Property crash unlikely in Sydney & Melbourne
Jul 05, 2018
Dramatically rising populations coupled with housing supply issues mean a property price plunge in Sydney and Melbourne are unlikely, according to RiskWise Property Research.
Thanks to an increasing number of immigrants choosing to call NSW home, the state experienced population growth at its fastest pace in eight years in the year to September, as reported in the Australian Financial Review.
Meanwhile demographer Bernard Salt’s has forecast Melbourne’s population will skyrocket past five million by 2021 and past eight million by 2050.
Add to that the limited supply of dwellings in both Sydney and Melbourne, fears of falls in property prices are unfounded, says RiskWise CEO Doron Peleg.
He agreed while there had certainly been a correction in the market, especially in Sydney, it was unlikely to significantly escalate to a major price reduction.
“Government intervention, regulatory back-peddling and limited alternative investment options have also helped halt falling property prices,” Mr Peleg said.
“While the Royal Commission into banking has led to tighter lending restrictions, because banks are a business and obviously must still turn a profit, they have reduced interest rates to make the lending market more accessible to home buyers.
“Rates on interest-only investment loans have also been slashed (with Suncorp the first to do this in May 2018) by up to 30 basis points following the decision by APRA to lift lending caps on borrowers. This has fuelled speculation that other lenders will begin reducing investor rates in an effort to increase demand and profits.”
Recent analysis by RiskWisehas shown Australia’s Top 3 Major Asset Classes (shares, bonds and residential property) are projected to achieve the lowest returns in a quarter of a century, and according to Mr Peleg this means investors are more likely to seek out ‘long-term’ investment options – such as property in Sydney and Melbourne.
“If property prices were to drop by around 6-8 per cent, the number of residential investment opportunities would increase – driving demand among investors, upgraders and first home buyers. That will mitigate, to a certain extent, any price reductions,” he said.
“In addition, a reduction in dwelling prices would have a devastating impact on consumer confidence and spending, and this would very likely trigger the RBA to decrease the cash rate to stimulate growth and avoid a downturn.
“A prime example of this was seen during the GFC when the RBA lowered the cash rate from 7.25 per cent to 3 per cent between August 2008 and April 2009.
“With stability across financial and residential markets being the primary object of the RBA, a similar response, obviously, to a lesser extent, can be expected if property prices were to dramatically fall.
“And interestingly, even now there are senior economists who strongly believe the RBA should reduce interest rates to achieve stronger GDP and wage growth.”
He said the continuation of first home buyer grants and concessions by federal and state governments would also help to create stability in the property market and ensure first home buyers increased their share of the market.