Anaemic wage growth, higher borrowing costs, and tighter lending restrictions will hamper residential dwelling price growth in 2018, according to CBRE’s Real Estate Market Outlook Australia report.
The apartment development cycle has peaked, with Brisbane and Melbourne further advanced in the cycle than Sydney.
“Given the extent of market completions to occur in 2018, vacancy is expected to increase across most markets, exerting downward pressure on rent growth,” the report said. “Sydney and Melbourne’s low vacancy rate at this present juncture make them best placed to withstand new supply.”
In the east coast capitals, where price growth has been strongest over recent years, prices could fall 5-10%. This slide is consistent with normal market downswings in the absence of material supply imbalances.
“Yields on real assets are at cyclical lows and we see limited room for further compression in Australian commercial real estate,” the report said. “This stage of the cycle is probably better suited to investors with a long-term hold strategy.”
CBRE expects yield softening to be delayed until 2019, with the subsequent decompression cycle likely to be gradual. This will act as an ongoing headwind to capital growth, in stark contrast to the sudden, significant price correction which occurred during the global financial crisis.
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