While property values continue to rise as a whole, the rate of growth is markedly slower, with half of Australia's capital cities recording a drop over the month of July. So what's ahead for the Australian property markets?
- Property prices growth slowed in the July quarter, after hitting new record highs previously
- Sydney and Melbourne continued to rack up the biggest gains in the country
- Rate of price growth as a whole is slowing despite price increases
- Affordability and oversupply set to dampen further growth prospects
- Two rate cuts expected this year, but no material impact on prices
The state of Australia's property market
Let’s face it. The last 12 months have been rather messy for Australian investors. There were uncertainties towards property taxes, and there were fears of a property crash after the massive boom in Sydney and Melbourne. And while prices continued to rise as a whole, the rate of growth overall is slowing down. According to the July stats from CoreLogic RP Data, the annual growth rate across Australia's property market has slowed to just 6.1% after peaking at 11.1% in October 2015. This is the slowest annual growth rate since September 2013 says Tim Lawless, research director, Asia Pacific for CoreLogic RP Data. Even Sydney and Melbourne were not spared, with their annual growth rate falling below 10%.
Property markets face new challenges
Shane Oliver, chief economist with AMP, says the property market is currently facing a couple of powerful headwinds: falling population growth and rising housing stock in many capital cities. While the oversupply worry is mostly focused on the apartment sector, this will have a dampening effect on the market as a whole. "The supply situation for houses is pretty benign, but the oversupply of units is going to be a problem in Sydney, Brisbane, Melbourne and Perth as more apartments come online," says Oliver. "This suggests to me that apartment prices could actually go backwards over the next 12 months in those cities even as houses continue to grow." As such, Oliver expects property values to drop between 5-7% across the country between 2017-2018. "This coincides with the Reserve Bank raising interest rates again. When this occurs, apartments are more vulnerable, and we could see price falls of 15-20% at some point given that potential oversupply," he says. Oliver points out that there’s another risk that APRA might come back with another round of tightening measures if Sydney and Melbourne's prices don’t slow down more quickly.
"There’s a risk that APRA and the RBA will place more barriers for investors coming into those markets" Shane Oliver, chief economist, AMP
While Oliver expects the Reserve Bank will cut interest rate twice, likely in August and another one in November, he expects little upside for prices. "The interest rate cut will certainly prevent further slowing in the property market. But I don’t think it will cause a renewed acceleration. I think a lot of pent-up demand have been spent and given that a lot more supply coming, I think it will put a bit of constraint on things. There’s a limited upside there that if the RBA cuts rate, it might give a spurt of life in the market as we go into spring."
But there’s good news
Despite the overall weaker outlook for the property market, the economy remains robust and strong enough to avert a property market collapse. Indeed, Deloitte Access Economics pointed out that while the challenges remain large for the lucky country, there’s a lot to be happy about Australia’s prospect as a whole. "Australia’s growth is great – or, to be more exact, it’s the trend, but that’s a pretty great position to be in at the tail end of the resources boom," it says in its report. The economic forecaster points out that low-interest rates have kept the retail industry healthy and propelled building construction to record highs while the lower $A has fired up tourism.