The house price rise in Melbourne is slowing down.
Australia’s runaway property market showed its first signs of cooling, with the Sydney house price index rising by 3.2 percent in the first nine months of the year following two years of double-digit growth, while price increases in Melbourne was at its slowest in more than a year at 6.9 percent, reported Bloomberg, citing government data.
This comes amid the central bank’s warning of an impending oversupply of inner-city apartments, with Morgan Stanley expecting the surplus to hit 100,000 units by 2018.
“I just don’t think it can continue,” said Paul Dales, Capital Economics Chief Economist for Australia and New Zealand. “Overall market conditions aren’t really consistent with this strength going much further.”
With this, Australia’s biggest banks – Westpac Banking Corp, Australia & New Zealand Banking Group, National Australia Bank and Commonwealth Bank of Australia – increased their mortgage rates for landlords by seven basis points to 15 basis points this month.
Apartment building also started to fall back, after peaking in March with 31,546 commencements.
HSBC Holdings Chief Australia Economist, Paul Bloxham, noted that tighter lending standards for foreign buyers and property investors, as well as capital controls by Chinese authorities, have aggravated the slowdown.
“The Australian housing market is cooling,” wrote Bloxham in his 2017 housing outlook report in November. “Tighter prudential settings and a pull-back in foreign demand are expected to weigh on prices, particularly of apartments.”
Few, however, are expecting an outright crash as population growth and record low interest rates underpin the market.
In fact, HSBC expects Sydney prices to increase by four to six percent in 2017, and two to four percent in Melbourne. That is still a healthy investment given that economists expect the Reserve Bank of Australia to maintain its official cash rate at 1.5 percent by next year.
“Average Australian investors need strong and stable returns,” said Michael Yardney, Director of Metropole Property Strategists.
“There are not many other asset classes other than residential property that offer that,” he added, while noting the end of the era when every property is making money.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
