What are the long-term prospects for the eastern capitals?
With house price growth on an upward trajectory in Sydney and Melbourne, many observers are wondering if a potential housing bubble is brewing in the southeastern capitals. Observers are also wondering about the long-term prospects of the Brisbane housing market, which has been posting modest growth.
We asked three analysts for their forecasts on these aforementioned property markets. Is there a bubble? Will house price growth slow down? Their answers might surprise you.
In June, Philip Parker of Altair Asset Management attracted a lot of media attention when he announced his fund’s decision to sell its share portfolio and return cash to investors. Parker said that the “impending property market calamity” in the east coast markets had prompted him to make the surprise decision.
“Such media hype … has savvy investors rubbing their hands in glee in the anticipation of a very small segment of the market panicking and selling at any price,” said Sam Elbanna, managing director at CPM Realty. “These same savvy investors continue to purchase through all stages of the property cycle, as they understand that property is a long-term investment. Provided they can maintain their repayments, [property] should never be sold as [long as] capital growth over a 7- to 10-year period remains strong.”
Immediately following the global financial crisis, there were similar predictions of property bubbles and impending disaster, which created a minor hiccup in the market. “Those investors and homeowners who did not panic have reaped the rewards of massive capital growth in the ensuing years,” Elbanna said.
“It is evident that there is still an incredible undersupply of housing in Sydney as vacancy rates continue to fall (now sitting at 1.7 per cent for across the city and only 0.3 per cent in the CBD). The rates are lower than this time last year, clearly eliminating any concerns of a major oversupply of housing in Sydney,” he added.
The plunge in vacancy rates has led to rents increasing almost daily. “The high demand placed on finding property reflects the low vacancy rate, with the need for apartments jumping up by 1.6 per cent.”
If Sydney were to experience a housing market correction, it would be very minor, according to Elbanna. “Sydney’s property market would only stagnate for a few years without having a steep decline in pricing … price growth may soften but it will definitely still be growing,” he said.
While Melbourne’s property prices haven’t reached Sydney’s dizzying heights, they’re certainly on their way up. The city’s median house price was $865,712 in the June quarter, while the median unit price was $474,848 during the same period, according to the Domain Group.
Even though there’s been an increase in homebuyer activity based on current auction clearance rates, the slow pace of construction in Melbourne could lead to a slump in the market in terms of price growth, according to Marion Mays, founder of the Thalia Stanley Group.
However, this deceleration in price growth will not lead to the long-dreaded housing market correction. “Recent changes to investment loans and first-home buyer initiatives are also likely to play their part in avoiding the much talked about and predicted property bubble burst. In other words the property bubble will most likely stay intact,” Mays said.
In contrast to Sydney and Melbourne, Brisbane has been posting more modest growth. The city posted a median house price of $546,043 and a median unit price of $375,269 in the June quarter, according to the Domain Group.
“Whilst there are some positive signs, growth in the Brisbane property market will remain modest,” said Peter Mastroianni, founder and director of Rentvesting Pty Ltd. “However, blue chip suburbs in Brisbane have and will continue to perform well. And, as everyone knows there is a lot of new apartment stock in the CBD and fringes which will take some time for the market to absorb.”
“Growth is modest, yields are reasonable and vacancy rates are low. If the economy can turn on the jobs - things could quite literally pop,” he added.
Mastroianni thinks Brisbane has a long way to go before it can be given the “bubble” label. “Changes to investment lending by the financial regulator may preclude some investors from the market. However, I don’t feel this will have a great impact on the ‘steady’ Brisbane market,” Mastroianni said.
Featured in Your Investment Property. By Michael Mata.