The property market appears to be slowing after recording the slowest annual rate of appreciation since September 2013.
The CoreLogic Hedonic Home Value Index shows that while Sydney and Melbourne are still growing, their annual growth have respectively slipped to 9.1 per cent and 7.5 per cent capital gain in the last 12 months.
CoreLogic’s head of research Tim Lawless said we should be viewing this data positively.
“The recent moderation in the rate of capital gains should be viewed as a positive sign that growth in dwelling values may be returning to more sustainable levels,” he said.
“The erosion in housing affordability is likely to be one factor working to slow housing demand across price-sensitive market segments.”
Even though historically low rental yields in Australian capital cities have not deterred investors, they may cause problems in the future.
“If the pace of capital gains continues to trend lower, low rental yields are likely to lead to financing challenges due to tighter serviceability requirements and the impact on cash flow, not to mention a potential increase in rental supply resulting in higher vacancy rates,” Mr Lawless said.
Meanwhile, AMP Capital’s chief economist Shane Oliver told Nestegg slowing of growth in the two major capitals is likely to continue.
“Poor housing affordability and the constrained banking ability to lend to investors have contributed, while the APRA measures have curtailed investor involvement in the property market,” he said.
However, Mr Oliver does not believe a crash in the foreseeable future is likely.
“In general terms, an Australian property crash requires high interest rates and it doesn’t look like we’re going to see those any time soon,” he said.
Nonetheless, he cautioned that there are some property concerns on the horizon for investors.
“The big problem in property is increasingly going to be the oversupply of apartments. There will be a huge impact as we see record numbers of apartments over the next 12 months, meaning we could see apartment prices fall significantly.”