QBE Insurance has had a partnership with BIS Oxford Economics for 16 years, and has recently released its Housing Outlook to 2020 report.
The report projects a positive image for the Australian property market, with general growth nationwide, despite a general lackluster economy predicted to show signs of strengthening by 2019/20.
The only cities that are expected to experience a decline in median housing prices are Darwin (-0.9 per cent) and Sydney (-0.2 per cent), while Canberra will dominate dwelling value growth in the country with QBE forecasting Canberra prices to increase by 16.3 per cent by 2020.
Meanwhile, continued growth is expected for Melbourne, at 10.2 per cent, Brisbane at 7.1 per cent, Adelaide by 6.9 per cent and Perth by 2.8 per cent.
They report that there has been little growth to replace the vacuum created since the mining boom declined and even with an unemployment rate at a current low of 5.6 per cent, job growth has predominantly been within part-time jobs.
However, the lower AUD could see a big increase in overseas tourism, as well as Australians holidaying within Australia rather than overseas. This could bring benefits to locations like the Gold Coast.
Interestingly, the report forecasts a cash rate of only 1.75% in 2020, an increase of only 0.25% above the current of 1.5%. The report states that any increases are not expected until 2019/20.
Net interstate migration outflows from New South Wales are forecast to increase as high house prices in Sydney and improving state economic conditions elsewhere, reduce the attractiveness of Sydney.
The main beneficiaries are expected to be Queensland and, on a smaller scale, Tasmania and Australian Capital Territory, where the attraction of an improved employment outlook and lower relative house prices increasingly attract population.
Continued weak employment conditions in Western Australia, South Australia and Northern Territory are expected to result in the net population outflow from these states remaining elevated.
2017 THE YEAR IN REVIEW*
Performance of the Melbourne Property Market in 2017
MELBOURNE IN REVIEW 2017
Capital Growth, Houses: 14.1% - Capital Growth, Apartments: 9.4%
Gross Rental Yield, Houses: 2.6%- Gross Rental Yield, Apartments: 3.9%
3 years Rental Growth Houses: 11.6% - 3 years Rental Growth Apartments: 8.3%
2017 Rental Growth Houses: 5.5% -2017 Rental Growth Apartments: 4.5%
Rental Vacancy Rate: 2.1%
Property Cycle: Upturn started May 2013, expected to end around 2027
The Melbourne market has continued to remain very strong throughout 2017.
Record population growth has been the key ingredient of the Melbourne residential market upturn. High net
overseas migration and record net interstate migration inflows have driven strong underlying demand.
The market has also been driven by low interest rates, rising rents and tight vacancy rates, resulting in strong investor and upgrader activity.
A deficiency of dwellings remains across the Melbourne market despite surging new dwelling supply, and
the median house price in Melbourne increased by a cumulative 56% since the upturn began in 2013.
The economy is strong with corporate head offices relocating from Sydney to Melbourne and housing is still considered affordable compared to Sydney.
The fear of apartment oversupply has somewhat subsided, although we have seen a slow down in the investor off-market apartment market.
Even with a surging new dwelling supply, this has not been able to meet the increasing demand, which has also driven rents up with the low vacancy rate of just 2.1% dropping below Sydney for the first time in decade.
Apartment supply has met demand, surpassing housing completions, which indicates an increasing number of homeowners choose to live in high density properties.
There has been a clear shift towards greater apartment construction since 2012/13. The shift has been in response to rising apartment demand, which has been underpinned by a combination of factors.
There has been an increasing preference to live in smaller dwellings, particularly across the younger age groups while rising downsizer activity has also contributed.
Furthermore, deteriorating house affordability, particularly in Sydney and Melbourne, has seen demand funnel into the more affordable apartment market. At the purchaser end there has been rising investor demand,
with apartments often typically favoured by investors.
Performance of the Sydney Property Market in 2017
Median house prices increased 24% between 2014 and 2016 but over the 2017 calendar year growth was 6.6% so Sydney is staring to slow. Sydney began its upturn in March/April 2007.
QBE insurance notes that there are “signs of a rising net interstate migration outflow” or in other words, people are leaving Sydney for better prices, mostly in Queensland, especially Brisbane and even the Gold Coast. Historically, this is what happens in Sydney following its upturns. People leave Sydney for cheaper living and housing elsewhere in Australia.
APRA tightened regulations on lending – particularly to interest only investor loans – a segment of the market that was fueling Sydney prices.
Prices have risen substantially and buyers now need larger deposits. All these factors plus others have meant that Sydney is no longer the “hot” market it was.
SYDNEY IN REVIEW 2017
2017 Capital Growth, Houses: 6.6%*- 2017 Capital Growth, Apartments: 6.6%*
3 years growth Houses: 24.1%
Gross Rental Yield, Houses: 2.9% - Gross Rental Yield, Apartments: 3.6%
Vacancy rate: 2.6%
3 years rental growth Houses: 7.7% - 3 years rental growth apartments: 10.0%
Property Cycle: Upturn commenced March 2007, expected to end around 2021
OTHER CITIES: BRISBANE, GOLD COAST, PERTH, ADELAIDE, CANBERRA
*IMPORTANT NOTE: There are several reputable companies that collect and publish capital growth data on the Australian property market. The challenge is they all use slightly different methodology and come up with different results so and it can be hard to determine the TRUE picture.
For example, when researching the 2017 figures, and using the sources we trust and rely on, we found for example with Sydney house prices the range to be from +3.0% to +6.8%, BUT the QBE figure (in the report we referred to at the beginning) has a figure of +12.4% for Sydney in 2017. And it not that QBE is bullish: for Canberra QBE had +4.1 and our other sources ranged from 6.8% to 18.5%!
So we have taken (for all cities) the average capital growth from our all sources, to try to present the most accurate picture, and for the other data where we have been unable to collect sufficient comparisons have used the single source that we believe is the most accurate.