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Property Outlook for the year ahead – 2018 – and what it might mean for developers and investors

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Property Outlook 2018

With the vast variation between suburbs in mind, the general trends across all city areas are worth considering for the property outlook in 2018.  Property developers and investors are carefully considering their strategies for the year ahead.

Taking a random sample housing price change over the past 12 months as at January 2018, from Inner North and Inner South suburbs from around Brisbane, Sydney & Melbourne shows that there is significant variation, even between suburbs in extremely close proximity.

www.realestate.com.au/invest

Annual Growth %Median Housing Price  $Rental Yield %
INNER NORTH BRISBANEKelvin Grove3.3765K3.4
Fortitude Valley6.41 million2.4
New Farm7.01.41 million2.7
Bardon3.4905K3.0
INNER SOUTH BRISBANEKangaroo Point5.7829K3.1
Woolloongabba4.7761K3.2
West End5.81 million2.9
Tarragindi7.2773K3.0
INNER NORTH SYDNEYWaverton15.22.45 million2.1
North Sydney16.72.6 million1.9
Neutral Bay8.12.28 million2.5
Chatswood14.92.5 million2.1
INNER SOUTH SYDNEYPaddington11.12.29 million2.6
Waterloo18.81.68 million2.5
Annandale13.11.78 million2.5
Newtown13.01.5 million2.8
INNER NORTH MELBOURNENorth Melbourne14.61.35 million2.2
Fitzroy14.11.58 million2.1
Parkville4.11.66 million2.7
Fairfield13.41.41 million2.1
INNER SOUTH MELBOURNESouth Melbourne10.51.52 million2.2
Port Melbourne11.81.52 million2.3
Altona North10.4825 K2.7
St Kilda12.91.37 million2.5

 

BRISBANE

Samantha Thorne, from Open Agent, describes 2017 as “disappointingly flat” with slower price growth when compared to other capital cities. https://www.openagent.com.au/blog/best-areas-in-brisbane-to-buy-property-in-2018  quoting Domain with a median house price of $551,840 and a median unit price of $376,685 (Sept 2017) representing a -3.5% and -0.2% drop respectively on the previous quarter.

Property Outlook 2018

With affordability in Qld at 20.6% of the monthly disposable income allocated by a household for mortgage repayments https://www.qbe.com.au/campaigns/housing-outlook Brisbane continues to look like a viable option for developers and investors through the year ahead.  Samantha Thorne lists Pallara, Nudgee, Highgate Hill and Gaythorne as suburbs of note.

Louis Christopher http://www.sqmresearch.com.au/boombustreport.php  predicts a modest growth of 3-7% for Brisbane in 2018, supported by QBE’s view that the underlying demand will strengthen housing prices slightly.  QBE does expect that unit prices will remain flat however.  This view is echoed by the Real Estate Buyers Agents Association of Australia, commenting that it is interstate interest which will act as the catalyst for this.

SYDNEY

Nerida Conisbee, writing for realestate.com.au, states that “Sydney’s excessive housing price growth may soon be a thing of the past, with demand decreasing and prices finally slowing down.”  She predicts that a big drop in prices is unlikely in 2018 but instead, the market will stay fairly flat.

In contrast, Jennifer Duke & James Robertson (Sydney Morning Herald) http://www.smh.com.au/business/property/sydney-property-prices-tipped-to-fall-10-per-cent-in-2018-20180102-h0cjmu.html are expecting Sydney property prices to pull back by up to 10%.  The Sydney market appeared to peak in August 2017, with the property prices now 2.2% lower says Tim Lawless, CoreLogic.  He expects this to continue through 2018, prediction lower to negative growth rates across previously strong markets.

He suggests the underlying cause for this change is a combination of more cautious buyers, ongoing regulator vigilance of credit standards and investor activity.

In a similar statement, Shane Oliver, Chief Economist, AMP Capital, states that a “crash” is “unlikely”, but does predict Sydney housing prices to fall by about 5% over 2018.

MELBOURNE

The Sydney Morning Herald reports that Melbourne Housing prices are also likely to decline by about 7%, according to CoreLogic.  Melbourne experienced monthly declines, down 0.2% resulting in a median house price of $832,735 and a median unit price of $574,052.

The past 5 years have heralded strong growth in Melbourne of approximately 59%, but this appears to be unlikely to continue through the year ahead, reports ABC http://www.abc.net.au/news/2017-12-29/boom-is-over-most-experts-expect-property-price-weakness/9290190   Underlying factors for this softening in the market are listed as more properties on the market, tighter home lending restrictions and fewer investors looking to buy.

In contrast, Louis Christopher, SQM Research, forecasts price growth for Melbourne of between 7 & 12%.  He expects that the marketing will pick up in the second half of 2018 as the banks make additional funding available to the market.

Robert Mellor, Managing Director, BIS Oxford Economics, expects that the Melbourne property market will experience growth in 2018, but it will be at a much more subdued level of approx. 2-3%, rather than the double digit growth that has been experienced over the past few years.

Property Outlook 2018

Michael Yardley https://propertyupdate.com.au/8-property-market-trends-for-2018/  is predicting Melbourne to be the best performing market of the Australian Capital Cities in 2018, with growth of 6+10% expected.  He does caution that this would only be likely if the interest rates remain unchanged, APRA doesn’t impose further lending restrictions, and Australia’s economic growth remains stable.

NATIONWIDE

In February 2017 APRA updated its prudential practice guide on residential mortgage lending.  This had a flow-on effect for financial institutions to lend and investors ability to borrow, impacting the number of buyers in the market.  George Tharenou, EBS Chief Economist, predicts that APRA will continue to focus on loan affordability, requiring borrowers to more closely consider the reality of their household living expenses.  In turn, this will reduce the amount of money customers can borrow.  With less cash available, the housing prices will decrease he predicts.

IMPACT FOR PROPERTY DEVELOPERS AND INVESTORS

Michael Yardley also states that many investors will hold their portfolio, as they question whether property continues to be a smart investment.  Of course, investors who have developed a long-term strategic approach may see the slowing market as a prime buying opportunity.

He also states that one of the key focuses in 2018 will be quality properties.  Properties in premium locations and high quality investment properties will continue to sell well.

Developers and Investors should be taking a studied approach to their business through 2018, ensuring they are meeting the demands of the market with a flexibility, where possible, to alter the final product if legislation or funding is introduced, so they can take full advantage of all opportunities.

FURTHER READING

http://www.news.com.au/finance/real-estate/buying/real-estate-experts-expect-house-prices-to-fall-in-sydney-but-dont-expect-a-bargain-any-time-soon/news-story/a24341cad272f4cb9bb1f3be2df4b077
https://www.businessinsider.com.au/australia-house-price-outlook-corelogic-2017-12
https://www.businessinsider.com.au/australia-housing-market-outlook-fitch-2018-1
https://www.yourmortgage.com.au/mortgage-news/softening-prices-in-sydney-and-melbourne-could-be-temporary/245692/
http://www.theage.com.au/comment/the-age-editorial/drop-in-house-prices-is-good-news-for-almost-everybody-20180103-h0cvmg.html
https://www.theguardian.com/australia-news/2018/jan/02/australias-housing-market-on-track-to-cool-in-2018-as-prices-fall-in-capital-cities?
http://www.news.com.au/finance/real-estate/victoria-is-now-australias-leading-property-market-as-nsw-lags/news-story/500ee9827910a7c2790aea0ee403514e

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