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- June 30, 2015 /
- by Josh Atherton /
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The current period of low interest rates have been identified as one of the major factors spurring high rates of price growth in both Sydney and Melbourne as investors and homebuyers take advantage of cheap finance and a booming housing market. This of course has prompted fears that there will be a housing price correction, a claim which has been repeated a number of times throughout this decade and never come to fruition. The conditions in Sydney and Melbourne make any correction or plunge in prices difficult due to the low ratio of supply to existing demand. This indicates there will always be a healthy demand for Sydney and Melbourne property and any correction in the market will most likely be in the form of sluggish growth or slight decline for a number of years following a peak,yet never the dramatic plunge spouted by the media.
This has been confirmed by BIS Shrapnel in their recent Residential Property Prospects 2015 to 2018, stating that tough times are ahead for many Australian capital cities in particular Sydney and Melbourne, with the exception of Brisbane.
Sydney and Melbourne are unique in the Australian property market due to the their conditions, recording double digit price growth in their median housing prices underpinned by strong population growth, positive economic activity and an underlying dwelling deficiency. Other capital cities have been relatively subdued with Perth and Hobart markets facing a decline over 2014-15 and the rest recording moderate growth, some falling short of inflation, despite many cries of a housing boom as well as housing prices reaching unsustainable levels.
BIS Shrapnel Senior Manager and author of the study, Mr Angie Zigomanis stated, the main driving force behind the price growth in the coming years after interest rates have settled is predicted to be the demand and supply balance across the varying property markets across the states. Zigomanis also referred to the boom in apartment construction over the last couple of years causing a distortion in supply of inner city dwellings and a further margin in median values.
While the next few years will be turbulent for the property market much of the “housing bubble crash” predictions have no basis instead the market will taper down until affordability catches up. Sydney is predicted to take a fall over the next year or two of approximately four percent and a total two percent growth predicted over the three year period representing a real decline of six per cent. Melbourne is likely to see an oversupply particularly in the inner city suburbs as net migration and a weakening state economy. This spells a slowing of growth over the next three years with a 5 per cent rise in the coming year following by a slight contraction, when taking inflation into account this will result in a decline in real terms of four percent. Units are likely to suffer the most due to the high levels of supply and vacancy rates with a predicted decline of four per cent of three years or 12 per cent in real terms.
Brisbane tells a different story with conditions in place for a solid period of growth over the next three years due to low vacancy rates and median house prices which remain below their June 2010 levels giving the Brisbane market plenty of room to catch up. Predictions of seven per cent growth over the next 12 months as buyer confidence improves. Although concerns of apartment oversupply remain the housing sector still remains in high demand and will not see any decline over the three year period unlike the remainder of Australian capital cities. A total rise of 13 per cent is predicted for Brisbane over the three year period which will represent the highest capital gains of any Australian city over this period definitely good news for Brisbane investors and homeowners. The outcome of this report is likely to encourage investment in the Brisbane property market paving the way for future growth with many independent analysts predicting Brisbane to be reaching a period of growth while the rest of the capitals are at different stages of the property clock while last year’s hotspots of Sydney and Melbourne are facing their peak.
Affordability is a major factor for amateur investors looking to make entry into the property market, with Sydney and Melbourne reaching unsustainable levels, Brisbane is looking like a far more desirable locations and poised for future growth, the Brisbane investment property is in its prime. Taking a hypothetical purchase of a $750,000 investment property in each of the major cities. The first disparity noticed, other than purchasing power, would be the stamp unit paid on the property. Ranging from $28,856 in Queensland to $41,547 in Victoria with NSW in between at $29,561. Yields also play a part in the overall viability of an investment property in each city with Brisbane topping the list with gross rental yield of 4.5% for a house, while Sydney and Melbourne trailing after their growth period with yields of 3.4% and 3.2% respectively.
While Sydney and Melbourne have generated impressive returns for investors following the previous downturn of 2012, it is now clear that they have reached the peak of their cycle in terms of affordability and price growth. The next few years will be centered on more inexpensive cities allowing investors to take advantage of future growth prospects.