House prices in New South Wales are expected to decline by a cumulative 4% over the next two years before modest growth returns, taking the median house price to $1.15m, according to QBE’s Australian Housing Outlook 2017-2020 report.
The NSW property market has reacted to the Australian Prudential Regulation Authority’s (APRA) new guidelines, which were unveiled towards the end of March. These new guidelines target the interest-only loans favoured by investors, and are expected to keep growth in investor lending in check throughout 2017-18.
Growth of owner-occupier loans is also expected to slow due to strained affordability. “Mortgage repayments on 75% of Sydney’s median house price at June 2017 accounts for 39.7% of average household disposable income,” the QBE report said. “Although banks have been more aggressively courting owner occupiers by reducing the owner occupier variable rate by around 10 basis points in recent months, affordability is still a similar percentage to the previous downturn in the mid-2000s.”
The recent stamp duty exemption introduced by the Berejiklian government to aid first-home buyers is expected to have minimal impact in Sydney’s Inner and Middle ring suburbs, where median prices are well above the $650,000 threshold for full stamp duty concession.
Meanwhile, NSW’s housing shortage fell to an estimated 39,300 dwellings in June 2017, and is expected to drop to 12,900 by June 2020. While this drop will ease owner-occupier demand, it will create challenges for investors, who will find it increasingly difficult to obtain the financing that will help them outbid owner-occupiers.
With heftier interest rates and lower loan-to-value ratios for investor lending, the capacity for investors to enter the property market or pay higher prices will be reduced. This in turn will put downward pressure on unit prices as investors retreat from the market.
“The large volume of new apartment construction taking place is likely to push vacancy rates up and put downward pressure on rental growth as the dwelling deficiency is slowly eroded,” QBE said. “However, some support to price growth might be provided by first home buyers taking advantage of the recently introduced exemptions on stamp duty. Sydney’s median unit price is forecast to decline a cumulative 4% over the forecast period to reach $760,000 at June 2020.”
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