regulator to slow growth in bank lending to investors have seen investors retreat.
"At the same time, dwelling completions are rising to record levels and the increasing supply/demand imbalance will increasingly dampen price growth.
"In particular, the boom in apartment construction over the last couple of years is creating a disconnect in the supply balance between detached houses and units, with a resulting difference in their price outlook.
“In fact, nearly all capital cities are building apartments at record rates on the back of the recent strength in investor demand,” said Zigomanis.
“As these projects are progressively completed, it is likely that there will not be enough tenants in a number of cities to support rents and consequently values upon completion."
The report noted national population growth in 2014/15 was at its second lowest level since 2005/06, with net overseas migration falling from 229,400 persons in 2011/12, to 176,500 persons in 2014/15 – although there have been wide variations across the states.
"Meanwhile, the change in gears from resource investment to domestic demand driving the economy continues to be slow and economic growth nationally is muted.
"Without a substantial acceleration in economic conditions, employment and income growth will also be slow. Even in the stronger growing states of New South Wales and Victoria, there is further limited upside to prices."
The best prospects for median house price growth over the next three years are forecast to be in the Brisbane and Hobart markets, followed by Canberra.
Interest rates are expected to remain low enough to provide some support to prices as investors should be able to meet their mortgage repayments despite potentially having to discount rents to attract tenants.
"Consequently, owners will be able to hold their properties through this weaker period with few forced sales likely to be taking place to create significant downward pressure on prices," the report noted.