NAB’s Quarterly Residential Property Survey of about 260 property professionals found that an orderly adjustment of the market is likely, rather than a sharp deterioration.
NAB Group Chief Economist Alan Oster expects subdued wage growth, record levels of housing construction activity (mainly apartments), and moves to limit foreign demand for housing will likely “limit the potential” for future price gains.
“However there are still a number of positive elements supporting the market, which will likely see an orderly adjustment rather than a sharp correction,” said Mr Oster.
“Interest rates are still quite low, despite recent increases, and pent-up demand for housing remains quite large in some markets, especially Sydney and Melbourne.”
Property experts in the survey expect Queensland and New South Wales (NSW) to lead the country for house price growth in the next year, while Victoria will be the weakest state.
Taking into account softer market sentiment and weaker than expected price outcomes, NAB has revised down their 2017 forecasts.
They expect house prices to rise 5% in 2017 (previously 7.2%) and apartment prices to rise by 3% (previously 6.8%).
Modest growth of 4.3% is forecast for detached houses in 2018 and -0.3% for units.
Mr Oster expects the falling confidence will likely translate into lower house price and rent expectations.
Apartment price underperformance expected to continue
NAB’s report highlights how heightened supply concerns and uncertainty around the future of foreign demand has led to apartment market underperformance, which is set to continue.
The falls are largest in markets where apartment supply concerns are greatest, especially in Melbourne and Brisbane.
By the end of 2017, Melbourne’s unit prices are forecast to drop by 2.6%, and Brisbane is expected to fall 2.2%.
Sydney and Hobart units are forecast to do relatively well in 2017, but all other markets are expected to decline.
Local investors retreat, foreign buyers increase
NAB’s survey results indicate that first home buyers were more active in new and established property markets over the quarter, but local investors retreated from the market.
The bank says this is a clear sign of the effects of regulatory pressure placed on lenders by the Australian Prudential Regulation Authority (APRA).
“Clearly, tougher measures on banks announced by regulators to rein in investor lending are being felt in this segment of the market,” said Mr Oster.
On the other hand, the share of foreign buyers in new property markets increased to 11.6% (from 10.8% in the first quarter), which was largely driven by Victoria which accounted for around 1 in 5 new property sales.
“Foreign buyers continued to play a role in Australian housing markets in the June quarter despite China’s crackdown on capital outflows into overseas property and a raft of new restrictions and taxes on foreign ownership introduced in the 2017/18 Federal Budget,” said Mr Oster.
— Sky News Australia (@SkyNewsAust) July 3, 2017