The Sydney property market begins 2017 in better shape than it begun in 2016. That fact almost seems counter-intuitive, but it is true. In late 2015, APRA stepped in and enforced tougher lending criteria on residential investors through the retail banks. APRA’s intervention had a noticeable dampening effect impact on the property market in late 2015 early 2016.
The RBA unexpectedly cut rates in May 2016 and then followed up again in August, which reignited the Sydney housing boom. Respected property analyst Louis Christopher of SQM research believes that if interest rates were cut again in 2017, Sydney may have another 15% growth.
Rather than over analysing forecasts in their own right, a better read on the market can be gained through assessing the signals and signposts that will determine the markets fortunes.
Interest rates – The Sydney housing market (or economy at large) does not need any further rate cuts. Neither does Melbourne. But the National economy may need a rate cut during 2017. This creates a nightmare situation for the RBA given they don’t want to risk stimulating house prices in Sydney or Melbourne. The numbers are increasingly suggesting a deteriorating National economy. It is interest rate cuts combined with the booming NSW economy that leads Christopher to conclude the Sydney market would continue to rise in 2017.
Others firmly believe that rates have bottomed and may rise in 2017. The US Federal Reserve raised their rates in December 2016. Any rate rise in Australia during 2017 will subdue the market.
APRA – If the RBA are forced to cut interest rates again, expect APRA to step in again as they did in 2015. The safest way to deal with a price bubble is avoid it. Some may say that its too late for that in the housing market. However, most would agree that another 15% growth in house prices is beyond dangerous. Even Louis Christopher who has made the forecast, highlights the fact that it sets the market up for a correction in 2018.
Apartments – Late last year, reports emerged of Chinese buyers enmass, struggling to settle off the plan purchases in Sydney, Melbourne and Brisbane. It became increasingly difficult to get money out of China meaning it was easier for the purchaser/s to rescind the contract, leaving the local developer and bank in limbo. Yikes!
Sydney is the least affected of the three cities from defaulting Chinese buyers. There are numerous high rise developments due for completion across the city in 2017 and 2018.
How the market handles the added supply from both a sales and rental perspective is worth following. Many tip the added supply will drive the rental market down, causing investors to look outside of Sydney for a return.
Record low yields in Sydney in 2003 is what caused investors to chase better returns interstate and in the regional centres.
Employment/population growth – The NSW economy is booming. Not just on a National level, but on a global scale. When an economy is booming, employment and wage growth follows.
When there are well paying jobs the population grows as people chase the work. So it is with Sydney. If the economy keeps ticking over with low unemployment and strong population growth, the housing market will continue to prosper.
-Matthew Wigger, McDonald Partners