Three key areas are leading the change in the market
After a decade-long boom in the Australian property market, things have changed and buyers, sellers, and investors have to proceed with their eyes wide open. Three key areas are leading to the change in the market.
Reduction in Demand
The first is the reduction in demand for residential housing, especially the more expensive markets in Sydney and Melbourne. According to CoreLogic, national property values have fallen for nine months in a row with the most pronounced reduction in Sydney, where property values have dropped nearly 5 percent over the last 12 months. This is in addition to a drop of 22 percent in demand for the homes in Sydney, according to The Property Outlook report for July by realestate.com.au, which measured demand as the number of property views compared with the number of property listings on the premier property portal.
The upward pressure of property prices in Australia has led to the reducing homeownership numbers. In the 30 years to 2016, the proportion of 25-to 34-year olds who own their own homes dropped from 60 percent to 45 percent. For those aged 35-to 44-years old, the proportion fell from 74 percent to 62 percent. People who had never purchased a home by the age of 45 probably will never own a home.
In 2018, there appears to be a big move by buyers to consider living in regional cities and towns where prices are more affordable, and transport links have been upgraded. Demand has risen by nearly 50 percent in cities such as Geelong, Ballarat, and Launceston. Tasmania, an island off the South Australian coast, with the most interesting diverse economy, has seen demand rise by nearly 40% in recent months.
Banks Stopped Lending
Secondly, the banks in Australia have recently stopped lending for property investment purposes, and banks are scrutinizing borrowers’ spending closely. The ratio of house prices to median incomes in Sydney is now about 12 times and Melbourne 10 times. In most instances, households in these cities need two income earners to secure their mortgage.
Rates are Rising
Thirdly, rates are rising. The Reserve Bank has not moved rates for some time, and rates are rising above 6 percent with some banks.
Australia also has a rapidly changing political climate with elections to be held again in the next six months with the Labour Party predicted to win by almost every poll. The Labour Party has already committed to important changes, including restricting negative gearing to new properties only, whereas it now applies to existing properties as well which are the preference for investors. They are also proposing to reduce investors’ profits on the sale of investment properties by cutting the discount on capital gains tax.
Times of change are always interesting to watch and buyers, sellers, and investors will need to keep close to changes in the market in the next year.
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