REA Group: Demand for property projected to decline in 2017

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Demand for property is projected to decline this year due to Aussie banks increasing their interest rates to buyers late last year, according to the REA Group Property Demand Index.

The index further revealed that demand for property on had increased 16.2% across the year in 2016. However, after peaking in October and November, demand for property dropped out, with the index falling 6.6% nationally in December.

The states with the biggest declines were New South Wales and Victoria, with demand for apartments dropping by more than 7% in both.

“While still early into the New Year, the easing of demand nationally suggests that the record price rises we saw in Sydney and Melbourne last year are likely to be more subdued as we move further into 2017,” said Nerida Conisbee, chief economist at REA Group.

“The key drivers of this demand decline are likely due to Australian banks increasing interest rates for buyers independently of the Reserve Bank of Australia (RBA) in late November and early December and continuing affordability issues across the eastern seaboard.

“Given the RBA has indicated that it may still cut the cash rate further, the banks have sent strong signals that they will respond by not passing cuts onto borrowers and we expect out of cycle interest rate rises by banks to continue. This will be a key issue for borrowers this year, especially first home buyers and investors, with access to cheap money becoming more difficult.”

The report also revealed that apartment demand dropped by 5% nationally in December, performing better than houses over the same period. Concerns of apartment over-supply are impacting demand in NSW and Victoria, and these states experienced the largest declines in December 2016.  

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