Aussie property prices set to fall further as conditions deteriorate

Aussie property owners face weaker property market conditions across the nation as prices are set to deteriorate further over the next three years.

Although prices are expected to remain relatively stable for the forthcoming financial year, rising supply and poorer investor demand will affect price direction over the next three years.

According to a recent report by BIS Shrapnel, a combination of lower population growth and increased dwelling completions will see most undersupplied markets tip into oversupply in 2016 and 2017, while excess stock in other markets is likely to persist.

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Although interest rates are expected to remain low, and even potentially fall further, the adverse demand/supply balance is likely to dampen price growth, with median house and unit prices in all capital city markets forecast to be lower in real terms by 2019.

BIS Shrapnel senior manager and study author, Angie Zigomanis, said the rate of price growth in Sydney and Melbourne has slowed in 2015/16.

Investor demand has been a key driver of the upturn in both markets and moves by the regulator to slow growth in bank lending to investors have seen investors retreat.

At the same time, dwelling completions are rising to record levels and the supply/demand imbalance will increasingly dampen price growth.

This is particularly true in the boom of apartment construction which has created a disconnect in the supply balance between detached houses and units, with a resulting difference in their price outlook.

“Nearly all capital cities are building apartments at record rates on the back of the recent strength in investor demand,” Zigomanis said.

“As these projects are progressively completed, it is likely that there will not be enough tenants in a number of cities to support rents and consequently values upon completion.”

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Therefore, he expects that as these dwellings reach completion, all states, except NSW, will have moved into oversupply and will facing extreme price pressure.

“BIS Shrapnel expects all markets to steadily weaken and bottom out over 2017/18 and 2018/19, with house prices largely flat or in decline over this period,” Zigomanis said.

Tighter regulation around banks lending policies targeted at investors is also expected to have a negative effect on investor activity across Australia, which will in turn slow the pace of growth and put more downward pressure on prices.