Home prices across Australia are continuing to fall with growth becoming marginal, or stagnating. Some cities are even witnessing negative growth. However, given the massive growth that has been witnessed over the last year, these prices are said to become more realistic.
Experts are suggesting that the property price boom that Australians have just witnessed will be the last that we will see for quite some time. They are also speculating whether or not investors will get the same value from negative gearing that they’ve experienced previously.
According to home sales data, annual property growth in Australia has decelerated from a peak in April 2014 of 11.0% and 11.6% in July 2015 to just 6.6% in March 2016. This trend is expected to continue for a number of years.
Property price growth is at its slowest pace in 31-months. This is a sign that the new regulations that the banks have brought into play are having an effect on property investment. Capital growth across Australia has moderated, Sydney being the most pronounced with an annual price change that has halved from 18.4% in July 2015.
In March 2016, Sydney dwelling prices rose 1%, while Melbourne dropped 0.6%. Sydney is likely to see a 2% rise in capital growth for the year.
Perth and Darwin, which are considered to be two of the weakest Australian cities in the market at present, also saw a price increase over March of 1.2% and 2% respectively. However, these cities have recorded significant price falls over the last 12-months.
Melbourne is now the Australian city with the strongest growth with home values rising by 9.8% over the last 12-months. Sydney surprisingly came second, with an annual growth rate of 7.4%. But in saying this, detached homes is where the activity is, not in apartments.
Detached home prices rose by 10.7% over the last 12-months, compare to apartments, which had a 2.5% price rise. In fact, some apartments in Melbourne have sold for 30% less than their purchase prices over the last month.
CoreLogic data indicates that some 19% of Melbourne apartments particularly those in the CBD, which have been resold in the last 3-months of 2015, sold at a loss. This is approximately one-fifth of apartment sales, and indicates that supply is now outstripping demand.
While the housing market is experiencing a slowdown, experts say there are no indicators that suggest home values will crash or suffer a sharp price fall. To put home prices into perspective, Sydney property prices have risen by 49% since the last property downturn in 2011, and Melbourne’s property prices have risen 36% over the same period.
At present, Australian property is estimated to be around 40% overvalued. Therefore, the cooling of property prices can be viewed as a period of readjustment after a strong growth cycle.
Experts suggest that the housing market will experience minimal price growth over the next 2 to 3 years, and it may even stagnate in some areas. Regions of Australia that were caught in the mining boom will continue to see price declines.
This market readjustment could test property investment. So while record low-interest rates have encouraged new property investors into the market, the changes in conditions will see only a small number continue to buy.
It is expected that investors will steer away from apartment buying and look to buy detached homes. However, those investors who are buying and hoping to implement negative gearing as a strategy need to be aware that they may need to hold onto properties for longer in order to realise adequate capital growth on their investments.
A slowing property market in Australia will see rental yields also ease. But given that Australia has witnessed record property price growth, many realtors say that this is to be expected.
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