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Australia Property Outlook 2018

Subdued, Yet Still Robust

It has been said that housing is, by far, one of Australia’s largest assets and the foundation of its household wealth, financial system and economy. Little wonder, that: as of Dec 2017, the total value of the nation’s 10 million residential dwellings stands at $6.8 trillion according to latest official estimates by the Australian Bureau of Statistics (ABS).

Over the last 5 years, house prices in Sydney and Melbourne — two of Australia’s biggest property markets — had increased 75% and 59%, respectively.

Just 3 months ago (Oct 2017), a report by the Swiss-based Bank of International Settlements (BIS) pegged Australia as having the 6th highest rise in annual property prices in the world over the last 5 decades, with house prices surging 6556% since the 1960s at an average increase of 8.1% per year.

Be that as it may, Australia’s housing market saw substantial moderation in 2017 (particularly the second half) led largely by Sydney, and, to a lesser extent, Melbourne, due to stricter lending measures which have affected investor appetite. What, then, would the outlook be like in 2018?

The Bank of International Settlements (BIS) pegged Australia as having the 6th highest rise in annual property prices in the world over the last 5 decades, with house prices surging 6556% since the 1960s at an average increase of 8.1% per year. Image credit: http://bit.ly/2ri0BEl

The property market will continue to see growth in 2018, albeit at fairly modest levels as tightened regulatory and lending criteria for investors remain in place. The moderation of house values across Australia will be driven by Sydney, which had already begun experiencing a drop in price levels in Nov 2017.

Yes, it does appear that the Sydney boom is over, but while we agree with the common perception that prices in Sydney may fall in 2018, we don’t think the prices will drop drastically within the year.

In Melbourne, price growth will also ease though not at Sydney’s rates, given that property is more affordable. Speculators are pulling back but serious investors know that the city is backed by strong population growth. Again, in both cities, we don’t see anything that suggests widespread declines in prices.

Perth will be a city to watch as we think the housing market has finally reached its bottom. Market experts predict that Perth property prices will be flat in 2018, but that interest levels and, consequently, demand will eventually pick up. A recent ANZ-Property Council Survey reveals that confidence levels in Western Australia are rising to similar levels seen in Australia’s eastern states.

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Experts are also predicting modest growth to continue in Adelaide and Brisbane, slowing at more moderate levels in Canberra. Hobart, Australia’s stand-out performer last year, will continue to have strong growth levels, albeit slower than its double-digit surge in 2017.

The value of the property market next year will depend largely on whether the Bank of Australia (RBA) will increase interest rates, or if there will be further tightening on lending criteria. That said, it looks unlikely that interest rates will budge from the 1.5% level that it is at currently.

SILVER LINING

Australia’s housing market has remained vibrant due to active investor activity and strong population growth.

The latest Foreign Investment Review Board (FIRB) Annual Report 2015-2016 found that residential real estate applications had increased by 19% to to $72.4bn in 2015-2016 compared to $60.8bn in the previous year. The total number of applications approved for residential real estate had also jumped from 36,841 to 40,149 during this period. It is interesting to note that residential property approvals comprised 96.9% of all foreign investment approvals.

FIRB’s largest residential approvals were in Victoria (44%), followed by New South Wales (32%), Queensland (17%) and Western Australia (4%). Image & source credit: FIRB

The largest residential approvals were in Victoria (44%), followed by New South Wales (32%), Queensland (17%) and Western Australia (4%). Meanwhile, the top 10 countries that dominate real estate in Australia include China (highest at $31.9m), US, Singapore, Malaysia and Japan.

It must be noted that Chinese investments has levelled off over the past year due to tightened investment regulations in China. Charles Pittar, CEO of international property site, Juwai.com, said, “Over the past year we have seen growth in Chinese investment level off, from 90% growth in Chinese buyer enquiries via Juwai.com in 2015 to 28% in 2016.”

 

STRONG POPULATION GROWTH

Tightened regulations will continue to moderate investor sentiment, but not too substantially, as the housing market remains underpinned by strong population growth. This will translate to increased demand for housing.

The latest report by the Australian Bureau of Statistics (ABS) shows that Australia’s population grew by 388,100 people with Victoria being the fastest-growing state or territory, with a population increase of 2.3%.

The latest report by the Australian Bureau of Statistics (ABS) shows that Australia’s population grew by 388,100 people and Nett Overseas Migration at a 27% increase.  Victoria charted the highest population increase in Australia. Source & image credit: Australian Bureau of Statistics

Nett overseas migration (NOM) was recorded at 245,400 in 2017 — an increase of 27% from the previous 12 months. New South Wales (NSW) was the most popular destination with NOM of 98,600 followed by Victoria with 86,900, Queensland (31,100) and Western Australia (13,100).

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“NOM in NSW and Victoria increased by 31% and 23%, respectively. This growth has seen both states surpass their previous recorded high in 2008-09,” said ABS Demography Director Beidar Cho.

 

CONTINUED INVESTMENT POTENTIAL

Despite the cooling in price growths in the mainstream markets, Australia will continue to attract migrants, says Virata Thaivasigamony of CSI Prop.

“There is a strong desire to live in Australia, and this will cause demand for property to increase,” he says. “Naturally, investors will question whether property will remain a good investment, but it is the strategic investors who will view property with a long term outlook. This period of slower growth is a buying opportunity for long term appreciation.”

Movements in some of the main cities in Australia projected from 2017 – 2020. Image source & credit: QBE Housing Outlook 2017-2020

For whatever it’s worth, the current ANZ-Property Council of Australia Confidence Index (March quarter) came in at 137.7 in their latest survey, just below the all-time high of 139.5 in the final quarter of 2017. That’s a lot of confidence in the market!

Article by Vivienne Pal

CSI Prop proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential and commercial property including student accommodation and carehomes, in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc) and Australia (Melbourne, Perth, Brisbane). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts and due diligence. 

Disclaimer: CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.

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