Sydney and Melbourne to be hit by small price corrections by 2018

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While recent talk surrounding Australia’s biggest property markets has centred on capital growth levels slowing over the next year, a new report has predicted Sydney and Melbourne could be in for price corrections in the near future.

Released earlier this week, QBE's Australian Housing Outlook 2015-2018 report predicts dwelling values will continue to grow in both Sydney and Melbourne through to the middle of 2016, before some level of correction is seen in the following two years.

In Melbourne, capital growth is expected to continue by 4.8% to mid-2016 for houses, followed by a flat 2017 and then a fall of 1.9% in 2018.

Prices for apartments in the Victorian capital are expected to increase by 0.9% through the middle of next year, before falling by 5.8% over the following two years.

QBE’s predictions for Melbourne are backed by at least one property professional on the ground in the city.

“Look we’ve had a substantial run over the last few years and there’s been some tremendous results, but the runs probably come to an end,” Paul Osborne, founder of Melbourne-based buyer’s agency Secret Agent said.

“In the boom times there’s always some excess. Excess in what people are paying and excess in development as well, and I think we’re going through the effects of that now,” Osborne said.

Melbourne’s apartment market is feeling the impact of excess supply, according to Osborne.

“Supply is definitely an issue and from 2017 there’s really going to be an issue with oversupply,” he said.

“Investors are also turning away from them a bit at the moment as well. The increased scrutiny they’re facing on the lending side, and also the dropping rental returns mean they’re not as attractive so the demand isn’t there.”

Houses in Melbourne are likely to be impacted by wider economic conditions.

“I think the houses that are available in the Melbourne inner-city core that have some space and are in good school zones might fly against the predictions.

“But those dwellings in the middle tier that are 10, 15 or 20km from the CBD could be hurt by the fact that incomes aren’t growing and unemployment is starting to become a bit of an issue.”

For Sydney, the report predicts the median house price will grow by 7.3% to $1.11 million by the middle of next year, before experiencing a combined fall of 5% over 2017-18.

Unit prices will rise by 4.8% to a median of $740,000 by halfway through 2016, before dropping by 2.7% over 2017 and 3.5% over 2018 back to a median price of $695,000.

Sydney’s prediction is also backed by a member of the industry, with Sam Saggers chief executive officer of Positive Real Estate, believing Sydney is due for a slight correction.

“Prices have increased rapidly over the last three years. We have seen homes in suburbs like Blacktown go from $380,000 to $630,000,” Saggers said.

“The market needs to slow and correct and the report is in line with expectations. The property cycle needs to contract as investors find value in Brisbane and pockets of Melbourne,” he said.

Despite a more cautious approach to Sydney from both investors and home buyers, Saggers said Sydney isn’t in for massive crash as interest from foreign buyers will buoy it for the near future.

“The Sydney market won't correct sharply. The change will only be a modest one,” he said.

“The sentiment has changed on the street with most property focused people choosing a ‘wait and see’ mentality rather than ‘attack and buy.’

“There is still a lot of interest from FIRB buyers and Sydney is still a world property market hot spot, particularly for global buyers from Asia.”

Looking at the other capital city markets, Brisbane is predicted to be the strongest performing city through to the middle of 2018, with the median house price predicted to rise by 13.2% to $575,000.

Hobart is expected to be the next best, with 4.9% growth to June 2018, while prices will be up by 3.4% in Canberra and 0.8% in Adelaide.

Darwin and Perth are predicted to continue their current corrections, with prices predicted to fall by a further 2.5% and 2.4% respectively.

In the unit market, Brisbane is again predicted to have the best growth to mid-2018, with prices to rise 2.3%.

There is no such luck in any of the other markets though; the median unit price in Adelaide will fall by 0.8%, while it will fall by 2.2% in Hobart and 2.7% in Canberra.
 

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