Property Price Heads South

Bishwas Bhattarai, Senior Lending Manager
M. Comm. (Banking & Finance) UNSW, Dip. Fin. Plan.

03 June 2018

Past performance is not always the indication for future performance.

Picture Source: Core Logic

Capital cities led by Sydney continues to fall since the start of the late 2017. During the month of May Sydney property prices fell by 0.2 per cent recording 4.1 per cent year to date as per Core Logic. Hobart is the only capital cities to have shown the strong growth during the month of May for 0.8 per cent and year to date grown of 12.7 per cent. And, this is first annual fall for the capital city since November 2012. Melbourne, was worst performer with 0.5 per cent fall during the month of May.

Rural and regional cities in both New South Wales and Victoria seems to outperform the market despite capital cities are lagging.

Reserve Bank of Australia figure shows during the month of April, Investor credit only grew by 0.1 percent, dragging annual growth to 2.3 per cent low. Whereas, same time Owner Occupier credit grew by 0.5 per cent and annually 806 per cent growth.

The prudential measure implemented towards the end of 2017, seem to have the full impact in lending criteria. With the tighter lending criteria, and investor including foreign buyers squeezed out of the market it seems the property boom has suddenly ran out of the steam. As, lowering auction clearance rate, the demand for the property has dropped significantly compared to peak on 2017.

Within Sydney property prices between $1.2 million to $2 million have been impacted most. Most of the property, within the working class suburb within $700 000 have been more resilient.

Signs of marketing Slowing

Abundance of Land release

It is no surprise, suddenly more land are becoming available, compared to the boom. Due, to slow demand, developers and builders are more likely to put land on the market. Just a quick browse on regular realty websites shows the flow of the stock on the market.

Quieter open houses, and less auction staged

As the demand are dropping, most of the open houses are only able to attract less buyers. Only, last year where there were flock of buyers on every open house, now we are seeing single digit of buyer walking through the door.

Credit squeeze

Very few will have hard cash to buy a property. Most, of us are likely to expect major Banks to fund the majority of the funds to complete the transaction. As, due to prudential lending measure gone are the days of cheaper funding. Currently, Investors and foreign buyers are squeezed out of the market, causing demand to significantly drop.

Oversupply Stock

It is no surprise, apartments are likely to be oversupplied, and hundreds of finished apartments are coming to near completion within the next 3-4 months within Sydney and Melbourne. Unlike, Brisbane the biggest comfort for two major cities is location of those are scatter around the wider metro ensuring pain inflicted will be less likely compared with their northern rival. And, most likely more discounts will be on offers are likely to be seen towards the end of the year.

Given, the current climate credit squeeze in lending is likely to be challenging for coming months. With the Royal Commission cloud hanging above, financial institution are more cautious.  Traditionally, winter has always been quietest season for property. Market, seems to have changed direction significant and cooled off.

The economic cycle, is continue to progress as market sentiment is lower. However, Sydney sider should not fear as this is just the part of game. Investors, who are looking for quick cash are likely to lose money. Any assets, class has risk and return and history is evident this is not the first time property market has headed south.

And, the last work Past performance is not always the indication for future performance.


*Disclaimer: This is only provided as general advise only without considering your personal objective, and financial situation. One should not be basing your investment decision solely on this. Prior considering any investment decision full financial advise should be sought.