Australian residential markets faced numerous headwinds in the past year according to the BIS Oxford Economics Residential Property Report – June 19, including low income growth, rising supply, and tighter lending conditions. Property prices have fallen in a number of capital cities including Sydney and Melbourne. This in turn has made access to finance more difficult and shaken buyer confidence.
According to the report, Sydney house prices have retreated by 18 per cent over the past 2 years and although the Sydney market is now bottoming out, relatively weak capital growth is forecast over the next 3 years with an average of 2 per cent per annum for houses and a paltry 0.5 per cent per annum for units.
Despite improving affordability, credit lending, and a robust Sydney economy, higher levels of supply, slow wages growth and recovering market sentiment are limiting growth forecasts. Coupled with current low rental yields of 2.8 per cent for houses and 4.1 per cent for units which are not expected to lift greatly, it demonstrates that although buying opportunities are improving, it could still be a few more years until Sydney residential property is ripe for the picking.
Top predictions for growth 2019-2022
According to BIS Oxford Economics, Brisbane is the clear front-runner with 20.5 per cent growth for houses and 14 per cent growth for units forecast over the next 3 years. This is welcome news as Brisbane is well-overdue to enjoy its next property boom!
The report states that in recent years, a high level of dwelling supply and weak Queensland economy have dampened price growth in Brisbane, resulting in house prices that are relatively affordable. However, with credit conditions easing and interest rates falling, improving affordability will be a catalyst for raising price growth as stronger economic growth returns and undersupply kicks in.
Coming in second on the report are Adelaide at 11.1 per cent growth for houses and Canberra at 10.3 per cent growth for houses.
The nation’s capital is an extremely attractive option as the economy remains vibrant with strong population growth, low unemployment, and new infrastructure and transport links under construction. High rental demand in Canberra is reflected through extremely low vacancy rates and gross rental yields as high as 6-7%. In addition, the current price gap between units and houses (55 per cent difference in 2018) cannot continue indefinitely. Affordability for units will soon create a rise in demand and the price difference will decrease. Given Canberra is underpinned by solid fundamentals, it’s unlikely that houses will fall, and more likely that units will grow more aggressively to catch up to houses.