• Tighter lending to investors slows demand
  • Market expected to soften
  • Affordability to improve and create opportunities for owner occupiers

Tighter lending to investors has slowed demand and is now expected to soften the Australian residential property market during the next three years, improving affordability and creating opportunities for owner occupiers, according to QBE’s Housing Outlook 2016-19.

The QBE commissioned BIS Shrapnel report, now in its 15th year, is an annual overview of the Australian housing market and forecast movements in the median house price and median unit price over the next three years across each capital city as well as key regional centres.

For the first time, this year’s QBE Housing Outlook explores in more detail the role of investors and overseas buyers. It also analyses a number of mining towns as Australia transitions from a resource-based to a service-based economy.

Brisbane is forecast to experience the highest house price growth of the three largest capital cities to June 2019, while Brisbane unit prices are expected to fall by a cumulative 8.2% in the same period.

Sydney house prices are tipped to remain flat in the period to June 2019, while unit prices are forecast to fall 6.8% cumulatively during the next three years.

Melbourne house and unit prices are forecast to decline, with units expected to decline by a total of 9% to June 2019, according to the report.

Nationally, slowing rental and price growth is likely to contain investor appetite for residential property, and recent tightening in bank lending policy towards overseas investors will also slow overall investor demand, the QBE Housing Outlook finds.

QBE Lenders’ Mortgage Insurance Chief Executive Officer Phil White said: “It’s a fascinating time to be looking at the Australian residential property and mortgage market. This year’s QBE Housing Outlook tells the story of supply and demand and the growing reliance on units, as opposed to houses, to meet the growing population demand. It raises timely questions about whether our dwelling commencements, especially in Sydney, will have us on track to meet short, medium and long term population challenges.

“Prices are forecast to soften through the three years to 2019, which is likely to be positive for housing affordability.”

Fewer investors are now entering the market due to banks tightening lending criteria. In 2015/16 investors accounted for 44% of all residential loans, compared to 51% in 2014/15, according to the report.

“It’s expected owner occupiers, including first home buyers, will be stepping in to pick up some of this opportunity in the market.”

Phil White continued: “Over the coming decades, Australia’s population is forecast to continue to experience significant growth. Meeting the long-term demand for housing with the limited availability of land in most of our capital cities, will remain a significant challenge for State and Territory governments and underpin long-term property prices.

“QBE Lenders’ Mortgage Insurance has been supporting the mortgage industry for more than 50 years and we’re proud to help deepen customers’ understanding of the Australian residential property market through the production of this year’s QBE Housing Outlook.”

Highlights of the QBE Housing Outlook 2016-19

Sydney

Sydney's median house price reached $1.048m at June 2016 and is forecast to rise by 1.7% to $1.065m by mid-2017 before decreasing to $1.055m by June 2018 and $1.050m by June 2019, resulting in median house price growth being effectively flat by the end of the forecast period. Price growth in the Sydney unit market has been below that of the house market. Sydney’s median unit price rose by an estimated 41% in the four years to June 2016. However, price growth has already started to flatten with the median unit price growing by just 3% in 2015/16. Sydney’s median unit price growth is forecast to fall 1.8% in 2016/17 and cumulatively by 6.8% during the three years to June 2019 to a median unit price of $680,000.

Melbourne

The underlying demand and continued growth of the Melbourne house market has been underpinned by a strong population increase, with Victoria recording a net boost of 11,000 people in the year to June 2016. This population growth has continued to maintain a deficiency of dwellings in the Melbourne market despite continued growth in new dwelling supply. Melbourne will see dwelling completions peak in 2016/17. Short term population growth is expected to ease and a 0.6% price decline in the median house price is forecast for the period ending 2018/19. Record levels of unit completions and a strong project pipeline are expected to affect Melbourne’s median unit price, which is forecast to decline by a total of 9% to June 2019.

Brisbane

Moderate house price growth in Brisbane during the past four years is in line with Queensland’s challenging economic conditions. Without strong employment drivers, Queensland is not expected to be able to capitalise on Brisbane’s affordability advantage over Sydney and Melbourne. Nevertheless, an overall dwelling deficiency should help to support Brisbane’s median house price that is forecast to rise by 6.5% to June 2019, the highest price growth during this period of the three largest capitals.

Perth

After peaking in December 2014, Perth’s median house price declined by 5.6% in the eighteen months to June 2016. Mining investment is now greatly reduced and economic conditions have weakened. Perth’s median house price is forecast to decline by 3% to June 2018 while the forecast median house price at June 2019 is expected to be 10% below its 2014 peak. Overall, the Perth market is expected to weaken across both housing and unit markets. The median unit price was down by 6.5% to June 2016 with further declines totalling 6% forecast in 2016/17 and 2017/18 before prices decrease further to June 2019.

Adelaide

The median house price in Adelaide is forecast for limited growth of around 0.9% in 2017/18 and an overall decline of 1.3% is forecast by June 2019. Adelaide’s unit and apartment market is expected to remain relatively flat during the next three years declining a total of 0.6% to June 2019, moving in line with the forecast for house prices.

Hobart

Hobart’s median house price is forecast to rise around 4% per annum or at a cumulative rate of 12.5% by June 2019. With investor activity declining, the softness in the unit market is expected to continue to dampen demand, limiting median unit price growth to between 1% and 2% per annum through to 2018/19.

Darwin

Darwin’s median house price is forecast to decline by 6.3% by June 2019. Median unit prices are expected to decline by 4% in 2016/17 followed by further declines of 4% and 2% in subsequent years to take the median unit price 10% lower by June 2019.

Canberra

Canberra’s median house price is forecast to rise by 3.5% in 2016/17 with a further growth of 2.4% and 2.3% in the two years to June 2019. In contrast, the median unit price fell 2.6% in 2016 and a further downside of 4% is forecast in 2016/17 and 2018/19 by which time the dwelling supply is expected to peak and be absorbed by June 2019.

Please note: The “unit” market in the report refers to the attached dwelling market and includes all forms of multi-unit dwellings including townhouses, villa units, semi-detached dwellings, terraces, flats and apartments. In the major capital cities, the majority of these dwellings are apartments. The “house” market refers to detached or separate dwellings that do not share a wall with adjoining dwellings.

For further information or to arrange an interview with QBE LMI CEO Phil White please contact:
Samantha Baden
Senior external communications specialist
QBE Australia
Phone: 02 9239 7889/0466 567 442
Email: samantha.baden@qbe.com