Risks and opportunities in Sydney and Melbourne property
Aug 11, 2017
Currently, there is a high level of uncertainty in property, particularly in the unit markets of Sydney and Melbourne. There are record-high levels of building approvals and an unprecedented supply of units in the pipeline – which is perhaps why, according to Moody’s ratings agency, Australian property prices are forecast to fall in 2018.
On top of that, in both NSW and Victoria changes have been announced to stamp duty concessions in an effort to improve affordability for first home buyers.
RiskWise Property Review has a three-step approach to help clear the diust and gain clarity around our proerty markets:
1. Analyse Key Data
It's important to understand the facts and figures of the situation as it stands now, and as it evolves. Around 318,000 units are planned to be completed Australia-wide over the next two years, adding 12.4% to current stock. Around 200,000 of these units are in Sydney and Melbourne and are set to offer a huge amount of unit supply, which could limit price growth in these apartment markets.
2. Measure major changes and (potential) impact
The most important measures and changes that might significantly impact the housing market (setting aside any measures that are likely to have only a modest impact), are:
- APRA's macroprudential rules for banks: The limitation of interest-only loans to 30% of total loan books (currently 40%), and the reduction in the number of interest-free loans with an LVR above 80%, will impact investors, particulalry those with low equity and poor serviceability.
- 2017 Federal Budget: The policies in the budget aim to increase supply and decrease demand; however, the supply-related measures will have a limited impact in the next few years, as they will take time to implement.
- Foreign buyers: The requirement that no more than 50% of the dwellings can be sold to foreigners is set to have a significant impact on new developments, particularly in the ‘Danger Zones’ that we highlighted in our Best and Worst O -The-Plan Suburbs report.
- Stamp duty changes: Both the NSW and Victorian governments have announced new stamp duty concessions for first home buyers, which will drive demand (mainly for existing properties).
3. Specific impact on Sydney and Melbourne
The impact of these measures will not be identical across the di erent markets. Established areas with a limited number of new units, in the inner and middle rings of Sydney and Melbourne, present a lower level of risk.
Therefore, in addition to our best o -the-plan areas, we have performed research to identify the best suburbs for investment in existing properties, ie areas that enjoy a limited supply and strong demand. Prime examples of such suburbs are Rose Bay and Manly in Sydney, and Essendon in Melbourne. Leveraging thorough research, we have identified houses in some outer suburbs that are included in our best suburbs for investment in existing properties.