This month the media certainly made their mark with commentary around the dramatic price falls in Melbourne's inner-city unit market. Indeed, this is something we've been expecting for sometime. The Melbourne and Brisbane inner-city unit markets have been and will continue to be a burgeoning problem on their respective property markets as stock from new developments slowly gets released over the next two years.
On a positive front, we still see opportunity in the more affordable markets of Western Sydney and Brisbane town houses, where owner-occupiers are prevalent and have benefited from the last few years of equity growth. As the mortgage refinance market now makes up 22% of overall loans written, quality properties that tick all the right boxes will continue to be snapped up.
Here are our key influences on Australian Property Markets in the next 12 months:
1. China impact
China is the largest foreign purchaser of property in Australia at $27 billion. Currently 14% of new purchases are by Chinese investors and this is expected to increase in the years ahead as China's growing middle-class look for investments outside of China.
2. Tax reform
Expect tinkering to negative gearing if Labour get in. We expect this will have only a minor impact on the investment market.
3. Increased supply
Supply issues will be largely concentrated around inner-city high rise areas with expectations we could see further falls in over-supplied area's of Melbourne, Brisbane and Sydney. In particular Brisbane, with over 9,000 new apartments set to hit the inner-city areas over the next few years, could see even further price falls.
4. Tighter Credit Regulations and Affordability
With bigger deposits and higher loan servicing requirements, investors may start to look for more affordable investments. Investor pullback over recent months has seen the number of home-owners rising due to the record-low interest rate environment and concerns that the Sydney and Melbourne property markets have reached a peak in the cycle.
5. Increasing Construction
One of the few shining lights on the economy is infrastructure, with NSW and QLD both benefiting from strong construction pipelines over the next five years. Opportunity exists in the following areas:
Redfern (NSW) - over 10,000 jobs are coming to Redfern thanks to Commonwealth Bank's new offices at Technology Park
Penrith(NSW) - $3BN investment in the city centre, M9 Orbital, South West Rail line and Badgery’s Creek.
Parramatta(NSW) - $1.6BN gentrification and upgrade of city centre and river front tied with a progressive local council.
Liverpool (NSW) - $15m upgrade of city centre, proximity to Badgery's Creek with a $1.6BN intermodal terminal and $3.6BN being spent on roads, and a $400m hospital upgrade.
Gold Coast (QLD) - $5BN being spent on 2018 Games, and a $1BN build of the luxury "Jewel Towers", expansion of Griffith University and $2BN Ruby and Sapphire development,
Brisbane (QLD) - $2BN facelift of Echo Casino a 2nd runway to be built and $50m upgrade on Toowong and $100m Howard Smith Wharves.
Iron Ore - Mining investment is down 35% bringing with it rising unemployment, causing property prices to fall in Darwin and Perth. We expect even more down-side in Perth with business investment starting to slow.
Look for affordable owner occupied stock in quality areas. Tight credit conditions but low rates should keep markets afloat. Beware of increasing supply issues in all major capitals. It could be a good time time to re calibrate to +5% growth expectation.
Please don't hesitate to contact me with any of your finance needs, I will be more than happy to assist.