According to KPMG’s latest housing affordability report released today, although both capital cities’ house prices will continue to fall this financial year, the markets will avoid going into free fall, with Melbourne set to see growth again in 2020 and Sydney in 2021.
The big four auditor suggested that the “push and pull” of market factors such as the amount of dwellings, population growth and investor borrowing will follow the previous trajectory of market falls and revert to growth conditions.
“Our housing update shows that the tougher regulatory actions and taxation measures by both federal and state governments we identified last year have had a significant effect,” said Brendan Rynne, KPMG chief economist.
“There has been a falling-away in foreign interest, notably from China, and lending to domestic buyers has got stricter, while housing supply has increased. This is why prices have declined, but we believe that process will reach its peak over the next few months and then go into reverse later this year.”
Mr Rynne noted that the likely reason Melbourne’s real price decline has been half of that in Sydney’s throughout 2019 was due to the incredible growth experienced in the Habour City that took house prices far above “fair value”. As such, Sydney’s larger drop will result in the Melbourne property market recovering sooner than its counterpart.
“In our 2017 paper, KPMG assessed that by the end of FY2016, house prices in Sydney were more overvalued in relation to their ‘fair value’ compared to Melbourne, and therefore they were expected to fall by a greater extent. That has proved to be the case,” he said.
“Two years on, a relatively high level of increases in the stock of residential dwellings in both Sydney and Melbourne, a decline in financing for housing investors, and the tightening in APRA lending standards have all combined to drag house prices downwards.”
Mr Rynne said such changes to housing finance have particularly taken a toll on the Sydney market, while both cities have been significantly impacted by sharp declines in residential foreign investment.
“But what we have also found is that dwelling prices in Sydney are much more sensitive to the demand created by domestic investors than dwelling prices in Melbourne. It is predominately this factor that is causing the difference in expected dwelling price growth between the two markets,” he said.
“[Alongside this], Foreign Investment Review Board (FIRB) data shows that just under 13,200 residential properties in Australia were purchased by foreigners during 2016-17, which represents a significant fall compared to the 40,100 residential properties sold to foreigners during the previous financial year.”