Debbie Shankar - 7 Jan, 2016

The Australian Property Market Wrap-up for 2015

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It’s been a year full of diversity and challenges for the Australian property market during 2015. Home prices were over-inflated and the market was super competitive for much of the year, but this all changed when the Australian Prudential Regulation Authority (APRA) made some game playing changes.

Let’s look at the year that was…

2015 was a strong year for the Australian property market in terms of growth, auction rates were high as were investor numbers. However, steep competition for property supressed first home buyer activity, with many electing to sit and wait for a more favourable time to buy. Lending guidelines changed as APRA brought-in lending laws that tightened investment numbers and raised major bank holdings. This saw property prices begin to fall, along with auction rates. Markets, such as Sydney and Melbourne, entered a period of pricing re-adjustment after property prices reached record highs due to strong investor demand.

Australian Property Market Growth in 2015

According to CoreLogic RP Data, growth of the Australian property market during 2015 was diverse. The total value of the market, at the end of 2015, was estimated to be $6.3 trillion, a rise from $5.7 trillion at the same time in 2014. This saw residential property rise to be Australia’s single largest asset class. During 2015, it was estimated that $283 billion in housing stock changed hands, which equated to approximately 500,000 home and unit sales.

Property market capital growth in Australia was strong in 2015, with Sydney and Melbourne recording higher median values than previously seen in many regions. Nationwide, the combined growth of capital city property was also strong. The combined growth nationwide of property was recorded at 8.7% over 12-months to November 2015.

On a capital city basis, Sydney and Melbourne recorded double digit growth of 12.8% and 11.8% respectively. Brisbane recorded 4% growth, Adelaide 3.3%, Hobart 1.1%, and Canberra 4.5%. Perth and Darwin’s property prices fell by 4.1% and 4.2% respectively.

Australian Property Market Changes During 2015

  Change in Dwelling Values %  
Capital City Month Quarter YOY Total Gross Returns % Median Price
Sydney -1.4 -1.0 12.8 16.8 $810,000
Canberra -0.5 2.0 4.5 9.0 $575,000
Darwin -1.3 -1.7 -4.2 1.4 $550,000
Melbourne -3.5 -0.5 11.8 15.5 $602,500
Perth 0.3 -1.9 -4.1 -0.2 $499,000
Brisbane 0.6 1.8 4.0 8.8 $467,200
Adelaide 0.7 1.0 3.3 7.7 $410,000
Hobart -2.4 -2.9 1.1 6.6 $335,000
Combined Capitals -1.5 -0.5 8.7 12.8 $595,000
Rest of State * 0.3 0.4 2.8 $380,000

Source: CoreLogic RP Data

*Rest of state – refers to the change in values for homes to the end of October, not to November 30, 2015 as with the other data.

On the regional housing front, prices were equally as diverse as the city. Coastal locations recorded marked growth and markets linked to the resources sector continued to fall in value.

As the year progressed, auction rates that had peaked at just under 90% dropped to below 80% in May. By November, auction rates in some regions had declined to 50 to 60%.

First Home Buyers in 2015

Steep competition forced many first home buyers out of the market, with investors scrambling to buy property while interest rates were low. This pushed-up property prices. First home buyer loans during 2015 were down by 25% when compared to 2005 data. But despite high home values, some first home buyers were still buying property. New South Wales (NSW) first home buyers were borrowing $398,600, on average, to purchase their first home. This was the highest of any state.

Property Investors in 2015 and APRA Changes to Lending

When the market peaked mid-year, Sydney property values reached a median value of $1 million for the first-time. This was all thanks to the lowest interest rates since the 1960s, and an investor buying frenzy. Over the year, the property market grew by 16%.

In an effort to curb high investment numbers and to control the property market so that lenders were not put at a higher degree of risk, APRA stepped-in and changed lending laws during 2015. This reduced bank risk to a high number of loan defaults in the future and allowed major Australian banks to increase their capital holdings to give them greater financial stability. The reasoning behind this was that Australia wished to avoid falling into the same trap that America had years earlier when their property market crashed.

Changes by APRA are expected to slow the growth of the Australian property market to just 4% over 2016, as investors continue to leave the market. This, in turn, is expected to see Melbourne overtake Sydney as the strongest market for price growth. In fact, according to CoreLogic RP Data, Sydney property prices fell by 1.4% during December 2015, auction clearance rates have plummeted to 2012 figures of 57-58%.

Foreign investment also had a big impact on the Sydney property market during 2015, with 8 out of the top 10 sales being funded by overseas business investors. Most of these were from China. The falling value of the Australian dollar was the greatest drawcard, but this all changed when China experienced economic difficulty and foreign investment guidelines were changed.

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