Australia’s hot property market is expected to come off the boil by 2017.
Economic forecaster BIS Shrapnel says low interest rates will fuel further house price growth in undersupplied residential markets, particularly Sydney and Melbourne in the 2016 financial year.
But come 2017, prices are expected to steadily weaken in a number of cities due to a lack of affordability and a rise in interest rates, it says.
The downturn is not expected to be dramatic but similar to what was experienced during 2011-2012.
BIS Shrapnel’s report said “excess supply is forecast to continue to dampen the markets of Adelaide, Canberra and Hobart, together with sluggish local economic conditions”.
Adelaide’s median house and unit prices are predicted to slide (scroll down for the full Adelaide assessment).
BIS Shrapnel senior manager Angie Zigomanis says most concerning is the explosion in apartment construction.
“Moreover, the boom in apartment construction over the past couple of years is creating a disconnect in the supply balance between detached houses and units, with a resulting difference in their price outlook,” Zigomanis said.
“Most capital cities are building apartments at record rates, driven by investor demand.”
He said strong tenant demand would be needed to support rents and the value of apartments.
“However, we are seeing population growth nationally begin to slow,” he said.
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Net overseas migration has fallen from a recent peak of 235,700 people in 2012/13 to about 184,000 during the 2014 calendar year.
The slowdown in migrants is most evident in the mining boom states of Western Australia, Queensland and the Northern Territory.
BIS Shrapnel’s forecast for Adelaide property market
Adelaide’s estimated median house price of $450,000 at June 2015 represents a three per cent increase for 2014/15.
“The dwelling excess in the South Australian market after the post-GFC surge in construction began to be absorbed over 2012/13 and 2013/14, resulting in some improvement to prices,” said Zigomanis. “However, the excess has increased in 2014/15 as purchasers and builders have responded to large and temporary increases in incentives to first home buyers of new dwellings.
“This rise in construction is coinciding with slowing underlying demand as net overseas migration inflows ease. With the state continuing to face headwinds in a number of industry sectors, there will be little to place upward pressure on prices apart from low interest rates.”
As a result, the residential market in Adelaide should remain challenging, with the median house price forecast to be only one per cent higher at June 2018 than at June 2015, while the median unit price is forecast to be one per cent lower as rental growth also suffers from the oversupply. In real terms the median house and unit price are forecast to decline by seven per cent and nine per cent respectively.
– with AAP
